ROI vs. ROAS: Key Differences in Mobile Ads
ROI (Return on Investment) and ROAS (Return on Ad Spend) are two essential metrics in mobile advertising, but they serve different purposes:
- ROI measures overall profitability by accounting for all costs (e.g., ad spend, staff, tools). It answers: "Is this campaign profitable after total expenses?"
- ROAS focuses only on revenue generated per £1 of ad spend, making it a quicker way to evaluate campaign efficiency.
Key Takeaways:
- ROI offers a big-picture view for long-term planning.
- ROAS is ideal for real-time adjustments in campaign performance.
- Both metrics together provide a balanced approach to optimise ad spend and business profitability.
Quick Comparison:
| Metric | Formula | Costs Included | Use Case | Example Benchmark |
|---|---|---|---|---|
| ROI | (Net Profit ÷ Total Investment) × 100 | All costs (ad spend + additional expenses) | Long-term profitability | 5:1 (£5 profit per £1 invested) |
| ROAS | (Revenue ÷ Ad Spend) × 100 | Only ad spend | Short-term campaign efficiency | 4:1 (£4 revenue per £1 spent) |
For mobile advertisers in the UK, combining ROI and ROAS ensures campaigns are both efficient and profitable. Use ROAS to optimise daily performance and ROI to guide broader business decisions.
How to Calculate ROI vs ROAS🧐
How to Calculate ROI and ROAS
Understanding how to calculate ROI and ROAS is key to making smarter decisions about your mobile ad campaigns. While both metrics assess performance, they rely on different formulas and account for varying costs, which affects how you interpret their results.
ROI Calculation
ROI, or Return on Investment, measures the net profit from your advertising efforts compared to the total costs involved. Here’s the formula:
ROI = (Net Profit ÷ Total Investment) × 100
Unlike ROAS, ROI takes into account all associated costs, not just the ad spend. These costs may include:
- Creative and design fees
- Staff time spent managing campaigns
- Subscriptions for software tools or platforms
- Research and development costs
- Operational expenses related to fulfilling orders
Example: Let’s say your campaign generates £10,000 in revenue. The ad spend is £2,000, with additional costs of £500 for creative work and £300 for campaign management, bringing the total investment to £2,800. Assuming a 40% profit margin, your net profit is £4,000. Using the formula, ROI = (£4,000 ÷ £2,800) × 100 ≈ 143%.
Now, let’s look at how ROAS offers a different perspective by focusing solely on ad spend.
ROAS Calculation
ROAS, or Return on Ad Spend, measures the revenue generated specifically in relation to the money spent on ads. The formula is:
ROAS = (Revenue from Ads ÷ Ad Spend) × 100
Unlike ROI, ROAS ignores additional costs and focuses purely on how efficiently your ad spend generates revenue. Using the same example, ROAS = (£10,000 ÷ £2,000) × 100 = 500%, or a 5:1 ratio. This means every £1 spent on ads brings in £5 in revenue.
ROAS is often used as a quick indicator of ad campaign efficiency. A good benchmark for ROAS is typically a 4:1 ratio, meaning £4 in revenue for every £1 spent on ads.
Formula Comparison
Here’s a side-by-side comparison of ROI and ROAS:
| Metric | Formula | Costs Included | What It Measures | UK Benchmark |
|---|---|---|---|---|
| ROI | (Net Profit ÷ Total Investment) × 100 | All costs: ad spend, staff time, tools, creative work | Overall profitability after all expenses | 5:1 ratio (£5 profit per £1 invested) |
| ROAS | (Revenue ÷ Ad Spend) × 100 | Only direct ad spend | Revenue efficiency of ad campaigns | 4:1 ratio (£4 revenue per £1 ad spend) |
The key difference is that ROI accounts for all costs and measures overall profitability, while ROAS focuses exclusively on revenue generated from ad spend. As a result, ROAS figures are often higher than ROI for the same campaign.
For marketers in the UK, understanding these formulas is particularly important. A recent survey revealed that 31% of marketers find proving ROI one of their biggest challenges, yet only 29% actively track ROAS. By mastering both metrics, you can optimise your mobile ad campaigns and clearly demonstrate their value.
Main Differences Between ROI and ROAS
Understanding how ROI and ROAS differ in their focus and application is essential for shaping a strong mobile advertising strategy. Both metrics provide valuable insights, but they serve distinct purposes.
ROI vs ROAS: What Each Measures
The key difference between ROI and ROAS lies in what they measure. ROI takes a broad view, assessing the overall business impact of your mobile advertising efforts. It factors in all costs – creative development, staff salaries, software subscriptions, and operational expenses. This comprehensive approach helps determine whether your campaigns are driving actual business growth after accounting for every pound spent.
ROAS, on the other hand, focuses on ad efficiency. It shows how much revenue each pound of ad spend generates, making it a handy tool for fine-tuning campaigns. However, it doesn’t account for additional costs beyond advertising, so it won’t tell you if a campaign is genuinely profitable.
"ROAS helps us pinpoint which advertising channels are most effective, while ROI across different demographics or locations informs our marketing focus. Additionally, integrating these metrics with Customer Lifetime Value (CLV) allows us to identify which sources deliver the highest value, guiding resource allocation for maximum impact." – Waseem Bashir, Founder & CEO at Apexure
When to Use Each Metric
Both metrics shine in different scenarios, depending on whether your focus is short-term adjustments or long-term strategy.
ROAS is ideal for quick campaign tweaks. If you’re juggling multiple mobile ad campaigns across platforms, ROAS provides immediate insights into which channels are delivering the best returns. It’s especially useful for tasks like daily bid adjustments, reallocating budgets, and identifying underperforming ads that need attention.
ROI, however, is crucial for big-picture decisions. When planning quarterly budgets, assessing major campaign launches, or deciding whether to explore new advertising channels, ROI offers the comprehensive view you need to make informed decisions.
"For example, in one campaign, I may find an ROI of 200% but a ROAS of only 1.2x. This tells me the campaign is profitable but has room for improvement in ad spend efficiency. I would then adjust bids, keywords, and ad copy to improve the ROAS. In another campaign, a ROAS of 3x might be fantastic, but an ROI of only 10% signals the need to either reduce costs or increase volume." – Dave Kerr, Advertising Specialist, Merged Dental Marketing
In practice, ROAS works best for short-term marketing plans, such as weekly reviews and rapid optimisation. In contrast, ROI is better suited for evaluating long-term profitability, helping guide decisions about overall strategy and resource allocation.
Pros and Cons of Each Metric
Both ROI and ROAS have unique strengths and limitations, and understanding these is key to using them effectively.
| Aspect | ROI Advantages | ROI Limitations | ROAS Advantages | ROAS Limitations |
|---|---|---|---|---|
| Accuracy | Reflects true profitability | Complex to calculate accurately | Simple to calculate | Ignores hidden costs |
| Decision Making | Great for strategic planning | Slower to provide insights | Ideal for quick optimisation | May mislead on profitability |
| Attribution | Holistic business view | Hard to attribute all costs | Clear link to ad spend | Oversimplifies campaign success |
| Time Sensitivity | Best for long-term evaluation | Not suitable for daily decisions | Perfect for real-time adjustments | Can encourage short-term thinking |
Attribution remains a challenge, particularly for mobile advertisers. As Waseem Bashir explains:
"Attribution challenges limit the effectiveness of ROI and ROAS. For example, in e-commerce, ROAS directly tracks conversions. Still, in B2B sectors, an ad click often only means lead generation, not sales, making ROAS calculation difficult. This necessitates tailored measurement approaches for different business models and choosing other KPIs as well."
ROI excels in providing a comprehensive view for strategic decisions but requires more effort and time to calculate. ROAS, by contrast, is straightforward and offers instant clarity, making it invaluable for campaign adjustments. However, it can lead to misleading conclusions if broader costs are ignored.
The best results come from using both ROI and ROAS together. This combination allows you to optimise campaigns for efficiency while ensuring they contribute to long-term business profitability. These insights lay the groundwork for creating agile, profitable mobile advertising strategies.
sbb-itb-dcae4ad
How to Apply ROI and ROAS in Mobile Campaigns
Knowing how and when to use ROI (Return on Investment) versus ROAS (Return on Ad Spend) can make a huge difference in mobile advertising performance. Each metric has its strengths, and understanding how to apply them helps UK advertisers make smarter choices with their budgets.
Using ROAS for Quick Campaign Adjustments
ROAS is perfect for gaining real-time insights and making fast adjustments. When you’re juggling multiple mobile campaigns across different platforms, it acts as a quick performance check, showing which channels deliver the most revenue for every pound spent.
For example, if one platform’s ads achieve a ROAS of 4:1 (the industry benchmark) while another falls short, you can swiftly reallocate your budget to the better-performing platform. This metric also helps you fine-tune audience targeting, ad creatives, and messaging to boost overall performance across campaigns.
"ROAS is most useful in mobile marketing when you’re tracking multiple campaigns, channels, and ad platforms, and need oversight to determine which are the most effective and should continue receiving budget allocation".
ROAS is especially handy for platform-specific decisions. Let’s say video ads on TikTok outperform static image ads on Instagram. ROAS data gives you the evidence to shift creative resources accordingly. Setting a minimum ROAS threshold before launching campaigns can also help identify acceptable performance levels right from the start.
While ROAS is excellent for immediate fixes, ROI comes into play when you’re looking at the bigger picture.
Using ROI for Business Planning
Once you’ve nailed down your daily tactics using ROAS, it’s time to focus on ROI for long-term planning. ROI gives you the full picture, accounting not just for ad spend but also for other costs like staff salaries, creative development, software, and operational expenses.
This metric is invaluable for quarterly budget planning and assessing long-term profitability. For instance, aiming for a 5:1 ROI can serve as a solid benchmark for measuring overall success.
"ROI helps in making informed decisions at a business level, while ROAS helps in optimising online marketing strategies and budget allocations".
ROI also helps you understand the lifetime value of users acquired through mobile advertising, making it easier to predict the revenue impact of your campaigns. Additionally, it can guide resource allocation. If mobile advertising shows a strong ROI, it could justify increasing investment in this area.
Using Both Metrics Together
ROAS and ROI each serve unique purposes, but combining them gives you a more complete view of your campaigns. ROAS handles the day-to-day adjustments, while ROI ensures these tweaks contribute to long-term profitability. Together, they help you avoid the pitfalls of focusing too much on one metric.
This dual approach aligns short-term performance with long-term goals. ROAS helps you decide which campaigns deserve more budget, while ROI ensures these investments are sustainable. As George Noon, PPC Lead, puts it:
"Whilst ROAS and ROI are both essential metrics for businesses to report on internally, I think it is vital that ROI is held in much higher regard as this is the metric that incorporates additional costs. However, when analysing an individual channel’s performance ROAS provides invaluable insights into the value of the channel and how it impacts the business’s bottom line".
Scaling campaigns also benefits from this balanced approach. A campaign with excellent ROAS might seem ready for expansion, but ROI analysis could reveal hidden costs that make scaling unprofitable. On the flip side, a campaign with modest ROAS might still deliver strong ROI due to lower overheads, making it a worthwhile investment.
Using both metrics also improves performance reporting. ROAS highlights advertising efficiency, which is great for marketing-focused stakeholders, while ROI addresses broader business concerns, keeping executives informed about the overall impact. Guy Hudson, Founder of Bespoke Marketing Plans, stresses the importance of this balance:
"If you’re only reporting on the numbers that make you look good, you’re not giving your clients an accurate picture of what’s actually going on. They might think that everything is going well when in reality, it’s not. This can lead to a very awkward meeting in a few months where the client asks for an ROI on marketing spend so far".
Practical Tips for UK Mobile Advertisers
Implementing ROI and ROAS in the UK Market
For UK mobile advertisers, setting SMART objectives is a must. These are specific, measurable goals designed to guide your campaigns effectively. For instance, aiming for a 4:1 ROAS within three months can help shape your budget and priorities. Tools like Google’s Keyword Planner can provide valuable benchmarks to measure your progress. Considering that 96% of people use the internet to find local businesses, focusing on local targeting is crucial for success.
Accurate conversion tracking is another cornerstone. Whether it’s tracking app downloads, in-app purchases, or subscriptions, having a comprehensive tracking system ensures you’re capturing all key actions. SF Digital Studios puts it perfectly:
"Ensure every conversion is being tracked accurately and aligns seamlessly with your overall business objectives…accurate data is the bedrock upon which successful campaigns are built."
Using value-based bidding can take your campaigns a step further. Assigning precise values to conversion actions helps align your ad spend directly with revenue. By integrating data from CRM systems, POS tools, or payment platforms, you can optimise your budget based on the actual revenue your ads generate.
Keep a close eye on your ROAS. While a 2:1 ratio is considered average for Google Ads, aiming for a 4:1 ratio is often seen as a marker of strong performance. Automated bidding strategies like Target CPA or Target ROAS can help you achieve these goals by dynamically adjusting bids in real time.
Once these fundamentals are in place, it’s equally important to steer clear of common mistakes.
Common Mistakes to Avoid
One major pitfall is focusing solely on ROAS while ignoring other costs like staff, creative assets, and operational expenses. A case study from Power Hygiene highlights the impact of proper goal setting. By switching from vague targets to SMART goals, they saw a 17% increase in sales, a 52.28% boost in ROAS, and a 15.54% rise in overall revenue from Google Ads in just 30 days. This shows how clear objectives can directly influence your results.
Another frequent misstep is poor audience targeting. Casting too wide a net can dilute your budget, leaving little impact. Instead, build detailed buyer personas and use demographic and geographic filters effectively. Warwick House demonstrated this with their Facebook Ads campaign, achieving 72 conversions at just £2.44 per conversion in 60 days by crafting targeted ad creatives and engaging copy.
Landing page optimisation is often overlooked but is critical for both ROI and ROAS. Did you know that a one-second delay in page load time can lead to a 7% drop in conversions? Worse, 53% of mobile users will abandon a site if it takes more than three seconds to load. Make sure your landing pages are mobile-friendly and align with your ad messaging.
Budget allocation mistakes can also derail your efforts. Spreading your budget thin across too many campaigns can limit effectiveness. Instead, concentrate on high-intent keywords and well-defined audiences. Research has shown that advertisers focusing on business goals are 1.5 times more likely to succeed. Strategic budget management is key.
Avoiding these errors lays the groundwork for expert intervention when needed.
How The PPC Team Can Help
The PPC Team specialises in helping UK businesses maximise ROI and ROAS through tailored strategies. They start with a free PPC audit to pinpoint areas for improvement in your current campaigns.
Their expertise in conversion tracking ensures that every valuable action – whether it’s a click, download, or purchase – is accounted for. This solves a common problem many advertisers face: incomplete data that makes it hard to calculate accurate ROI and ROAS.
Their reporting is designed to focus on what matters. Instead of bombarding you with excessive data, they provide actionable insights that improve both short-term ROAS and long-term profitability. Their competitor analysis services can also help you understand industry benchmarks and uncover opportunities to outperform competitors in the UK mobile advertising market.
Targeting is another area where they excel. By combining advanced bidding strategies with in-depth keyword research, they help ensure your budget is spent on reaching the most valuable audiences. This not only boosts ROAS but also contributes to sustained ROI growth.
Finally, their conversion rate optimisation services tackle the often-overlooked link between ad performance and landing page effectiveness. This ensures that improvements in ROAS lead to meaningful, long-term business growth, rather than just short-term wins.
With straightforward pricing and a focus on balancing immediate and sustainable results, The PPC Team is well-equipped to help UK businesses thrive in the competitive mobile advertising space.
Conclusion
For mobile advertisers in the UK, knowing the difference between ROI and ROAS is crucial. While ROAS measures how much revenue is generated for every £1 spent – helpful for quick tactical decisions – ROI takes into account all costs, offering a broader view for strategic planning. Understanding this distinction can significantly improve both daily campaign management and long-term business strategies.
Let’s break it down with an example. Say you spend £20,000 on mobile ads and generate £80,000 in revenue. That’s a 400% ROAS – sounds impressive, right? But factor in additional costs totalling £70,000, and your net profit drops to £10,000, resulting in an ROI of just 14.3%. This shows how focusing on ROAS alone can paint an overly optimistic picture, while ROI reveals the true profitability of your campaigns.
ROAS is great for spotting which ads are driving revenue and allows for quick budget reallocations. On the other hand, ROI ensures that these short-term wins align with your long-term profitability goals. Together, these metrics provide a fuller picture: ROAS for immediate adjustments and ROI for ensuring sustainable growth.
Striking the right balance is key. Over-prioritising ROAS might inflate revenue without boosting profits, while relying solely on ROI could slow down decision-making, causing missed opportunities to improve campaigns quickly.
The best UK advertisers combine both metrics. ROAS is used for day-to-day campaign tweaks, while ROI is reserved for monthly reviews and broader strategic decisions. This dual approach ensures every pound spent not only drives immediate results but also contributes to long-term business success.
FAQs
How does using both ROI and ROAS improve mobile ad campaign performance?
Using ROI and ROAS together offers a more complete understanding of how well your mobile ad campaigns are performing. While ROAS zeroes in on the revenue generated directly from your ad spend, ROI gives you a broader view by factoring in all costs to determine overall profitability.
By analysing these two metrics side by side, you can strike a balance between immediate results and long-term growth. This combination allows for smarter resource allocation, highlights campaigns that are delivering the best outcomes, and uncovers areas that need improvement – all of which contribute to more effective strategies and better decision-making.
What mistakes should you avoid when focusing on ROAS without considering ROI?
Focusing only on ROAS (Return on Ad Spend) while ignoring ROI (Return on Investment) can create a misleading picture of profitability. For instance, failing to account for hidden costs like production, labour, or shipping might make your returns look better than they actually are. These overlooked expenses can eat into your profits more than you realise.
On top of that, basing decisions solely on ROAS can backfire if you’re not accurately tracking attribution or considering the long-term value of your customers. To make smarter choices, it’s essential to adopt strategies that prioritise sustainable growth. This means balancing short-term gains with overall profitability while factoring in all costs and potential growth opportunities.
Why should you consider both ROI and ROAS when developing long-term advertising strategies?
ROI and ROAS are key metrics that serve different purposes but work hand in hand to shape effective advertising strategies.
ROI (Return on Investment) gives you the bigger picture by measuring overall profitability. It considers all costs and returns, making it a go-to metric for evaluating the long-term success of your campaigns. Meanwhile, ROAS (Return on Ad Spend) hones in on the revenue generated specifically from your advertising spend. This makes it a valuable tool for fine-tuning individual campaigns in the short term.
When you combine these metrics, you gain a clearer perspective. ROI helps you focus on sustainable growth, while ROAS ensures your campaigns are performing efficiently right now. Together, they provide the insights needed to balance short-term wins with long-term success.
