ROAS stands for Return on Ad Spend.
ROAS is a performance metric that measures the revenue earned for advertising costs. The number lets businesses know how much profit they got after ad expenditures.
In marketing terms, the ROAS estimates the Return on investment (ROI) of the money spent on digital ads.
The ROAS performance metric is used as a key performance indicator (KPI) in Digital Marketing. It helps marketers make better investments and wise campaign budgeting decisions.
ROAS indicates if a campaign was financially beneficial. It helps to determine exactly how much profit the company made, compared to the ad expenses.
To calculate ROAS, take the revenue amount and divide it by the amount of money you invested in ads. Every dollar paid for ads should be accounted for.
Here is a simple formula on how to determine your campaign's ROAS:
revenue / ad costs = ROAS
Return on Ad Spend can be presented as an amount, as well as a ratio.
For example, if a business spends $2,000 on ads (costs) and gains $6000 total income from advertising (revenue), then $6000 / $2000 = $3 ROAS or 3:1 ratio.
Access to such an important metric is vital for the efficient examination and analytics of each individual campaign.
By determining what type of advertisements perform well and bring higher net earnings, brands can grow, scale and maximize results from running ads.
Moreover, with ROAS campaign insights, businesses are able to evaluate advertisement effectiveness and ad performance and make better long-term marketing, strategy, and budget decisions.
There is no formula for “good ROAS”.
The metric results depend on factors such as average ad cost, business size, industry, profit margins, and more. In general, experts claim a ROAS of 3:1 or more is considered “good.”
Most big corporations and enterprises consider in the range of 4:1 to 10:1 to be a perfect ratio and try to aim for the stars. (Ex: A 4:1 ratio means $4 in revenue to $1 in ad expenses.)
The average ROAS ratio for CPC (cost-per-click) ads is 2:1. Yet, with the right digital strategy, correct targeting, and excellent copywriting, ROAS could drastically improve in no time.
What constitutes an excellent ROAS varies according to industry.