Paid media advertising covers a range of channels including search, social and display. A challenge marketers and advertisers face is proving the return on investment (ROI) of their paid media campaigns.
To realistically attribute return from your paid media efforts, you need to know which channels and strategies are performing and which aren’t. This needs more than just your ROI to be considered.
Return on ad spend (ROAS) can play an important role in proving the ROI of your campaigns. But what is the difference between ROI and ROAS and how can you prove the value of your paid media campaigns?
What is ROI?
ROI measures the revenue generated by your total paid media advertising spend. When calculating this metric, don’t forget to include all spend including your resource, media expenditure and agency fees.
Here’s a simple formula to calculate ROI:
Revenue / Total investment X 100 = Paid Media ROI %
What is ROAS?
ROAS measures the revenue generated for every pound spent on a specific ad campaign. Unlike ROI which considers the full picture, ROAS won’t tell you if your paid media efforts are profitable to your business. Instead, this metric only considers the singular campaign. To calculate your ROAS, simply take the total campaign revenue and divide it by the total campaign cost.
Why is calculating ROI and ROAS so important?
It’s common that marketing decisions can often fall victim to assumptions, with businesses not truly understanding what value their activity has generated. Performance should be clear and include reporting on the investment made and revenue achieved.
Measuring ROI is important to this, allowing you to communicate the success of your paid media output with the wider business.
ROAS can generate a deeper level of insight into your paid media advertising by showing the profitability of your campaigns. This insight allows you to redirect your advertising budget by investing money into campaigns with the highest ROAS.
Not only will this metric help you understand whether to continue investing in a campaign but also how to achieve the highest overall return on your paid media marketing.
However, understanding what is influencing your return can be easier said than done due to the countless paths to conversion a user can take. This is where attribution can help.
The role of attribution in understanding your return
It’s rare for a user to convert in one session. Instead, they often follow a complex journey. A user could have engaged with a paid search ad, an Instagram story, a PPC landing page and a YouTube ad in any order before the conversion happens.
With attribution modelling you can gain a more accurate view of which channels are performing best so you can redirect your resource and budget accordingly. There are currently six attribution models used by Google Ads:
- Last click: The Google default model, last click gives 100 percent of the conversion credit to the last clicked ad and keyword. Although this is a common model, it can inaccurately reflect the true path to conversion.
- First click: If your campaigns are focused on top of the funnel engagement and building brand awareness, first click may be appropriate. It can help you gain an understanding of whether your keywords were correct and how much awareness you generated.
- Time decay: This model gives more credit to interactions that happen closer to the conversion using a seven-day half-life cycle. An ad click eight days before the conversion gets half as much credit as a click the day before conversion.
- Linear: Linear modelling gives a more realistic understanding of which channels work well and which don’t. This is ideal for complex paid media campaigns with longer consideration periods allowing you to better understand the full journey.
- Position based: Position based modelling is an effective method of collecting data and providing in depth insight. Allowing you to understand what keyword first engaged a user, what encouraged the final conversion and the touchpoints in between.
Which should you measure, ROI or ROAS?
Advertising comes down to getting the right message in front of the right people at the right time. While many businesses focus on ROI, ROAS is not always considered as a critical metric to track.
However, by measuring ROAS, you’ll be able to gain further insights to make data driven changes to your campaigns. For this reason, we recommend calculating both your ROI and ROAS to create paid media strategies based on real results.
No matter which metrics you choose to track, it’s important to ensure your reporting is set up correctly so your insights are as true as possible. After all, your analysis and changes will only ever be as good as the data you record. Google Tag Manager is an effective tool for this, allowing you to manage multiple tracking codes across your website and understand the actions people took on your website.
Demonstrating the value of your paid media advertising is a must if you want to gain further investment from your stakeholders.
Working with a variety of businesses on their paid media including Lights4Fun, Withers Worldwide, Exodus Travels and Aquascutum, we have experience proving and improving ROI. If you want to make your paid media advertising work harder for your business, get in touch with our team.