What is Return on Ad Spend (ROAS)?
Return On Ad Spend, or ROAS, is an efficiency metric that helps advertisers understand how their campaigns are performing by measuring the revenue earned compared to the money spent to run the campaign.
ROAS is represented with a ratio, for example, 3:1, where a company earns $3 for every $1 spent. Typically, the higher the ROAS, the better. However, there are some exceptions, especially if a company is looking to grow or scale their customer base.
ROAS Calculation
ROAS is calculated by dividing the revenue generated by a campaign by the cost of running that campaign. For example, if you spent $1,000 on a campaign that generated $4,000 in revenue, you divide 4,000 by 1,000 to get 4:1.
What Is a Good ROAS?
A good ROAS depends on quite a few factors, but commonly, companies aim for a 3:1 ROAS. With a ROAS of 3:1, most companies are profitable.
However, ROAS doesn’t always need to be calculated (or understood) as a campaign efficiency metric. It can also tell advertisers how they’re performing on each marketing channel. Each company requires different ROAS thresholds depending on their goals and the tactics they’re using. To find the right ROAS for your company, consider what ROAS you need for each campaign, each channel, and an overall ratio.
How to Improve ROAS
Companies can increase ROAS in several different ways. The fastest ways to improve ROAS include:
- Optimize the audience segments being targeted by the campaign. Often, targeting people based on real-world behavior, like in-store visits and previous purchase behavior, results in better returns than online browsing alone.
- Try a more comprehensive media mix. Based on the goals of the campaign, certain advertising channels will drive better results. Consider adding different channels to your campaign if you’re trying to improve ROAS.
- Test bidding strategies. A smart ROAS strategy simultaneously increases revenue and manages costs. Try lowering costs (and thus improving ROAS) with smarter bids on high performing channels.
ROAS vs. ROI
ROAS and ROI are closely related performance metrics, but do have key differences. ROAS shows how much revenue is generated compared to how much money was spent to run a specific ad campaign. Return On Investment, or ROI, is a broader performance metric that shows how much revenue was generated based on all investments.
In other words, ROAS measures the money spent to run the ad, and ROI also takes into account the money spent on building landing pages, designing the ad creative, and all the other investments it takes to create and manage the campaign. ROAS is a more specific metric, while ROI considers the bigger picture.
What Is ROAS in Marketing?
ROAS in marketing is a performance metric used for measuring ad campaign efficiency. By calculating the ratio of how much revenue is generated compared to how much money is spent on the campaign, companies can understand how well their messages are resonating, whether they are reaching the right audiences, and if their bidding strategy is correct for their goals. Marketers can track ROAS by campaign or channel, depending on what they’re trying to achieve.
Further Reading on ROAS
To learn more about ROAS-related topics, read our top blog posts:
- Four Factors to Boost ROAS
- Improve ROAS in a Flooded Market
- ROAS Strategy 2024
- ROAS in Marketing: Should Marketers Track ROAS by Channel or Campaign?
- Rethinking ROAS in 2024
- Can Companies Follow Marketing Trends without Ruining ROAS?
- How Companies Can Scale Using ROAS