Why is my Return on Ad Spend (ROAS) inaccurate?

Are you thinking that your Return on Ad Spend (ROAS) result is inaccurate? Indeed, if you’re using numbers from your dashboard’s metrics, you might think that your ROAS should be your “New Sales (Conversion Value)” divided by your “PPC Cost.” For example, it might be $1348/4253, which would give you a result of $0.32. Instead, the report is saying (0.68)$.

Why?

Well, for starters, there are many definitions of ROAS, since it isn’t a generally accepted term like ROI. Our definition is the one that is closest to that of ROI, where we subtract the cost of ads from the revenue before dividing by the cost of ads. So in this case, it would be:

 

(1,348 – 4,253) / 4,253 = (0.68)$

 

Please note that this is exactly 1$ less than the simpler version: 0.32$ – 1$ = (0.68)$, which is in fact the intended behaviour.

The main advantage of this method over the other one is that it’s easier to understand for customers since negative numbers mean the customer is losing money and positive numbers mean the customer is making money. It is also closer to the interpretation of the ROI and as such, is easier to understand for someone with a financial background.