What is ROAS?
In digital marketing, buzzwords and acronyms are thrown around so often that it can be difficult to understand which should actually be important to your business. One of these acronyms is ROAS - here’s why you should get to know it.
What is ROAS?
ROAS is an acronym for Return on Advertising Spend, and is a metric that’s used to determine how well a digital advertising campaign is performing. It compares how much you’ve spent, and how much revenue that spend has generated.
To get your ROAS, you divide your revenue on a given campaign by the amount you spent on that campaign.
For example, say you’ve started a pay-per-click campaign on Google Ads and spent $4,000 in one month on search ads. If the campaign results in $20,000 in revenue at the end of the month, then your ROAS would be:
$20,000 / $4,000 = $5
ROAS can also be expressed as a ratio. In this case, it’d be 5:1, indicating that every $1 spent on that campaign generated $5 in revenue.
What’s ROAS for, and Why Does it Matter?
ROAS can help you to explore the performance of specific advertising campaigns, to determine which are bringing you the best “bang for your buck.” Put it this way: if you’re running two versions of a search ad, with one delivering a $10 ROAS, and the other delivering a $1 ROAS, you’d likely want to shift your focus to the former.
ROAS is particularly helpful for comparisons, and more generally, if you’d like to only like to compare the cost of an ad to the return you got on it. It allows you to view a direct impact.
ROAS vs. ROI
ROAS is a straightforward metric on spend vs. return, while ROI generally takes into consideration ALL of the things that went into generating the return.
For example, ROI would take into account items like salaries and agency fees and commissions. Unlike with ROAS, for ROI, you would look at the sum of all of your marketing investments in order to determine your overall return.
What’s the Magic Number?
Every business has its own unique expenses and unique goals, and so it’s difficult to say that there’s a magic number for ROAS that applies across the board. It’s important to think about your manufacturing costs, personnel, and other business expenses in order to determine the optimal ROAS that could support them.