What is Return on Ad Spend (ROAS)?

What is Return on Ad Spend (ROAS)?

ROAS is a marketing metric that calculates the revenue generated for every dollar spent on advertising. It provides insight into the efficiency of advertising efforts and helps marketers determine which campaigns are most effective at driving revenue.

💡 Read More: What are Conversion Rate (CVR) & Engaged View Conversion (EVC)?

How to Calculate Return on Ad Spend (ROAS)?

The formula for calculating ROAS is straightforward:

• ROAS = (Revenue from ad campaign / Cost of ad campaign) x 100
  • For example, if you spend $1,000 on an ad campaign and it generates $5,000 in revenue, your ROAS would be:
  • ($5,000 / $1,000) x 100 = 500% or 5:1
  • This means that for every dollar spent on advertising, you earned $5 in revenue.
• Let's look at some examples to better understand ROAS:

1. E-commerce: An online store spends $500 on a social media ad campaign that generates $2,500 in sales. The ROAS would be 500% or 5:1.
2. SaaS company: A software company invests $10,000 in Google Ads, resulting in $30,000 in new subscriptions. The ROAS is 300% or 3:1.
3. Local business: A local restaurant spends $200 on targeted Facebook ads, leading to $800 in new customer orders. The ROAS is 400% or 4:1.

Why Return on Ad Spend (ROAS) is Important

ROAS is a valuable metric for several reasons:

1. Measuring campaign effectiveness: It helps marketers understand which campaigns are performing well and which need improvement.
2. Budget allocation: By identifying high-performing campaigns, businesses can allocate their advertising budget more effectively.
3. Optimization: ROAS insights can guide marketers in optimizing their campaigns for better performance.
4. Profitability assessment: It helps determine if advertising efforts are profitable relative to the costs involved.

Return on Ad Spend (ROAS) vs. Return on Investment (ROI)

While ROAS and Return on Investment (ROI) are similar, they have some key differences:

• ROAS focuses specifically on advertising spend and revenue generated from ads.
• ROI takes into account the total cost of investment, including factors like salaries and overhead.

ROAS is typically used for more granular, campaign-specific analysis, while ROI provides a broader view of overall marketing performance.

Examples of Return on Ad Spend (ROAS)

In conclusion, ROAS is an essential metric for any business engaged in digital advertising. By understanding and regularly measuring ROAS, marketers can make data-driven decisions to improve their advertising effectiveness and maximize their return on ad spend.

Remember, while ROAS is valuable, it should be considered alongside other metrics for a comprehensive view of marketing performance. By doing so, businesses can develop more effective advertising strategies and achieve better overall results.

Drive Growth with Appier's AI-Powered Marketing Ecosystem

Appier is a leader in AI-powered full-funnel marketing solutions, offering a comprehensive suite of tools designed to optimize every stage of the customer journey. 

As of 2024, Appier serves more than 1,700 customers globally, spanning various industries from finance to retail. The company's impressive client roster includes renowned brands such as Pizza Hut, Burger King, Clarins, Carrefour,  Toyota, and BMW.