In digital marketing, data is everything. But knowing what to measure is just as important as tracking the numbers themselves. That’s where ROI vs ROAS comes in. Two powerful metrics that help marketers understand performance. While they’re often used interchangeably, they serve very different purposes and knowing when to use each can be the difference between a smart strategy and wasted spend.
What is ROI?
ROI stands for Return on Investment & it measures how much profit you make compared to what you have spent. In Digital marketing, ROI helps understand if your total investment like ad costs, software or agency fees is bringing in revenue. This tells you how much return you’re getting for every dollar spent. ROI gives you a full picture of your marketing strategy’s overall profitability. It’s a key metric to see if your efforts are truly growing the business.
How to Calculate ROI?
Return on Investment helps measure how much profit you made after covering all your expenses. The ROI formula is:
ROI = (Net Profit / Total Cost) × 100
Let’s suppose that $500 is spent on Instagram ads to sell an online course. You make $2000 in total sales but course platform and content creation cost you $1000. That means net profit is $500.
ROI = 500 / 1500 × 100 = 33%
This means that for every dollar spent you earned 33%. ROI helps you understand if your marketing investments are truly worth it. Just keep in mind it shows overall profit, not how effective each ad or landing page is.
What is ROAS?
ROAS stands for Return on Ad Spend. It measures how much revenue is earned for every dollar or pound which is spent on ads. It basically focuses only on ad performance and doesn’t factor in other costs like production or tools. It’s great for seeing if your paid ads are working, but unlike ROI, it won’t show whether your campaign is actually profitable overall.
How to Calculate ROAS?
Return on Ad Spend is easy to calculate. Divide total revenue earned from ads by total cost of running those ads then multiply by 100 to get percentage. ROAS formula is
ROAS = (Revenue from Ads / Ad Spend) × 100
Let’s say if you spend $1000 on ads & earn $10000 in revenue then your ROAS is 1000%.
ROAS = (10000 / 1000) * 100 = 1000 %
This means you made $10 for every $1 spent. This metric helps measure the efficiency of ad campaigns in generating revenue.
Difference Between ROI and ROAS
| Feature | ROI (Return on Investment) | ROAS (Return on Ad Spend) |
| Definition | Measures overall profit vs. total investment | Measures revenue generated per dollar spent on ads |
| Formula | (Net Profit / Total Investment) × 100 | (Revenue from Ads / Cost of Ads) × 100 |
| Focus | Overall business profitability | Effectiveness of advertising spend |
| Includes Costs? | Yes (product costs, salaries, rent, etc.) | No (only ad spend is considered) |
| Use Case | Evaluating total business success | Evaluating ad campaign performance |
| Example | Invested $1,000, earned $1,500 profit → ROI = 50% | Spent $1,000 on ads, earned $5,000 sales → ROAS = 500% |
Should I use ROI or ROAS?
It’s not about choosing one, you should use both, depending on your goal.
When to Use ROI?
- To get an overall view of marketing profitability.
- Best for long-term strategy and budget planning.
- Helps decide if you should scale or cut back.
- Use ROI to see the big picture of your marketing’s impact on revenue.
When to Use ROAS?
- To measure the effectiveness of paid advertising.
- Best for short-term optimization and quick wins.
- Helps identify which ads or channels work best.
- Use ROAS to optimize specific ad campaigns and improve results faster
How Can We Help You?
When it comes to ROI vs. ROAS, it’s not about choosing one. Use ROI to track long-term profitability. Use ROAS to fine-tune your short-term ad strategy. Both are essential for scaling your marketing success!
At Leed Software Development, we know how tricky it can be to optimize your ad campaigns and landing pages. That’s why we offer customized solutions to build, optimize & convert making your marketing efforts stress-free and more effective.
We also help automate key processes like payment collection and recurring billing so your team can focus on growing your business, not chasing invoices.
FAQs
What is the main difference between ROI and ROAS?
ROI measures overall profitability after all costs, while ROAS measures the efficiency of ad spend only.
Can I use both ROI and ROAS at the same time?
Yes! ROI helps you track long-term profitability, while ROAS helps optimize short-term ad strategies.
Why is my ROAS high but ROI low?
A high ROAS means your ads perform well, but a low ROI suggests other business costs (like product, staff, or tools) are eating into profits.
Is ROAS enough to measure marketing success?
No, ROAS shows ad performance, but not overall profitability. You need ROI to get the full picture.
How often should I track ROI and ROAS?
You should monitor ROAS daily or weekly for campaign optimization and track ROI monthly or quarterly for overall strategy review.
Which metric is more important for startups?
Both are important ROAS for quick ad performance wins and ROI to ensure the business is growing profitably over time.
