What is ROAS and how to calculate it?

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ROAS

What is a ROAS?

ROAS, or return on ad spend, measures the revenue generated for every dollar spent on advertising. It's a crucial metric for marketers because it quantifies the effectiveness of ad campaigns in generating sales. A high ROAS shows that the ads are driving a significant amount of revenue relative to the cost. This is an indicator of the efficient use of the marketing budget. Conversely, a low ROAS suggests the need for campaign optimization. Monitor and optimize ROAS to ensure every dollar contributes positively to the bottom line.

How to calculate ROAS?

To calculate the return on ad spend (ROAS), divide the advertising campaign revenue by the total cost.

Revenue from Ad Campaign / Cost of Ad Campaign

What is bad ROAS?

A bad return on ad spend (ROAS) suggests that the revenue from advertising does not sufficiently cover the cost. This indicates an inefficient use of the advertising budget. A ROAS below 1:1, i.e., 1:2, 1:3, and so on, means a company is losing money on its ad spend. However, a bad ROAS can vary by industry due to different profit margins and average order values. For example, in e-commerce, a ROAS below 3:1 might be concerning. Meanwhile, industries with high customer lifetime values, like SaaS, may accept lower immediate ROAS. Key factors defining a good ROAS include covering costs, contributing to profitability, and supporting business growth objectives.

What is good ROAS?

A good return on ad spend (ROAS) typically signifies that the revenue from advertising exceeds the cost. This demonstrates the efficient and effective use of the advertising budget. While a good ROAS varies by industry and business model, a common benchmark is a ratio of 4:1. It means that every dollar spent on advertising generates four dollars in revenue. However, some industries might aim for higher or find lower ratios acceptable. For instance, in e-commerce, a good ROAS is 5:1 or higher. In the more niche markets with higher customer lifetime values, a 3:1 ratio is satisfactory.

Our key templates to track ROAS

All-in-one marketing dashboard

Monitor all your marketing channels with an all-in-one dashboard providing performance overviews of web analytics, ad campaigns, SEO, social media, and emails.

PPC multi-channel dashboard for Looker Studio

Get a comprehensive PPC reporting tool to track the performance of your campaigns launched at multiple advertising platforms.

Google Analytics PPC dashboard

Get an overview of the traffic performance of your advertising campaigns launched across different PPC platforms.

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How to improve ROAS?

Optimize Ad Targeting

Sharpen your targeting to reach audiences more likely to convert. Use data analytics to understand your best customers and target similar profiles. Efficient targeting reduces wasted spend and improves conversion rates. Focus on the most profitable segments to increase your ROAS.

Enhance Ad Creatives

Invest in high-quality, engaging ad creatives that resonate with your target audience. Test different formats, messages, and calls-to-actions to see what performs best. Better ad creatives can significantly increase click-through and conversion rates, boosting your ROAS.

Use Conversion Tracking

Implement comprehensive conversion tracking. This will give you insights into which ads, keywords, and campaigns drive sales. With this intel, you can allocate your budget more effectively. Focus on high-performing elements and cut those that don't contribute to a positive ROAS.