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    Advertising

    What is ROAS? How to Calculate Return on Ad Spend

    What is ROAS? How to Calculate Return on Ad Spend

    3 Min Read

    As marketers evolve their strategies to effectively advertise a brand or product, there are plenty of metrics used to evaluate the success of ad campaigns. These include customer lifetime value, conversion rate, and more. Today we are doing a deep dive into the data that every marketer should be looking at, starting with one of the most useful industry standards – ROAS (Return on Ad Spend). In this article, we’ll discuss what ROAS is, a good target ROAS to aim for, and how to calculate it.

    ROAS Definition

    Return on Advertising Spend (ROAS) is a commonly used metric that marketing teams calculate to measure the success of their ad campaigns. Finding ROAS will help provide context for how much your advertising costs versus how much revenue was gained as a result of that campaign.

    How to Calculate Return on Ad Spend

    There are a couple of ways to calculate ROAS in marketing, but here is the most commonly used ROAS formula:

    Return on Ad Spend = Gross Revenue / Ad Spend

    While ROAS is essential to evaluating the success of your campaign, make sure you are using the right input data to get an accurate performance metric. There is usually more than one factor involved in both your total revenue and ad spend, so be careful not to miss any line items while adding up each variable. This could include anything from management costs (like partner fees or sales commissions) to impression metrics (such as cost-per-click or conversions). Keeping track of everything that goes into your gross revenue will provide a more accurate ROAS calculation, allowing you to better evaluate the success of your campaigns.

    An Example of How It’s Used

    As an example of using this ROAS formula, let’s say your advertising campaign generated $100,000 in revenue, and you spent $10,000 on your campaign. To calculate ROAS, divide 100,000 / 10,000 to get the return on ad spend of 10:1.

    What is a Good ROAS?

    There is an easy way to know whether your ROAS indicates a successful ad campaign or an unsuccessful one. If your return on ad spend calculation is under 1, that means your advertising costs are larger than your revenue, and your ad campaigns are not positively impacting your business. However, if your ROAS calculation is greater than 1, then your ad campaigns are driving enough revenue to make a profit. 

    The higher your target ROAS, the bigger your return — so be sure you’re getting it as high as you can. If you are interested in growing your ROAS, find out how we can help boost your ROAS performance.

    Why is ROAS Important for Marketers?

    The world of digital marketing is all about data, and the metrics you choose to track are defined by what is important to your business. Your company likely will want to know exactly how well your campaigns are performing, and calculating ROAS is essential for effectively evaluating the success of those ad campaigns. By looking at your ad spend against gross revenue, it will become easier to tell which campaigns work well for your business, and which ones should be reevaluated.

    Final Thoughts on Calculating ROAS

    With so many different metrics available for digital marketing managers, it’s easy to see how calculating return on ad spend is one of the most important ones to consider. At MNTN, we’ve made a Collection of Essential Marketing Calculators – guaranteed to make the life of any marketer that much easier.