Facebook advertising has come a long way from a barebones advertising platform to one that employs sophisticated features, that even Google AdWords is now catching up with. As a popular channel, most advertisers in Facebook are still confused with ROI and ROAS, how to calculate, their differences, and optimization based on ROI.
Facebook Revenue On Ad Spend
In a nutshell, Facebook’s Revenue on ad spend (ROAS) is a metric that compares the amount of revenue generated versus spend on advertising. Excluding other expenses on activities such as operations, training, etc. it is used to evaluate the performance of a campaign. For a profitable ROAS, it should be above 100% to cover the expense on advertising.
Return On Investment
On the other hand, Return on investment takes into consideration not only the advertising spend but also labor, time, energy and other intangible factors that contributed to revenue. “Return” on this sense sometimes include other benefits more than revenue. As it has a broader scope, it does not only measure the effectiveness of a campaign, but also the business team.
Calculating Facebook ROAS and Facebook ROI
ROAS is calculated as:
ROAS Formula = Revenue/Cost
ROAS Percentage = (Revenue – Cost) x (100/Cost)
ROI is calculated as:
ROI Formula = (Revenue – Costs) / Costs
ROI Percentage = (Revenue – Costs) x (100/Costs)
When to use one over another?
ROAS is a simple metric, as one can easily determine if a campaign is underperforming when it is below 100%. When it is, one can take an action through decreasing ad spend or implement a better strategy.
However, a higher ROAS in the short term also bring a lower ROI. Since the definition of investment in ROI includes researching on personas or target segments, a high ROAS campaign may provide a lower return when the marketing activities are not targeted to the right persona.
In essence the use of ROAS and ROI is for strategic use. Is your business after short term gains? Or is it geared towards long term growth? Learning the difference between these metrics could spell the success of your brand.
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