The Plain English Guide to Return on Ad Spend (ROAS)
As a writer, I’ve never been very good at math. I know … shocking.
Most marketers can refer to this because we are better as a group in English and history than in math and science.
However, as a marketer, we need to be able to analyze data and calculate the effectiveness of an article or campaign, even if math may not be our strength.
One of the calculations we need to do and metrics we need to keep track of is Return on Ad Spend (ROAS).
Let’s check ROAS below. In this post we will discuss what ROAS is, how it differs from ROI and how it is calculated.
What is the Return on Ad Spend (ROAS)?
ROAS (Return on Ad Spend) is a metric that measures sales compared to every dollar in an advertising campaign. Suppose you earned $ 10 for every $ 1 you spent on an advertising campaign. That means your ROAS for this campaign is 10: 1.
Ultimately, ROAS is designed to measure the effectiveness of a particular advertising campaign, not your overall ROI – more on this below.
In addition to ROAS, you will most likely measure other metrics such as click rate and ROI. Measuring multiple metrics gives you a more accurate view of your results.
Of course, measuring performance and tracking analytics is an important part of any marketing campaign.
By tracking performance, you can improve and repeat your performance Marketing techniques. Furthermore, data is one of the only ways to really prove that your department is generating revenue, which is incredibly important.
However, it is important to note that not everything can be measured quantitative data. For example, calculating brand awareness and branding is much more difficult. And while you can charge for downloads or email signups, they may not always generate revenue.
When analyzing data, it is important to consider the context and review both qualitative and quantitative data.
That being said, we’re going to focus specifically on ROAS today. Before we do that, let’s see how ROAS differs from ROI.
ROAS vs. ROI
While the Return on Investment (ROI) measures the total return on an overall investment, the Return on Ad Spend (ROAS) only calculates your return on a specific advertising campaign. Essentially, the ROI is an overall metric, while the ROAS is a specific metric that measures the success of a particular advertising campaign.
Ultimately, this means that the only costs that are included in a ROAS calculation are advertising costs. On the other hand, the costs of an entire project or campaign are taken into account in an ROI calculation.
The goal of your advertising campaign is, of course, to generate a positive return on your advertising spending. However, how can you determine how much you want to spend on advertising?
In the following YouTube video, HubSpot describes how to measure advertising spending by understanding the bidding system used by advertising networks.
ROAS can help you determine how to spend your advertising budget and signal whether your campaigns are successful. That way, you’ll learn that you may need to evaluate your approach to showing ads.
At this point you may be wondering: “How can I calculate the ROAS?” Now let’s check that out.
Calculation of the ROAS
The equation to calculate ROAS is simple: Revenue from ads / advertising costs. This equation gives you a ratio that you can use to determine whether your advertising campaign is working. For example, if you earn $ 10 for every $ 1 spent, your ROAS is 10: 1.
Although the equation is simple, it can be difficult to collect the data required to perform this calculation. For example, calculating the cost of an ad is not always easy. You’ll need to consider the cost of the ad bid, labor costs for the time it took to create the creative assets, manufacturing costs, and partner commissions.
However, it is important to get an accurate estimate of the actual money being spent on an ad to get an accurate ROAS measurement. If your data is incorrect, your results will not be correct.
If you’re not an ecommerce business, it can also be difficult to measure the revenue generated by an ad. For example, someone might convert from your ad because they downloaded an ebook but haven’t spent any money yet. In fact, they may not spend any money for months.
To counteract this, you can use CRM software like HubSpot in conjunction with HubSpot adsto track earnings from leads.
With CRM and advertising software, you can track your data and link everything together – marketing leads, ad results, etc.
Now you may be wondering “What is a good ROAS?” and “How can I improve my ROAS?”
A good ROAS is typically 3: 1. If you barely hit breakeven, it may be time to take a closer look at the accuracy of your metrics and evaluate your ad and bid strategy.
However, it is important to note that the goal of some advertising campaigns may not be to generate instant revenue, but to increase brand awareness. If this is your goal, a lower ROAS makes sense.
To improve your ROAS, you can lower your ad spend and review yours Advertising campaigns. You may want to optimize your landing pages or rethink your negative keywords.
Overall, ROAS is an important metric to track, but it shouldn’t be tracked in a vacuum. It’s important to look at other data and metrics to get a complete picture of your return on investment.
