What is ROAS (Return On Ad Spend) and How to use it?

If you’ve been hearing a lot about ROAS and are curious about what it entails, you’ve come to the right spot. ROAS, or Return On Ad Spend, is a vital metric in advertising circles. It serves as a tool to gauge the revenue generated in proportion to the money invested in advertising campaigns. It helps assess the effectiveness of your advertising efforts and whether they’re yielding the desired outcomes.

How to use ROAS?

I understand that delving into it might seem daunting at first, but fear not! Calculating and utilizing ROAS is actually quite straightforward. Here’s how it works: You simply divide the revenue attributed to your ad campaign by the cost of that campaign. For instance, if your campaign generated 1500 Euros in revenue and cost you 500 Euros, the calculation would be (1500 / 500) * 100 = 300%. This means that for every 1 Euro spent, you earned 3 Euros. That’s a pretty solid outcome, though of course, what you consider a good result depends on your specific objectives.

Now, the trickier part isn’t crunching the numbers for ROAS; it’s accurately determining which revenue is directly tied to your ad campaign. If you’re running an online store, you can track this data using cookies, which helps identify transactions originating from your advertisements. However, pinpointing ad-driven transactions in traditional brick-and-mortar establishments is more challenging and prone to error.

As you can see, ROAS is crucial for assessing the effectiveness of your advertising efforts. It helps you decide whether to continue investing in a campaign or to redirect your resources elsewhere. Keep in mind that what constitutes a good ROAS varies depending on factors like your advertising goals and industry.

Should you use ROI or ROAS?

Now, you might be wondering whether to focus on ROI or ROAS. Well, why not both? While they’re related metrics, they serve different purposes. ROI provides a broader perspective, accounting for all aspects surrounding the ad and is focused more on longterm, whereas ROAS zeroes in on a specific campaign’s performance short-term. Monitoring both metrics gives you a comprehensive understanding of your advertising endeavors.

If you’re interested in learning more about ROI, feel free to check out our article on the topic: What is ROI and Why should You Use It?

How to Improve your Return On Ad Spend?

If you’ve noticed your ROAS declining over time despite initially promising results, it might be time to shake things up with new campaigns. A dip in ROAS could indicate audience fatigue – people might have grown tired of seeing the same ad repeatedly. On the other hand, if you’ve never achieved a satisfactory results, your ad might simply not be resonating with your target audience. Keep in mind that it takes time for ads to optimize, gain visibility, and elicit a response. Don’t expect to see stellar figures within just a couple of months.

Consider conducting A/B testing by creating variations of your ad with minor tweaks to see which resonates best with your audience. It’s essential to include a clear call-to-action (CTA) in your ads and ensure you’re targeting the right audience – perhaps your current targeting parameters aren’t capturing the most interested users.

Are you calculating your ROAS correctly?

Now, let’s address another crucial aspect: Are you calculating your ROAS correctly? It’s possible that inaccuracies in your calculations are making your outcome appear lower than it actually is. Determining the true costs and revenue associated with an ad campaign isn’t always straightforward. To gain a clearer perspective, consider calculating ROAS based solely on the direct costs of the ad. Then, for a more comprehensive view, calculate a second ROAS that includes additional expenses such as affiliate costs, personnel expenses related to the campaign, and any fees incurred during campaign setup. This dual approach will provide a more accurate assessment of your advertising performance.