February 8, 2023

What is return on ad spend (ROAS)?

return on ad spend

If there is something we can all agree on is that measuring and analyzing your data is crucial for your company. From the classic and well-known ROI (Return on Investment), to more modern and digital-oriented metrics like CPC (Cost Per Click) or CPM (Cost Per Mille), by understanding this information, you can fine-tune your marketing techniques and improve your overall results.

And though there are hundreds of metrics we can talk about, in this article, we will focus on ROAS, one of the most useful marketing KPIs you can find. So keep on reading; you might learn a new thing or two!

Defining ROAS

Also known as Return On Ads Spend, ROAS is a marketing metric that can help you evaluate the effectiveness of your advertising campaigns. How? By measuring the revenue earned for every dollar spent on a campaign. Let’s illustrate this with an example: if you made $5000 from an ad investment of $1000, that means that you earned $5 for every dollar spent on your advertising campaign. In that case, your ROAS would be 5:1.

Thanks to this metric, you can analyze and evaluate which methods work best for your business while also helping you spend your budget for advertising campaigns more efficiently. So next time someone asks you what ROAS is,  we are sure you will know the answer!

How to calculate ROAS

Now that we’ve covered what ROAS is, it’s time to dive into the ROAS calculation process. Don’t worry this is not one of those difficult math theorems. In fact, the equation to calculate ROAS is quite simple. You just have to divide the revenue generated by your ads by the cost of such ads. You can see it more clearly in the image below:

Roas formula

Thanks to the ROAS equation, you will be able to calculate a ratio that can determine if your advertising campaigns are working correctly or need some adjustment.

Let’s use another example: imagine that last month your company spent $5,000 on an advertising campaign. The results in revenue of that campaign ended up being $35,000. This means that the ROAS is a ratio of 7 to 1 (or 700 percent) as $35,000 divided by $5,000 = $7.

As you can see, the equation is relatively easy. The real challenge lies in finding and gathering the data to calculate your ROAS, so our advice is this: if you want to get an accurate measurement of your ROAS, then you must collect accurate data. Otherwise, the insights from your results won’t be of any use.

Call-tracking tools like Dastia can be a great ally when calculating ROAS, as they allow you to understand which online and offline campaigns are driving your results. By assigning unique tracking numbers to each ad, our platform helps you link a specific ad to a single sales call. This helps calculate an accurate ROAS to back your decisions. When you use Dastia, calculating the revenue of your ads is a breeze!

Is my ROAS good?

Now that we’ve covered the ROAS calculation, the next logical step is to improve it. We bet you’re probably wondering if the value of your ROAS is good. Well, even though there are no correct answers, we can say that an adequate ROAS is usually around 3:1 ($3 in revenue to $1 in ad spend), so if you’re far from that ratio, you may have to adjust your advertising strategy. If that is the case, or if you simply want to get a better ratio, then you need to ask yourself the million-dollar question: how do I increase my ROAS?

How to increase ROAS

The first thing you can do to improve your ROAS is to review your campaigns and lower your ad spend on those that aren’t bringing the best results. Even though it makes sense mathematically (because the lower the denominator in the equation, the higher the ratio), it is always a good idea to analyze your advertising campaigns to detect possible adjustments that can help you increase your revenue.

Another good way to improve this metric is to work on your content strategy. By delivering more personalized content for your prospects, the chances that you can turn them into customers increase significantly. Other good options to consider are optimizing your landing pages or even rethinking negative keywords in your campaigns. Remember: when it comes to improving your ROAS, every detail counts!

Whatever ratio you get next time you calculate your ROAS, keep in mind that it is crucial to understand the goal of your ad campaign before considering if it is high or low. For instance, you may want to increase brand awareness instead of trying to get new clients. In that case, it makes sense to have a lower ROAS. Some companies need a 7:1 ratio to stay profitable; others are good with just a 3:1. Each business has its own rules and internal logic, so as we said before, there are no right or wrong answers. It all depends on your objectives.

To wrap things up, remember that even though ROAS is a very important metric, you should never track it on its own. The best way to get the most out of it is to combine it with other KPIs, analyze more data, and try to get the full picture of your results.

Call tracking tools like Dastia allow you to better understand your campaigns and, alongside metrics like ROAS, can help you prove the value of your marketing efforts. Stop guessing which marketing campaigns drive qualified leads, and try Dastia today!

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