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What are ROI, ROMI and ROAS?

Discussion in 'Guides, Case Studies and Tutorials' started by Uliana Moreva, Apr 9, 2018.

  1. Uliana Moreva

    Uliana Moreva Affiliate affiliate

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    In the most affiliate campaigns you can find such KPI as ROI , the success of the campaign depends on that metric. But that is not the only option that used by an advertiser to check the real effect of the campaign, there are such metrics as ROMI and ROAS.

    In this article we will discuss all mentioned metrics and the difference between them.
    Such information will be useful not only for affiliates, but for the advertisers as well, cause all this KPIs used in the both sides: advertiser understand the effectiveness of the affiliate program and publisher, considering ROI KPIs, knows what source is better to use for campaign promotion to reach the target.

    All KPIs are counted in percentage.

    ROI (Return On Investments) – measures the gain or loss generated on an investment relative to the amount of money invested.

    The formula of ROI = (Net Profit \Total Costs) *100

    ROI takes into account the amount earned once expenses have been subtracted. Indeed, the ROI target is to answer the question is the returns justify the investments. It shows general results not specified on the certain costs, unlike the ROMI.

    ROMI (Return On Marketing Investments) – the metric used to measure overall effectiveness of the marketingactivities and choose the better sources for the future investments.

    The formula of ROMI = (Net Profit\Marketing Costs) *100

    ROMI shows you the real productivity of your marketing strategy:
    You spent the 2500$ on the product and 1500 is on promotion. The Net Profit for the first month is 700$, and the Net profit from promotion is 300$ let’s check what ROI and ROMI will be:

    ROI = (700\2500)*100 = 28%
    ROMI = (300\1500)*100 = 20%

    Based on the results, we can make a conclusion that ROI gives you a general understanding of the financial situation with your product, while the ROMI is only about marketing. In the ROIs formula we took overall costs (marketing, company costs..)and overall profit, in ROMIs formula we used only Marketing costs (pr, analytics, development)and Marketing Profit.


    Lets move to the last, but not less important metric – ROAS.

    ROAS (Return On Advertising Spends) - a narrower KPI that shows the return on the advertising investments.

    ROAS = (Net Advertising Profit \ Advert Costs) * 100

    You can calculate ROAS if know the cost and profit per conversion.

    For example, you have site created to connect freelancers with a customer and you decided to make a banner advertisement on a famous blog. After a week of test, you want to know the ROAS.

    During the past week 140 people came to your site and created the account, but only 70ty made orders. Your profit is 10$ per each order, that means your profit are 700$, but you spent 500$ on the advertising. To calculate Net Profit, you need to deduct the costs from the revenue:

    Net Profit = 700 – 500=200$

    To calculate the ROAS:
    ROAS = (200 \ 500) * 100 = 40%

    So, the good news – the advertising in the blog is offset the expenses, but the real productivity is only 40%.
     
    Joseph Baker likes this.
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  3. Joseph Baker

    Joseph Baker Affiliate affiliate

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    Doing business without advertising is like winking at a girl in the dark. You know what you are doing, but nobody else does.
     
    azgold, unclehat and Uliana Moreva like this.
  4. Joseph Baker

    Joseph Baker Affiliate affiliate

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    Hit the mark!Positively
     
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