A number of metrics are used in the world of marketing. They help us understand the results we receive from the efforts we make in a campaign. One of these metrics is ROAS. It is associated with the ads we run for a business. Its basic function is to help us calculate the generated income from an advertising campaign. It is similar to Return on Investment. However, it is especially used to determine the revenue from advertisements.
This article will explain what is ROAS. We will also discuss how you can calculate it. Let’s start.
What is ROAS?
ROAS is a marketing metric that helps us understand the revenue we generate from an ad campaign. It stands for Return on Ad Spend. This indicates that we make calculations on the basis of the money we spend on the ads. The main objective of this metric is to understand if the ad campaign is running successfully or not. It may seem like a very complex term. But that’s not true. It is a simple calculation that only involves the factor of division.
What’s involved?
There are basically two things that are involved in ROAS.
- They invested money in the campaign.
- They generated money through the campaign.
How to Calculate ROAS?
Calculating this factor is also very easy. The whole income must simply be divided by the amount of money you spend on the campaign. Assuming $1,000 was allocated to your advertising campaign. It brought in $2,000.
After dividing these numbers, the value you will get is 2:1.
ROAS= Generated revenue/Invested money
= $2000/$1000
=. 2/1
= 2:1
In percentage, this value will be 200%.
This calculation tells us that our campaign generated 200% revenue of the initial amount we invested.
Why Calculating ROAS is Important?
Besides knowing what is ROAS, you should also know its importance. The following points can help you with that:
- It helps you understand the success rate of your ad campaigns.
- By deep analysis, you can know what ad channels are the best for you.
- Understanding it can help you set up a proper budget for your campaign.
- It can also help you make future plans for marketing.
- You can make calculated decisions with the data you receive from this metric.
Difference Between ROAS and ROI
Although ROI and ROAS may appear to be the same, they differ in a few key ways. that’s because ROAS just concentrates on advertising. It provides you with the profit margin on each dollar you invest in advertisements. You use this measure to assess how effective your advertisement is.
On the other hand, ROI covers the overall profit you make from a business. It can be related to different components of a business. For example, you can calculate it for SEO. Similarly, it can be calculated for the investment you make in purchasing a piece of technology for the business.
Ideal ROAS Value
Many people are trying to understand what an ideal ROAS value is. Well, this all depends on your business’s goal. If you plan to get a %300 value and achieve it, it will be considered the ideal value for you. However, a ratio of 4:1 is considered to be a good value in general. So, if you are hitting this number, know that your ad campaigns are doing good. If you get more, you’re killing it in the market!
Extra Points to Understand
Here are some extra points you should keep in mind about this metric:
- High ROAS doesn’t mean that you have a high overall profit rate.
- Try to utilize the right Attribution Model. It can be useful to point out the most profitable channel of the campaign.
- Analyze the received revenue properly. Wrong data will result in incorrect values.
- Make sure to compare your value with other competitors in the market. It will help you get the average value of your business niche.
- Keep on calculating this value regularly over time. In this way, you can make changes in your effort if required.
Conclusion
In conclusion, knowing what is ROAS is important if you are a marketer. It allows you to gauge how successful your advertising is. It helps you understand how much money you are producing for every dollar you spend on advertising.
Calculating this value is also very easy. You just have to divide the generated revenue by the money you spent on the campaign. We have discussed important factors related to this value in the information given above. We have also discussed some additional consideration points about it for your better understanding.
FAQs
What does ROAS stand for?
It stands for Return on Ad Spend.
Are ROAS and ROI the same things?
No. They may seem like the same but they are different.
What Attribution Model is the best for ROAS?
This entirely depends on your business’s goals. Analyze them and use a model accordingly.
