When you measure your ad campaigns, you\u2019re going to use either ROI (Return on Investment) or ROAS (Return on Ad Spend). But these measurements aren\u2019t fully interchangeable: each has its strategic uses.<\/p>\n\n\n\n
A few years ago, most companies wouldn\u2019t have stopped to consider whether switching to a subtly different measurement might be worthwhile. But today, ad campaigns are often balanced on a razor edge of profitability. Swapping ROI for ROAS, or vice versa, may save on manual effort and help you make the right decisions faster.<\/p>\n\n\n\n
Return On Investment<\/strong> % ROI = (revenue \u2013 ad spend) \/ ad spend<\/p>\n\n\n\n The important takeaway: ROI can come up with a negative number \u2014 even if the ad campaign is meeting expectations!<\/p>\n\n\n\n Return On Advertising Spend<\/strong> $ ROAS = revenue \/ ad spend<\/p>\n\n\n\n The important takeaway: ROAS tells you how many dollars (or cents) you earn back per $1 spent on marketing. It can be under $1 (meaning you lost money, if you\u2019re only considering the value of the acquired user), but not a negative number.<\/p>\n\n\n\n When to Use ROAS or ROI<\/strong> Revenue from acquired users: $9 For a newly released game that\u2019s optimizing for user growth, an ad campaign like this may be achieving its goal of growing the userbase. Thus, the $0.90 figure earned back on every $1 the company is spending on ads looks worthwhile: it\u2019s clear to see that the campaign is making a loss of $0.10 in its quest to bulk up the app.<\/p>\n\n\n\n The negative ROI looks like an issue if you\u2019re optimizing for growth \u2014 it\u2019s not, but negatives don\u2019t go over well in board meetings. More to the point, ROI is showing that you\u2019re not (yet) making a profit, although the full story isn\u2019t clear yet.<\/p>\n\n\n\n On the other hand, ROI has stood the test of time in established businesses because those are the companies that can eventually shift their focus to profits. For instance, most of the apps on the top grossing chart are able to earn a clear profit from each user acquired via ads \u2014 and they need to, since many are getting more of their users from ads alone. In this case, tracking the percent ROI is better for detecting changes in performance.<\/p>\n\n\n\n Of course, ROI and ROAS both depend heavily on what may be the most important measurement of all: lifetime value. For our primers, check out LTV 101<\/a> \u0438 LTV 201<\/a> articles.<\/p>","protected":false},"excerpt":{"rendered":" When you measure your ad campaigns, you\u2019re going to use either ROI (Return on Investment) or ROAS (Return on Ad Spend). But these measurements aren\u2019t fully interchangeable: each has its strategic uses. A few years ago, most companies wouldn\u2019t have stopped to consider whether switching to a subtly different measurement might be worthwhile. But today,…<\/p>","protected":false},"author":5,"featured_media":8759,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-8753","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-best-practices"],"acf":[],"yoast_head":"\n
ROI produces a percentage measurement. Your equation should look like this:<\/p>\n\n\n\n
ROAS, in contrast to ROI, produces a dollar number.<\/p>\n\n\n\n
Business priorities make the case for one or the other metric. Simply put, ROAS is more typically used when optimizing for growth, while ROI is used when optimizing for profit. Consider the following problem:<\/p>\n\n\n\n
Advertising costs: $10
ROI = (9 \u2013 10) \/ 10 = -10%
ROAS = 9 \/ 10 = 90%<\/p>\n\n\n\n