ROAS is not just another one of those marketing acronyms you’ll never use. “Return on Ad Spend”, ROAS, is super important for businesses engaging in digital advertising, such as ecommerce businesses. It helps you understand your profit margin in relation to your advertising efforts.
What is ROAS?
The “Return on Ad Spend” metric measures how much revenue is generated by your ads in ratio to your advertising costs.
Return on Ad Spend can be presented in the form of a ratio, a percentage or a number. Here’s an example of ROAS in the Digivizer platform. This business runs advertising campaigns on Facebook and Google. They’re getting $3.00 back for every $1.00 spent on Facebook, and $4.20 back for every $1.00 spent on Google. Overall, for every dollar spent on ads, they’re generating $3.80 in revenue.
Why is ROAS important?
For digital marketers and business owners who need to keep track of every dollar spent on their online advertising and marketing campaigns, ROAS is very handy. It’s basically a shortcut to know if you’re making or losing money on your ads.
Sometimes it’s hard to know which channels are the best use of your marketing efforts. By keeping track of your ROAS metrics across multiple channels like social media and Google, you can know in real time where your ads are reaching your customers and encouraging them to take action. Then you can focus on fixing areas that need improvement, and doubling down on your successes.
In the Digivizer platform, you can see the ROAS of every stage of your advertising campaigns in Facebook, Instagram and Google, right down to the campaign, adset and advert levels. That way you know exactly which ads are delivering results in relation to budget spent.
How do you calculate ROAS?
Return on Ad Spend is calculated by dividing your Conversion Value (revenue) by your Spend. Your conversion value is essentially how much money in total you’ve made from your conversions.
If you’re interested in calculating ROAS, it’s a good idea to make sure you’ve got “Conversions” set up in your paid campaigns, so you can calculate the resulting conversion value – and other metrics like your conversion rate (i.e. how many people converted, compared to how many saw your ads).
- Setting up Conversions for paid campaigns in Google Ads
- Setting up Conversions for paid campaigns in Facebook Ad Manager
What is a good or average ROAS?
It’ll be different for every business and industry, but a common Return on Ad Spend benchmark across ecommerce businesses is a 4:1 ratio — $4.00 in revenue to $1.00 in ad spend. That would be a good target ROAS, though it might be too low for businesses who are running on tight budgets. On average, most companies earn about $2.00 to every $1.00 spent.
Obviously, a high ROAS is better. It means you’re earning more revenue on your budget. If your ROAS dips below 0.99, that means you’re losing money; you’ve only earned 99 cents but you’ve spent a dollar.
What is the difference between ROI and ROAS?
ROAS measures the effectiveness of your ad campaigns. It shows how much on average your business makes from advertising. ROI, or “Return on Investment”, measures how much money your business makes after expenses, in which one channel of profit and cost is advertising, but others might be operations, software, people, etc.
In general, ROI is your total return, while ROAS is strictly your ad spend return.
We hope you’ve found this guide useful, and that you’re now more prepared to judge whether your advertising campaigns are effective. Bookmark this page for later reference and to share with your colleagues to answer their burning questions about Return on Ad Spend.