Return on Investment (ROI) and Return on Ad Spend (ROAS) are important metrics for measuring the success of investments a business makes. Both ROI and ROAS can measure the effectiveness of marketing initiatives, but they have different applications.

Major Difference: ROI measures the overall performance of an investment. ROAS measures the performance of an individual advertising channel.

Definition: Return on Investment (ROI)

ROI measures the overall profit or loss generated by a business relative to the cost of an activity relative to the profit it generates.

Definition: Return on Ad Spend (ROAS)

ROAS measures the effectiveness / performance of a specific advertising campaign. ROAS is calculated as a percentage of an investment’s gains (or loses)

When to use Return on Investment (ROI)

ROI is a financial metric that is best used when trying to understand the overall effectiveness of an investment.

Some examples of these investments can be:

• Mature marketing campaigns that leverage several different advertising channels
• Sales teams
• The success of a business over a given period of time
• The success of a business unit

When to use Return on Ad Spend (ROAS)

ROAS is a metric used to understand the performance of specific advertising channels. ROAS is a helpful metric in understanding a business’s profitability but is more narrow in scope than ROI.

Some examples of where you can use ROAS to measure success are:

• Google advertising campaigns
• FaceBook advertising campaigns
• TikTok advertising campaigns
• Reddit advertising campaigns
• Twitter advertising campaigns
• Amazon advertising campaigns

How to Calculate ROI

(Gains – Costs) / Costs

For example, a business invests $500 and generates a profit of $1,000. To calculate ROI, you would do the following:

($1,000 – $500) / $500

$500 / $500

=1.0 or 100% ROI

The final answer is expressed as a percentage, so in this example  1 = 100% ROI

How to Calculate ROAS

Revenue / Advertising Costs

For example, a business generates $1,000 in revenue after spending $250 on Google Ads. To calculate ROAS you:

$1,000 / $250

=4 or 4X ROAS

Takeaways

ROI and ROAS are important metrics that help businesses understand the effectiveness of investment and marketing campaigns. It’s important to distinguish the difference in the metrics. ROI provides a high level look at overall performance. ROAS is a ground level look at an individual advertising channel.