Return on ad spend

Return on ad spend

Ever wonder how well or bad your online ads are doing? Well, like almost everything else, there's a metric for that, and it's called return on ad spend. Calculating the return on ad spend can allow digital marketers to optimize their actions and better achieve their marketing objectives. 

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What is a return on ad spend?

ROAS stands for return on ad spend, or return on advertising spend - a marketing metric that calculates the amount of revenue your company gets for each dollar it spends on advertising. It is very similar to return on investment (ROI or ROMI). 

The practice of tracking ROAS is mostly used by eCommerce businesses or digital companies to evaluate the effectiveness of marketing campaigns. It helps measure the digital advertising efforts and their return.

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How to calculate a return on ad spend?

The ROAS calculation is actually easy. You will need to take your total conversion value divided by your advertising costsBut now that you get the magic number, how do you know if it's good or bad? Now that's the challenge. 

The return on ad spend (ROAS formula)

 

Total revenue dollars from marketing/advertising dollars spent: ROAS

What is a good ROAS?

Although it varies according to industry, type of business, etc, in general, an average ROAS or 3X or more is considered "good". This means that every dollar spent on advertising generates three in revenue. It's also influenced by the overall health of the business, profit margins, and other operating expenses. 

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What is a bad ROAS?

A low ROAS is generally a ratio below 2:1. Other metrics to consider when looking at the bad impact of marketing investment are the churn rate, organic sales, and click-through rate. These can easily be found in your Google Analytics account or any CRM you may use.

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Return on ad spend KPI examples & templates

From digital marketing, PPC and email marketing, these reports give you a good view of all your online marketing strategy metrics and overall online performance. 

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Digital marketing report template

From SEO to social media and PPC, this report gives you a good view of all your online marketing strategy metrics and overall online performance.

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PPC report template PPC report template

Check your campaign cost, conversion rate, ad spend, gross profit and more, from all your marketing channels. You can also track this data alongside your business metrics and industry benchmark.

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Email marketing report template Email marketing report template

A report with all the most important metrics for your email marketing analytics, like click-through rate, open rate for individual campaigns, number of subscribers, and much more. 

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Return on ad spend cost best practices

Here are some of the best practices you should keep in mind to achieve your target ROAS

Return on ad spend cost best practices

step 1 icon Get to know your target audience

No matter if you advertise on google ads or Facebook ads, in order to optimize your ROAS, you should definitely know who you're talking about. This will help you divide your ads into ad groups, this will improve your bidding strategy since you will know which keywords to track and this will maximize the results of your ad campaign

step 2 icon Use A/B testing

If you aren't A/B testing in your marketing strategy, think again. Although looking into a crystal ball to determine what will convert customers would be nice, it’s not possible. Instead, we recommend A/B testing, which is basically creating 2 different ads or landing pages to see which of them converts best. You will get different ROAS data and determine which ads work best for your target market. 

step 3 icon Track it alongside other metrics

Like most metrics, tracking it by itself could be a mistake. In order to get a more accurate big picture of your marketing results, you should track your ROAS alongside other metrics like cost per lead, cost per acquisition, conversion rate, and customer lifetime value (CLV). 

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ROAS Synonyms

Although return on ad spend (ROAS) is widely used, there are multiple synonyms that can be used. Here are a few: 

Ad spent ROI, Advertising ROI, Return on ad spend, Return on ad spent, Revenue per cost, ROAS $, ROAS %, Return on marketing spend

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