What is ROAS (Return on Advertising Spend) ?
A metric used to calculate digital advertising spend performance and efficiency. ROAS is comparable to ROI (Return on Investment). The amount of money spent on digital advertising is the investment for which the returns are being tracked, and it gauges the effectiveness of the advertising efforts. There’s a focus on increasing ROAS. An account’s ROAS can be calculated at several levels – from the account level up to the group level. It is necessary to know your total spending to calculate ROAS.
The cost of advertisements can be calculated in several ways. You may only want to keep track of the dollars spent on a specific ad platform, but there are occasions when you may want to include other advertising costs as well, such as salaries, vendor fees, and vendor charges. For different advertising campaigns, calculating ROAS only based on ad costs and another ROAS that includes these additional advertising expenses can be important to gain a complete picture of the campaign’s profitability. ROAS gives marketers a way to see just how much their advertising is contributing to the bottom line. It is also possible for marketers to examine, compare, and measure the efficacy of their advertising initiatives by tracking ROAS across different campaigns and advertising platforms.
The return on an ad platform, campaign, or ad can be broken down into ROAS, allowing marketers to assess where they’re making the most money. It’s a good idea to set a target ROAS before commencing an ad campaign. Big Commerce emphasizes the fact that there is no "correct" solution to what constitutes a good ROAS, as this may vary depending on the profit margins and other running expenses of the company.
With the addition of ROAS to other metrics like cost per acquisition (CPA), cost per lead (CPL), and cost per click (CPC), marketers receive a fuller picture of the KPIs they need to attain to meet particular revenue targets. Taking a broader view of these PPC data can help identify the quality of traffic and leads coming from different ad sources. Also, if your CPL is higher than normal yet your ROAS is high, your leads may be better qualified than those from other channels, and your CPL benchmarks may need to be increased.