Understanding ROAS and ROI in Mobile App Advertising: Measurement and Optimization Strategies

In the fiercely competitive landscape of mobile app advertising, it’s essential to employ data-driven strategies to maximize returns on your advertising investments. Return on Advertising Spend (ROAS) is a pivotal metric that can help mobile app marketers achieve this goal. This article will provide a detailed understanding of ROAS, how to measure it, and its significance in optimizing paid media campaigns for mobile apps.

What is ROAS?

ROAS, or Return on Advertising Spend, is a critical performance metric used by advertisers to evaluate the effectiveness of their advertising campaigns. It measures the revenue generated for every dollar spent on advertising. For mobile app advertising, ROAS provides insights into how efficiently an ad campaign drives user acquisition and revenue, making it an invaluable tool for marketers.

What is ROI?

ROI stands for “Return on Investment.” It is a metric commonly used in all forms of business to measure the effectiveness of investments in generating revenue. ROI, in its simplest form, is used to understand what is gained compared to what has been invested. In simple terms, it calculates the total cost and asks whether the campaign has been profitable.

Why are ROAS and ROI so Important for Mobile App Advertising?

ROAS (Return on Ad Spend) and ROI (Return on Investment) are both critical metrics for mobile app advertising, each offering distinct insights into the effectiveness of advertising efforts. Here’s why they are so vital:

• Measure of Effectiveness:

ROAS specifically measures the direct revenue generated per dollar spent on advertising. It’s a more immediate metric that tells advertisers how effectively their ad spend is translating into sales or conversions.

ROI, on the other hand, provides a broader picture. It factors in the entire cost of the campaign (including indirect costs such as design, software, labor) and shows the net profit relative to the total investment.

2. Resource Allocation:

 Advertisers with a clear grasp of both ROAS and ROI can more efficiently allocate their budgets. If a campaign has high ROAS but low ROI, it might indicate hidden costs that need addressing.

3. Profitability Insights:

 While ROAS can indicate if an ad campaign is generating revenue, ROI gives a clearer picture of its profitability by considering all associated costs. A campaign can have a positive ROAS but a negative ROI if other costs aren’t controlled.

4. Strategic Decision-making:

Both metrics guide strategic decisions. For instance, a campaign with high ROAS might be scaled up, while understanding ROI can shape long-term strategies and guide budgeting decisions.

5. Performance Benchmarking:

ROAS and ROI serve as benchmarks to compare the performance of different campaigns, platforms, or advertising strategies. They offer insights into what’s working and what’s not, allowing for continual optimization.

6. Holistic View of Advertising Efforts:

Using both metrics in tandem provides a more holistic view of advertising efforts. While ROAS looks at direct revenue from ad spend, ROI encapsulates the broader financial health and effectiveness of a campaign.

7. Ensuring Sustainable Growth:

For mobile apps, rapid growth is often a goal. But growth at any cost can be detrimental in the long run. Monitoring ROAS ensures efficient ad spend, while ROI ensures that the growth is profitable and sustainable.

8. Competitive Advantage:

In a saturated mobile app market, understanding and optimizing both ROAS and ROI can provide a competitive edge. It ensures that advertising dollars are spent wisely, leading to more effective user acquisition and growth.

In conclusion, while both ROAS and ROI revolve around returns from advertising efforts, they offer different perspectives. ROAS is more immediate and specific to ad spend, while ROI provides a comprehensive view of profitability. Together, they offer invaluable insights that can guide mobile app advertising strategies to success.

How to Measure ROAS and ROI

Measuring ROAS in mobile app advertising requires a structured approach and a reliable data analytics system. Here’s a step-by-step guide on how to calculate it:

• Set Clear Goals

  Start by defining specific objectives for your mobile app advertising campaign. These objectives could include increasing the number of app installs, boosting in-app purchases, or enhancing user engagement. Clear goals will provide a foundation for measuring ROAS.

• Tracking Conversions

  To calculate ROAS, you must accurately track conversions, such as in-app purchases, subscriptions, or any other desired user actions. Use tracking tools and technologies, like mobile app analytics and attribution platforms, to collect this data.

• Calculate Revenue from Advertising

  Determine the revenue generated by your mobile app due to advertising efforts. This involves calculating the total revenue generated from users acquired through your ads.

• Calculate Ad Spend

  Accurately calculate the total advertising spend for your campaign, including ad placements, creative production, and any associated costs. This should be an all-encompassing figure, including not just media buying costs but also creative and operational expenses.

• Monitor Continuously:

  ROAS and ROI aren’t static figures. It’s essential to continuously monitor these metrics throughout a campaign to identify trends, ensure sustained profitability, and make adjustments as necessary.

• Consider Long-Term Value

  Especially for ROI, consider the Lifetime Value (LTV) of users. If an advertising campaign brings in users who continue to generate revenue over a more extended period, this long-term value should factor into ROI calculations.

• ROAS and ROI Calculation

  ROAS = (Revenue from Advertising) / (Ad Spend)

  For example,  ff you spent $5,000 on advertising and earned $20,000 in revenue directly from those ads, your ROAS would be 4 (or 400%). This means you earned $4 for every $1 spent.

  ROI = (Net profit from Ads – Cost of Ads) / Cost of Ads ) x 100

  Net Profit is the revenue generated from the ads minus ALL costs (including the ad spend and other indirect costs).

  Using the previous example, if the total costs (including ad spend, creative costs, software, etc.) for the campaign were $7,000 and you made $20,000 in revenue, the net profit would be $13,000. The ROI would then be $13,000 – $5,000)/$5,000 or 160%. This means you earned a net return of $1.60 for every dollar invested.

• Monitor and Optimize

Keep a close eye on your ROAS throughout the campaign. If it’s below your target or industry benchmarks, consider optimizing your ad creatives, targeting, or campaign settings. Continuously refine your strategies to improve ROAS over time.

While the concept and formula are straightforward, the key to measuring ROAS and ROI effectively lies in accurate data collection and consistent monitoring. Both metrics serve as vital health indicators for your mobile app advertising campaigns, guiding optimizations and strategic decisions.

Using ROAS and ROI to Optimize Paid Media Campaigns

Once you’ve measured ROAS, the data collected can be instrumental in optimizing your paid media campaigns for mobile app advertising:

1. Budget Allocation: Allocate more budget to campaigns with a higher ROAS and consider reducing or reallocating funds from underperforming campaigns.
2. Targeting and Creatives: Analyze the audience segments, ad creatives, and messaging that contributed to high ROAS. Use these insights to refine your targeting and creative strategies.
3. Ad Formats and Platforms: Identify which ad formats (e.g., video, display, native) and advertising platforms (e.g., Facebook, Google Ads) are delivering the best ROAS. Focus on these for future campaigns.
4. LTV Analysis: Understand the lifetime value (LTV) of users acquired through advertising. This will help you make long-term predictions about the impact of your campaigns on revenue.
5. A/B Testing: Continuously experiment with different variables to improve ROAS. Test new ad copies, visuals, and landing pages to identify what resonates best with your audience.
6. Scaling Successful Campaigns: As you find campaigns with consistently high ROAS, consider scaling them to reach a broader audience while maintaining cost efficiency.
7. Retention Rate: Analyzing the Retention Rate allows us to make sure we are bringing (or generating) loyal returning users to the app. Which eventually allows us to improve the purchase rate as well since the users continuously spend with purchases.
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A Real-World Example: Lumber’s Success with Adkomo

In the world of mobile app advertising, tangible success stories often serve as a source of inspiration and guidance. One such example is the collaboration between Adkomo and our client, AdQuantum. A collaboration that started in February 2022!

For this example, we have been focusing on the Lumber App, a casual simulation game, which we are promoting across various geographic regions, and look at campaign data spanning for six months. Adkomo’s expertise and meticulous strategy have yielded remarkable results for their client, making it a shining example of how ROI can be harnessed effectively.

The Partnership Overview

Thanks to Adkomo’s use of Worldwide (WW) premium traffic sources, the campaign generated an impressive 227,371 installs of the Lumber app within this six-month period. The collaboration between Adkomo and Lumber stands out, particularly due to its commendable ROI, which has consistently trended upward.

Key Metrics and Achievements

Total Installs: 227,371

Overall ROI: 83.48%

This ROI was achieved primarily through an abundance of in-app purchases facilitated by the campaign.