What is ROAS? Roas Calculation. How is Roas better than calculating ROI?

Last Updated On : 2018 Oct. 01

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Online marketing requires a lot of efforts and a comprehensive action plan for success, So let’s discuss and explore more about it by our new series called “Marketing Expansion Series’ by Adnabu and today we will go through & understand what is ROAS, How to do ROAS calculation, Why ROAS Matters and What difference between ROAS & ROI

What is ROAS?

ROAS or Return on Ad spend is revenue based marketing metric for Online Advertisers, which measures the efficiency of a digital advertising campaign. ROAS helps an online business determine what are the methods are working and how you can improve in the future advertising efforts.

In Simple words, it answers the fundamental Question, which marketing channel is performing at what level to get into profitability because Marketing is all about Investing in the right platform and getting desired the output.

How to do ROAS Calculation?

The Formula to Calculate ROAS is Very Simple, It is as follows

Revenue/Cost = ROAS

For Example: If I spend $20,000 on paid search in the month of August and Generated $60,000 as revenue, then my ROAS is $3.

($60,000/$20000=$3)

Why ROAS Matter?

ROAS matters significantly as it evaluates the performance of ad Campaign and how they contribute to an Online store’s overall earning (Bottom line), Observation and finding of ROAS across all campaign help in future budgets, Marketing plan and formulation of strategy.

By the Findings and observation of ROAS on regular basis, E-commerce companies make the decision where to invest their Ad Budget and how to make it efficient day by day.

What is a good ROAS?

Good ROAS is influenced by Operating expenses, Profit Margin and the overall performance of the business, There is no definite answer for Good ROAS. Few Businesses are considered outstanding for maintaining $4:1, Others would require $10:1 to maintain profitability.

Having a high margin indicates that the business can survive a low ROAS, whereas Having low margin indicates that the business should maintain low advertising cost.

Difference between ROAS and ROI

ROAS vs ROI

(ROI) Return on Investment measures the profit generated by ads relative to the cost of those ads. In comparison, (ROAS) Return on Ad Spend measures gross revenue generated for every dollar spent on advertising. It is an advertiser-centric metric that benchmarks the effectiveness of online advertising campaigns.

Conclusion:

Hopefully, You now have a better idea and clarity regarding ROAS & ROI.

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