If you are working in digital marketing or have performed digital transformation In your business, you have probably come across the following terms: ROI e ROAS.
Although ROI is usually one of the best-known metrics when it comes to evaluating the success of a campaign or a digital channel, ROAS has been a source of confidence for professionals, guiding them to digital strategies.
But, after all, what do ROI and ROAS mean? What are their main differences? That's what we're going to learn in this article!
What are ROI and ROAS?
Return on investment - Return on Investment (ROI) and Return on advertising spend - Return on advertising spend (ROAS) are two performance indicators that measure the relationship between an invested volume and the gain obtained from it.
In the world of analytical marketingThere are a number of indicators that measure whether certain strategies or tactics are working. Some examples of indicators that measure volume and representation are: Cost, Leads, Revenue, Conversions, among others.
The types of Performance indicators, are those that show relative measurements between variables, for example: Conversion Rate, Cost per Click (CPC), Cost per Acquisition (CPA), Click Rate (CTR), in addition to ROI and ROAS.
Understanding what these metrics are and what their differences are is essential for company growth in the digital environment.
How to calculate ROI?
ROI is a measure of the return on a given investment, in relation to the cost of the investment. In other words, it is a relationship between the net profit and investment. To calculate, there is a simple formula:
(Net Profit / Net Expense) x 100
Example: The bigger the better. Let's consider the ROI converted into a percentage.
How to calculate ROAS?
ROAS can help you determine the effectiveness of your online marketing campaigns by calculating the amount of money your business earns for every amount it spends on marketing strategies. You can use the following formula to calculate ROAS:
(Revenue generated from ads / Advertising spend) x 100
Example: The bigger the better. Let's consider ROAS not converted into a percentage.
How are ROI and ROAS related?
O ROI serves to determine overall profitability. It takes into account spending on advertising, spending on people and other costs, such as software. Already the ROAS serves to determine whether your ads are working. It is based on revenue, not profit.
Therefore, you should use ROI when you are examining the overall health of advertising departments. You can always cut or change things to increase the profitability of advertising departments. So, ROAS should be used by marketers to know if their strategies are paying off and what they are spending.
So, when you consider the ROI and ROAS, it is important to remember that this is not a situation to choose from. While ROI can help you understand the long-term profitability, ROAS may be more suitable for optimize short-term strategy.
Which is more efficient in digital marketing: ROAS or ROI?
Metrics taken in isolation can distort the facts or lead to erroneous conclusions. Therefore, the best thing to do is to always use more than one of them, as a way of making comparisons and detecting inconsistencies in the strategy.
After all, if you only use ROAS to measure the success of your campaigns, you will be leaving out important aspects that only the ROI calculation allows you to know. This way, you may make bad decisions, as other relevant costs will not be considered.
So, so that your digital marketing strategies become even more effective, use both indicators to guide your actions. As I always say, the most important thing is that the company has strategic planning detailed enough to even predict ROAS.
Signing Off
A data analysis has become a vital part of many businesses. Effective marketing can lead to more sales and profits, as well as increase customer engagement with your brand.
With this in mind, it is important for marketers to know whether their marketing strategies are bearing fruit or not.
We hope this article has provided a general overview of the topic. Want to read more texts about digital transformation and marketing for high-performance professionals?
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Data-Driven Marketing is a growing trend that shapes the way marketers work. Now it is fully integrated into companies’ strategies, related to Digital Marketing.
Data-driven marketing is no longer an option, but a necessity for companies looking to become agile and efficient in today's market.
The main idea is to make the best use of the data you have already collected. This way, you can better understand your target audience, improve the customer experience, and drive growth.
Data-driven marketing applies to the use of online advertising channels in order to collect user data through specific tools that allow you to track users' actions on websites or applications.
It allows Marketing professionals to be proactive and anticipate market trends, optimizing decision making.
Data is a powerful tool for decision making. But how do you know which data to use?
What should your company measure and analyze to make decisions with an informed approach, beyond just going through the motions of digital transformation or big data analysis projects?
“Data-driven culture” goes far beyond technical skills; It requires cultural changes within each department where those working on behalf establish goals as well as metrics that can also track progress.
Data-Driven Marketing is all about using insights to optimize digital campaigns and improve the customer experience.
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See our page on Data-Driven Marketing and find out a little more.
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