Most digital marketers are extremely familiar with the performance metric ROAS (Return on Ad Spend), but is ROAS the core metric we should be focusing on? Are clients or in-house teams better served using ROMI (Return on Marketing Investment) or another metric to analyze accounts?
Of course, ROAS and ROMI are both valuable metrics, but which one should you focus on in your account?
What is ROAS?
ROAS is calculated by dividing the campaign’s total revenue by the total cost(Revenue/Cost). ROAS is typically shown as a percentage, in dollars, or as a ratio.
The primary benefit of using ROAS is the simplicity of calculating this metric. It’s a quick and effective way to analyze relative performance of multiple campaigns.
ROAS does not take the profit margins of the product into an account. ROAS goals will vary across businesses, so it’s important to understand what ROAS goal is profitable for any campaign you are working on.
What is ROMI?
ROMI is calculated by dividing the campaign’s net revenue by the campaign cost and multiplying by 100.
((Revenue – Campaign Cost)/ Campaign Cost)*100
ROMI is typically conveyed as a percentage.
ROMI provides business managers a direct view of the return an investment in marketing can yield. ROMI is metric that can be compared directly to investment in other business opportunities, such as investing in a new business location or product line. This view is beneficial when making management decisions on whether investment should be directed to marketing or other investment opportunities.
The challenge when analyzing performance using ROMI is that many Ecomm businesses in the digital space view digital marketing investment as a core cost of doing businesses. Most Ecomm clients simply do not have the option to reduce digital marketing budgets if they want to continue growing their business.
When should I use ROMI?
For the vast majority of Ecomm focused digital marketers, I recommend using ROAS as the primary performance metric, especially if digital marketing is the primary revenue driver for your business.
ROMI should not be overlooked completely, since it still provides valuable insight for business managers into the returns of digital marketing compared to other investments.