What is the difference between ROI, ROMI, ROAS, and how to calculate them correctly?

To measure the effectiveness of advertising, there are a number of indicators that are often confused with each other – ROI, ROAS, ROMI. In this article, you will learn how they differ and how to count them.

What Is ROI?

ROI, or profitability – the percentage of the funds invested in the project to the income received from it. 

What does ROI stand for?

ROI Stands For Return on Investment.

How is ROI calculated?

The formula for the calculation is as follows: ROI = (Income – Expense) / Expense x 100%.
  •  Income is the proceeds that you received from investments 
  •  Costs are the total cost of the project.

In general, it is generally accepted to consider profitability only in terms of advertising revenue and expenses. In fact, this is a broader concept, and costs need to be considered:

  • Logistics costs
  • Staff salaries
  • Advertising investments (including marketer’s salary).

If the ROI turns out to be positive, the investment has brought income, if it is negative, the investment has brought a loss. With ROI equal to 0, the break-even point has been reached: the investment paid off, but worked out to zero.

Let’s say for a certain period of time you invested 5,000 Dollars/Rupees and received 10,000 Dollars/Rupees. 
ROI = (10,000 – 5,000) / 5,000 x 100% = 100%. That is, the investment paid off twice.

Why is ROI Important And What To Consider When Calculating ROI

Sometimes it takes time to make a purchase decision. This is true for complex and / or expensive products (cars, real estate, large household appliances). The potential client studies the product, compares it with others. It can reach the purchase, for example, only a week or even several months after the first visit to the site.

Thus, if in this situation the ROI is calculated for a month, it will be incorrect, since it will not reflect the transactions made in 2-3 months.

Takeaway: When choosing a period for calculating ROI, focus on the buy cycle to get a reliable indicator.

What Is ROMI?

ROMI is the percentage of funds invested in promotion to revenue received from customers from each marketing source.

What does ROMI stand for?

ROI Stands For Return on Marketing Investment.

How is ROMI Is Calculated?

The formula for the calculation is as follows: ROMI = (Advertising Revenue – Advertising Expenditure) / Advertising Expense x 100%, where:
  1. Income = money you received from customers who came from a specific channel where you ran ads
  2. Cost = advertising budget + marketer’s fee.

What Is ROAS?

ROMI is the percentage of funds invested in promotion to revenue received from customers from each marketing source.

What does ROAS stand for?

ROAS Stands For Return on Ads Spent.

How is ROAS Is Calculated?

The formula for the calculation is as follows: ROAS = Revenue / Advertising Budget.
When calculating it, we take into account only what was spent on advertising. That is, this is advertising expense, as in ROMI, but minus the marketer’s salary.
Revenue is, like in ROMI, the revenue from customers who came from a specific channel where the advertisement was launched.
Using the same example, we get the following: ROAS = 10,000 / 5,000 = 2 or 200%. This can be interpreted as follows: each ruble invested brought 2 rubles in total income.

Where ROAS is flawed?

First, unlike ROI, ROAS does not take into account margins. Therefore, the indicator does not always show the real picture of the effectiveness of advertising.

Let’s look at an example.

Income = 30,000, advertising costs = 9,000. Calculating ROAS, we get 30,000 / 9,000 = 334%. At first glance, the amount of income is impressive, it seems that advertising has worked in a plus. However, if you calculate ROI with a margin of 20%, it turns out to be negative: (30,000 x 0.2 – 9,000) / 9,000 = -34%.

Thus, ROAS can be used to roughly estimate the profitability or loss of advertising if there is no data on the marginality.

Secondly, it shows a real picture only if you work with one advertising channel – you invest in it and get profit from it. Accordingly, you are evaluating only this one channel.

If your advertising strategy involves multiple channels, there is no point in calculating ROAS.

PS Thus, all indicators – ROI, ROMI, ROAS – go from general to specific. From business efficiency in general to advertising efficiency.

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