Return on Advertising Spend (ROAS) is a critical metric that advertisers and chief marketing officers (CMOs) use to evaluate the effectiveness of their advertising campaigns. It provides insight into how much revenue is generated for every dollar spent on advertising, helping companies to make data-driven decisions that can significantly impact their bottom line.

How to calculate ROAS?

ROAS is calculated by dividing the revenue generated by the advertising campaign by the total amount spent on the campaign. The resulting figure represents the revenue generated for each dollar spent on advertising. For example, if a company spends $10,000 on an advertising campaign and generates $50,000 in revenue, the ROAS is 5:1, which means that the company generated $5 in revenue for every $1 spent on advertising.

ROAS = Revenue / Ad spend ×100(％)

Why is ROAS a crucial metric for advertisers and SMOs?

• It helps them to optimize their advertising spend and make informed decisions about future campaigns.
• By understanding the return on investment (ROI) for each advertising campaign, companies can make data-driven decisions about where to allocate their advertising budget and which campaigns to prioritize.
• ROAS can also help advertisers and CMOs to justify their advertising budget to upper management.
• It can prove the value of their advertising efforts and secure additional budgets for future campaigns.

ROAS is particularly important for companies that operate in competitive industries, where advertising spend can quickly spiral out of control. Without a clear understanding of the ROI for each campaign, companies may end up overspending on advertising and missing out on potential revenue. (Read “How to budget for Advertising?”)

How to achieve high ROAS?

• Focus on creating targeted and effective advertising campaigns that resonate with their target audience. This requires a deep understanding of the target market, including their needs, preferences, and behaviors.
• Optimize advertising creatives and messaging to maximize engagement and conversions. This can involve testing different ad formats, messaging, and imagery to determine what resonates best with the target audience.
• Track and analyze their advertising data to identify trends and insights that can be used to optimize future campaigns. By monitoring key metrics such as conversion rate, click-through rate, and cost per acquisition, companies can make data-driven decisions that maximize their ROAS.

ROAS vs. ROI: What’s the difference?

Both ROAS and ROI (Return On Investment) are the metrics used to look at the results obtained for the cost (ad spend) invested.

However, the difference is that Return on Investment (ROI) is the metric used to measure how much profit is generated on a particular investment relative to its ad spend, while ROAS evaluate the effectiveness of their advertising campaigns.

• ROI  provides insight into the profitability of each campaign to secure the continuation of your business. (learn more about ROI in this article)
• ROAS provides insight into how much revenue is generated for every dollar spent on advertising, helping companies to make data-driven decisions that can significantly impact their bottom line.

In conclusion, ROAS is a critical metric that advertisers and CMOs use to evaluate the effectiveness of their advertising campaigns. By understanding the ROI for each campaign, companies can optimize their advertising spend, justify their advertising budget to upper management, and make informed decisions about future campaigns. To achieve a high ROAS, companies must focus on creating targeted and effective advertising campaigns, optimizing their advertising creative and messaging, and tracking and analyzing their advertising data. With a strong focus on ROAS, companies can maximize their advertising effectiveness and drive significant revenue growth.

Sources / Suggested References:

Statista | Return on advertising spending (ROAS) per dollar invested in the United States in 2018