ROI vs ROAS: What's the Difference?
Understand how ROI and ROAS differ, how to calculate each, and when to use one over the other for measuring business performance.
Key Takeaways
- ROI measures the overall return on any investment relative to its total cost, while ROAS specifically measures revenue generated per unit of advertising spend.
- ROI accounts for all costs including production and overhead, while ROAS only considers advertising spend against revenue.
- African digital marketers should track both metrics to ensure advertising campaigns are not just generating revenue but also actual profit.
What is ROI?
Return on Investment, or ROI, measures the profitability of an investment by comparing net profit to total cost. The formula is net profit divided by total investment cost, expressed as a percentage. An ROI of 50% means you earned 50% more than you invested. ROI applies broadly to any business investment: equipment purchases, marketing campaigns, new product launches, or market expansion. It provides a comprehensive view by accounting for all associated costs and returns.
What is ROAS?
Return on Ad Spend, or ROAS, measures how much revenue is generated for every unit of currency spent on advertising. If a Ghanaian e-commerce store spends 10,000 GHS on Facebook ads and generates 50,000 GHS in revenue, the ROAS is 5:1 or 500%. ROAS is a marketing-specific metric that focuses exclusively on the relationship between ad spend and revenue. It does not factor in product costs, shipping, staff time, or other expenses associated with fulfilling those orders.
Key differences
ROI considers all costs and measures actual profit, making it a complete profitability metric. ROAS only considers advertising spend against gross revenue, potentially masking unprofitable campaigns. A campaign might show a ROAS of 3:1, suggesting success, but once you subtract product costs, shipping, and overhead, the ROI could be negative. ROAS is faster to calculate and useful for optimising ad platforms, but ROI tells you whether the business is actually making money.
When to use each
Use ROAS for day-to-day advertising optimisation on platforms like Google Ads, Facebook, and Instagram, which are increasingly used by African businesses targeting continental and diaspora markets. Use ROI for strategic decisions about whether to continue, scale, or discontinue marketing channels entirely. Smart African marketers track ROAS at the campaign level for tactical adjustments and ROI at the channel level for strategic budget allocation across quarters.