Return on Ad Spend (ROAS)
Date created: Oct 12, 2022 • Last updated: Mar 18, 2024
What is Return on Ad Spend?
Return on Ad Spend (ROAS) is a marketing metric that quantifies the total revenue generated for every dollar spent on advertising. In other words, ROAS measures the effectiveness of your advertising efforts by comparing total ad spend on campaigns to the revenue from those campaigns.
Return on Ad Spend Formula
How to calculate Return on Ad Spend
For example, Corey’s Cyclery spent $2,500 on advertising in the month of July through their PPC, Affiliate, and Display Campaign. The campaign resulted in $10,000 in revenue. Therefore, the July ROAS is equal to $10,000 / $2,500 or $4, which means that for every dollar spent the business generated $4 in revenue. This is equivalent to a return of 400%.
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What is a good Return on Ad Spend benchmark?
ROAS does not have a single definition of “good” as it is influenced by profit margins, operating expenses and can even be channel, campaign, or tactic dependent. However, it is generally better to have a higher ROAS.
How to visualize Return on Ad Spend?
It may be useful to segment ROAS by campaign, to analyze the impact of each specific ad campaign. A bar chart with ROAS segmented by campaign would be the best data visualization for this scenario. Another useful data visualization for ROAS would be a line chart to show changes in trend over time. Check out the examples:
Return on Ad Spend visualization examples
Return on Ad Spend
Bar Chart
Return on Ad Spend
Line Chart
Return on Ad Spend
Chart
Measuring Return on Ad SpendMore about Return on Ad Spend
Return on Ad Spend measures the effectiveness of your advertising spend as a percentage or dollar value. ROAS can be used as an aggregate metric to measure the overall performance of a campaign, or as a measure of performance of individual campaign tactics. Either way, this metric gives you better insight into which campaigns or campaign groups are delivering the greatest return and which require optimization or reallocation.
Often confused with the larger umbrella term ROI, ROAS can be considered an advertising-centric or tactic-specific evaluation metric as part of the wider ROI definition. In other words, while ROAS measures the advertising specific costs to deliver a set campaign, ROI is a more global business metric that takes into account additional costs to derive its quantification and is generally applied to larger strategic initiatives.
Nevertheless, there are a few individuals that also like to include the costs to produce and deploy the ads. In such cases, the formula would be adjusted to be: (Revenue - Costs) / Ad Spend. However, these costs are often more volatile and difficult to capture accurately, which adds further complexity for little incremental benefit.
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