You may often ask: What is ROAS and ROI in Google Ads? What do these terms mean? What’s the difference?
Well, they may seem similar, but they are very different terms. Both these terms are the holy grail in paid marketing.
In this article, ROAS Vs ROI Metrics In Google Ads, I will discuss the difference between ROAS and ROI and what they mean for your business.
Watch the video version of this article below:
ROAS vs ROI
What is ROAS? What is ROI?
The difference between these two terms depends on the objective. Basically, there are two methods of using ROI vs ROAS.
The first method: ROAS is used to measure the direct results inside of e-commerce campaigns.
ROI on the other hand, is used most often when referring to lead generation campaigns.
The second method: ROAS is the direct cost of advertising inside the ad account.
ROI on the other hand is used as a term that encompasses all marketing costs like agency fees that we charge to manage the campaigns. You’re looking at your aggregate return, taking all costs into the equation.
Google Ads has a conversion tracking tool that can help you determine your cost per lead and then you can determine your ROI.
For e-commerce, you need to set up your dynamic conversion tracking because each product will be a different cost and price. You set up your conversion value.
In this example, we had 370 purchases. The dynamic tracking was set up in advance and so right in the dashboard, I can see the ROAS. The cost per purchase was £14.72 and the total revenue was £40,600. Our ROAS was 4.78 or 478% return on ad spend. That’s a pretty healthy number.
When your campaign is generating $4.78 for every dollar invested, it’s very safe and highly recommended that you let your campaign scale and let Google send you as many leads at 478% ROAS as you can handle.
For lead campaigns, however, your ROI is based on a cost per lead that you calculate ahead of time with a value per lead.
So let’s say a customer generates $700 lifetime value. You know that for every 4 leads you close a sale. So you can work the numbers into your CPA or cost per lead and determine what your ROI needs to be and work backward to determine what your CPA or cost per lead max should be. That’s how you set your ROI for lead generation.
It is important that you set-up all your tracking when it comes to knowing your values and conversion. If you are unable to properly track these things, then none of the above will work.
Tracking all your results will help you easily see which campaigns are working well and which are not. You can also easily scale things up by just looking at the tracking and conversions that you have.