01/08/2023 3 min read Author: Gorilla Software

Ecommerce ROI and ROAS: Understanding the Metrics and How They Work Together

Introduction

When it comes to eCommerce, one of the most important metrics for measuring success is return on investment (ROI). However, tracking ROI alone may not provide a comprehensive understanding of your online campaigns. This is where return on ad spend (ROAS) comes into play. In this article, we will explore what these two metrics are, how they are calculated, and how they can be used together to optimize your marketing campaigns for maximum profitability.

The Difference Between ROI and ROAS

ROI and ROAS are often used interchangeably in the world of marketing, but they actually measure different things. ROI is the ratio between your net income and your total investment, while ROAS determines the revenue earned for every dollar spent on advertising.

To calculate ROI, subtract the initial cost of an investment from its ultimate value, then divide this figure by your total cost. Multiply the result by 100 to express the final figure as a percentage. On the other hand, ROAS is calculated by dividing the revenue generated from advertising by the total advertising spend.

While these equations may seem similar, ROI and ROAS provide different insights into your digital marketing strategy. ROI gives you a general understanding of a campaign’s overall success and how it will impact your profits in the long term. ROAS, on the other hand, offers a more immediate, short-term view of how individual ads or campaigns are performing.

Understanding Ideal ROI and ROAS

Instead of focusing on an ideal percentage for either ROI or ROAS, it is more valuable to track how these metrics relate to and impact your specific campaign goals. The ideal ROI and ROAS will vary from business to business and depend heavily on factors such as market conditions and profit margins.

For example, Channable’s customers, Toppy and Suitable, use integrated metric tracking to analyze their ROI and ROAS. Toppy adjusts their ROAS targets to account for seasonal dips in revenue, while Suitable aggregates all their data into a single sales metric to make more informed decisions about where their ad dollars go.

The key is to be able to modify your strategy quickly and effectively to meet the evolving dynamics of eCommerce marketplaces. ROI and ROAS can work together to help you build more powerful, personalized, and productive digital marketing campaigns.

How ROI and ROAS Can Improve Your Marketing Strategy

By tracking both ROI and ROAS, you can gain valuable insights into how individual campaigns are impacting your bottom line. This allows you to make data-driven decisions and adjust your marketing plans accordingly. For example, you can choose to reduce ad spend on products with low engagement and reallocate those funds to higher-performing items.

Monitoring ROI and ROAS enables you to be more intentional about how you execute your marketing plans and diversify how you scale your campaigns. Instead of relying solely on intuition, you can segment your products or services based on their revenue generation and customize your strategy for each item or category.

It’s important to note that a higher ROAS isn’t always better. In some cases, you may want to prioritize increasing the converted value or revenue from ads, even if it means a lower ROAS. It ultimately depends on your specific goals and the unique dynamics of your business.

Conclusion

Understanding ROI and ROAS is crucial for optimizing your eCommerce marketing campaigns. These metrics provide valuable insights into your advertising performance and help you make data-driven decisions to maximize your return on investment. By tracking both ROI and ROAS, you can adapt your strategy to meet the evolving needs of your customers and drive sustainable growth in the competitive eCommerce landscape.

For more information on how to leverage ROI and ROAS to boost your eCommerce success, check out Channable’s integrated, customizable platform and discover how data-driven marketing can empower your business.