Understanding the key differences between return on ad spend (ROAS) and return on investment (ROI) is crucial for effectively managing your marketing budget and measuring the success of your digital advertising campaigns. By accurately calculating and analyzing these two essential KPIs, you can gain valuable insights into the efficiency and profitability of your marketing investments across different channels and partners. 

This article will delve into the differences between the two measurements, how to practically use them and how to calculate each.

Measuring Return on Ad Spend (ROAS)

Return on ad spend (ROAS) is a metric used to evaluate the effectiveness of advertising campaigns. It calculates the revenue generated by a campaign compared to the amount spent on advertising. To calculate ROAS, divide the revenue generated by the ad campaign by the cost of the ad campaign:

ROAS = (Revenue from ad campaign) / (Cost of ad campaign)

For example, let's say your winery is focusing on increasing ecommerce sales, and you decide to run a springtime social media advertising campaign to drive sales of your new rosé. You create targeted audiences using your CRM data, build visually engaging ads, and offer free shipping for orders over a certain amount. The ad spend for the campaign is $8,000, and as a result, you generate $35,000 in ecommerce sales revenue. In this case, your ROAS would be 4.3 ($35,000 / $8,000). This means that for $1 spent on the campaign, you earned $4.30 in revenue. 

What is Good ROAS? 

There are many variables such as industry, product, company profit margins and marketing channels to take into consideration when defining ROAS success. A Nielsen report says an average across all industries is 2.87 but some companies may require a ROAS of 10 to claim a campaign was a success. A ROAS of 4 is a common goal to strive for with digital advertising campaigns. Anything over 1 means your advertising spend is covered by revenue. Start measuring ROAS to set a benchmark and begin to calculate what defines success for your winery. 

Measuring Return on Investment (ROI)

Return on investment (ROI) is a broader metric that measures the overall efficiency and profitability of your marketing efforts. It takes into account not only the cost of the ad campaign but also other related expenses, such as content creation, staff salaries, and software subscriptions. To calculate ROI, subtract the total cost of the marketing campaign from the revenue generated, then divide the result by the total cost of the marketing campaign:

ROI = [(Revenue from marketing campaign) - (Total cost of marketing campaign)] / (Total cost of marketing campaign)

Like the previous example, let’s measure the ROI of a campaign to increase ecommerce sales. You decide to implement a comprehensive marketing campaign that includes targeted social media advertising, email marketing, and influencer marketing. The total cost of the campaign, including ad spend, content creation, and salaries or vendor fees, is $11,000 and generates $35,000 in ecommerce revenue.

To calculate the ROI, you would use the following formula: [($35,000 - $11,000) / $11,000]. This calculation results in an ROI of 2.2, which means that for every dollar spent on the campaign, you earned $2.20 in revenue.

What is Good ROI?

In digital advertising there are wide swings in ROI depending on the channel. Email marketing performs very well and can deliver a 36:1 ROI ( $36 being returned for every $1 spent) while SEO, a long term tactic, can return 22:1 which is also an excellent return. An average ROI to strive for with your digital campaigns is 5:1 when using a blend of tactics and channels. Keep in mind when measuring ROI you are including all your costs including media cost, vendor fees and sunk costs. 

Mastering the process of calculating and understanding ROAS and ROI is vital for winery marketers looking to make the most of their precious marketing budgets. By harnessing the power of these key KPIs, you can unveil the true impact of your campaigns across different channels and partners, ensuring you allocate your resources wisely and drive maximum growth for your business. With each well-executed campaign, you are not only elevating your brand but also doing so with the confidence that your marketing investment is on solid, data-backed footing. Cheers to that!