Marketing Tip: Net vs ROI – Learn How to Measure Ad Performance for Smarter Decisions
Understanding the difference between “Net” and “ROI” is key to making smarter advertising decisions. Whether you’re an author running ads for your books or managing ads for others, knowing these terms can help you track results better and scale effectively.
Check out the video below for a helpful breakdown:
Let’s break it all down so you can use this knowledge to grow your business.
What Is Net in Advertising?
When marketers mention “Net,” they’re talking about net profit after ad spend. Here’s the breakdown:
- Net is your gross income minus your ad spend.
- It does not include additional expenses like cover design, editing fees, or promotional costs.
- We’re focusing strictly on income generated by ads vs. the cost of running those ads.
For example, if you spend $1,000 on ads and your gross revenue is $3,000, your net profit from ads is $2,000. Simple, right?
If you’re working with an ad manager, remember that their fees don’t count in this equation. This is about direct ad performance, not all the other costs tied to publishing or marketing your books.
What Is ROI?
ROI stands for Return on Investment, and it measures how much you get back for every dollar spent. It can be expressed as a percentage or a ratio. Here’s how it works:
- Spend $1 and earn $2 = an ROI of 1:2 or 200%.
- Spend $1 and earn $30 = an ROI of 1:30 or 3000% (dream scenario, right?).
Both percentages and ratios give you an idea of how well your ads are performing, but ratios tend to be easier to follow for specific campaigns.
Why Is ROI Important?
ROI helps show the efficiency of your ad spend. If you’re in a growth phase and scaling your ads, ROI can indicate whether things are on track.
For example:
- A 1:2 ROI (spend $1, earn $2) might mean you’re in the early stages of scaling.
- If your targeting is off, your ROI could stay low, showing it’s time to adjust.
But ROI isn’t the only piece of the puzzle. Sometimes, a “lower ROI” could still produce better net profit, which is why both metrics matter.
Net vs ROI: Which One Should You Focus On?
The truth is, both metrics are helpful, but they serve different purposes.
Focusing on Net tells you if your ads are making enough money after ad spend. Are you profiting enough to grow sustainably? On the other hand, ROI helps you measure efficiency. Are your dollars working hard for you?
Here’s an example to make it clearer:
- If you spend $2,000 to earn $9,000, your ROI is roughly 1:4.5. That’s a $7,000 net profit—awesome, right?
- But if you spend $1,000 to earn $5,000, your ROI is better at 1:5, yet your profit is only $4,000.
So, while the second scenario has a better ROI, the first one gives you more net profit. Which would you rather have? Probably the extra $7,000 in net profits.
How to Combine Net and ROI in Your Strategy
Tracking both metrics helps you make smarter ad decisions:
- Use Net to judge overall profitability. Are the ads worth it in the long run?
- Use ROI as a diagnostic tool. Low ROI? It’s time to check your targeting, budget, or ad creative.
When you focus on scaling, expect your ROI to dip temporarily as you invest more in growth efforts. That’s completely normal, and your ROI will improve once sales catch up with the increased spend.
Key Tips for Successful Ads
At Finding Your Indie, we live by a few simple rules when running ads:
- Set clear goals. Know exactly what you want to achieve before diving into ads.
- Stick to your brand. Stay true to your message and audience.
- Have fun with it. If you’re stressed 24/7, what’s the point?
Ads are about balancing profitability with creativity, so don’t lose sight of your long-term goals.
Final Thoughts
Understanding the difference between net profit and ROI can help you make smarter, informed decisions. Both metrics offer value, but focusing on net profit ensures you’re actually making money from your efforts, while ROI helps you fine-tune your strategy.
Ready to take control of your ad performance? Whether you’re scaling, targeting new audiences, or just starting out, keeping an eye on these numbers is a great way to thrive.
Got questions about ads or marketing? Drop by the Finding Your Indie website and explore free resources to help you sell more books!