In online marketing, you can measure the effectiveness of advertising campaigns in various ways. One of the key indicators to assess the effectiveness of advertising expenditure is ROAS (Return on Advertising Spend). This is a metric that determines how much profit the funds spent on advertising generate. Let’s see what the definition of ROAS is, how to calculate it and why it is such an effective tool.
ROAS – definition
Literally translated, ROAS means return on advertising expenditure. It is a measure of the effectiveness of advertising campaigns that allows you to determine how much revenue is generated as a result of advertising investment. In other words, ROAS expresses the ratio between the income obtained from advertising and the costs incurred for its implementation.
ROAS is unique in that it measures the effectiveness of a specific campaign and checks how this campaign theoretically influenced your company’s revenues. In other words – thanks to ROAS you can find out how effective a given campaign is and whether continuing it is profitable from a business perspective.
If you run e-commerce, ROAS will help you determine whether your product (or group of products) brings the expected profit or generates unnecessary costs.
Remember the role of CPC rates (i.e. cost per click) – they affect ROAS. A lower CPC rate translates into a higher ROAS, but at the same time it affects the number of users clicking on the ad. It’s best to find the optimal bid level to get the best ROAS while maintaining the right number of clicks.
Note: ROAS is often confused with ROI. These are two different things. Of course, both factors will assess whether your marketing is effective, but they are completely different from each other. ROAS controls the costs and effectiveness of implemented campaigns. ROI verifies whether marketing campaigns bring the expected results. ROI measures the profit generated from a given investment, while ROAS measures advertising revenue.
How to calculate ROAS?
Calculating ROAS is relatively simple: divide the amount of revenue from an advertising campaign by the amount spent on that campaign.
By example. The income from your advertising campaign was $ 10,000. The cost of the campaign is $ 2,000. ROAS in this case is 5, because: 10,000 you divide by 2,000. This means that for every amount of $ 1 invested in the campaign, you receive $ 5 profit.
The correct ROAS value depends on the specific calculation of the total cost of the campaign – do not omit any element here. The cost of a campaign is not only advertising expenses, e.g. in Google Ads. The costs of the campaign also include: external services (e.g. the use of a marketing agency, copywriters), the salaries of your marketers, and even the costs of software used during the campaign (e.g. the Marketing Automation system).
Why is ROAS so important?
Firstly, thanks to ROAS you can optimize your expenses. You will check which advertising campaigns bring the highest return on investment, which will allow you to direct your funds to the areas that generate the best profits.
Try to track ROAS regularly. This is the best way to monitor changes in the effectiveness of advertising campaigns. Thanks to this, you will quickly react to possible problems and adapt your advertising strategy to changing circumstances.
It is difficult to say clearly what the ideal ROAS should be. Usually, the value of this factor depends on the company’s industry, competition or type of campaign. It seems to make the most sense to treat ROAS individually – because you know best what your goals and expectations are for marketing campaigns.
How to get a better ROAS result? Start by lowering the average cost per click on your ad. Narrow your target group so that your campaign reaches precisely those people who are actually interested in your offer. This is where a system comes in handy iPresso Marketing Automation , which will collect a lot of data about potential customers for you.
When creating new advertising campaigns in Google Ads, use negative keywords. This will direct the flow of customers so that your website is mostly visited by those interested in what you offer. Without using negative keywords, you simply waste your budget on phrases that do not actually apply to your offer.
ROAS is a key indicator for any company advertising on the Internet. Monitoring and regular analysis of ROAS will allow you to increase the effectiveness of your marketing activities, optimize your advertising budget, and, above all, direct your resources to those areas that generate the highest return on your investments.