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ROI and ROAS are metrics used both inside and outside of digital marketing. However, the ease of quantifying data in the online environment makes it a touchstone as a campaign indicator and also as a bidding strategy in Google Ads. Let’s take an in-depth look at each of them.
What is ROI?
If you have a business, you surely know (for your own good) the concept of ROI or Return On Investment, return on investment in the language of Cervantes. ROI is the metric that indicates the percentage of return on the (total) investment made. We emphasize “total” because this metric shows us the profitability taking into account the advertising investment and the expenses derived from the creation of the product or service.
How is ROI calculated?
With a simple mathematical formula:
ROI=[[REVENUES – (EXPENSES + INVESTMENT)] / (EXPENSES + INVESTMENT)]] X 100
*It is common to find formulas where the expenses already include the investment, but here we will separate them to clarify the difference between ROI and ROAS.
What is ROAS?
The ROAS(Return On Ad Spend) metric does nothing more or less than what its name suggests. Like its cousin Zumosol (note the author’s age), ROAS also measures profitability, but in this case only that of the advertising investment, without taking into account the costs derived from the product or service itself.
How is ROAS calculated?
If ROI is simple, ROAS is even simpler:
ROAS=(REVENUES / ADVERTISING INVESTMENT) X 100
How do we use ROI and ROAS in Google Ads?
If we have said that these are indeed two of the fundamental metrics for measuring Google Ads campaigns, we must also say how to use them. At the moment (horror music), Google is still unaware of the cost derived from your products or services (or so it says), so we can’t use ROI directly on the platform. However, here is a very useful ROI calculator to help you calculate it.
What Google Ads does know, if you have properly configured the tags or Analytics and linked, is the revenue produced by the sales of your e-commerce or online store. Of course, it also knows the advertising spend, so the ROAS metric is available. In fact, one of the bidding strategies offered by Google Ads for online stores is called Target ROAS and, in our opinion, it is the ideal strategy for your campaigns. However, always after a long period of optimization.
You can find the TARGET ROAS bidding strategy in the campaign settings options:
