Return on ad spend or ROAS is one of the most important metrics we track when running our paid media campaigns for clients. Return on ad spend is a metric that measures the revenue your business earns for every dollar spent on paid advertising.
Knowing your ROAS for a particular ad campaign can help you measure which ad campaigns are most effective and where to spend your marketing budget. While click-through rate may tell you which ads are receiving clicks, ROAS will give you a sense of which ads are actually driving sales for the business.
How to Calculate Return on Ad Spend (ROAS)
To calculate ROAS, divide the revenue generated by the ads over the cost of the ads. This will give you a ratio that is used to determine the effectiveness of each ad.
ROAS = (Ad Revenue / Ad Spend)
For example, if a campaign generates $20,000 from a $5,000 spend, the ROAS would be 4:1 or $4 in revenue for every $1 in ad spend.
What is a Good ROAS?
Often the theme in marketing, everything depends on the type of business or the vertical. There is no single number for a good ROAS, it will all depend on your product or services margins. Some businesses will require a higher ROAS if their margins are low, while a business with high margins can work with a lower ROAS.
However, we like to see a ROAS of 4:1 or higher indicate that the ad campaign is working effectively.
To Sum It All Up
Return on ad spend (ROAS) is a metric that must be tracked when running paid ads. While we still believe in tracking other metrics alongside ROAS, return on ad spend will allow you to see how effective your campaigns are by seeing their direct impact on revenue. If you aren’t already, we definitely recommend you start to measure your return on ad spend.
If you have a question that wasn’t answered above, or you would like to speak with our Paid Media team about your business, reach out for a free consultation!