ROAS


ROAS is an acronym and stands for Return on Advertising Spend. It is an important key performance indicator in Online Marketing. The ROAS statistic is based on the principle of Return on Investment, but refers to the portion of actual profit achieved per advertising expense in dollars. While the overall ROI is the ratio between revenue and cost, ROAS is used to evaluate individual ads and campaigns.

How it works[edit]

The ROAS indicator can be used to answer questions related to the effectiveness of specific Advertisment:

  • How do my advertising expenses for Paid Links relate to the sales generated with it?
  • Do my Ads generate any Conversions at all?
  • Which ads convert well and which ones don’t?
  • For which ads should Keywords be deleted and for which ads should I increase my spending or CPC?

The ROAS is a suitable tool for such questions, since it shows the profit and advertising costs spent on it in a percentage ratio. The ROAS is calculated as follows.

ROAS = (profit/advertising costs) * 100

If a company generates a profit of $1000 and the placement of ads amounts to $200, the ROAS would therefore be 500%. The value should be as high as possible, so that the advertising costs represent only a fraction of the profit. Depending on the type and purpose of the project, however, the ROAS may be lower. For example, when launching a new Website or Branding Campaign, where long-term effects are more important than the effectiveness of the ads placed.

However, a high ROAS value does not automatically represent the success of a company. If the product being advertised requires very high production costs, the ROAS value may be high, but the actual profit may be low. The extent to which the ROAS indicator is useful and informative depends therefore on the company, the campaign, and its objectives.[1]

Relevance to online marketing[edit]

In contrast to other key figures in online marketing, which are monetarily independent, the ROAS shows the relationship between profits and advertising costs. The clicks generated by advertising do not say anything about the percentage of the profits that these clicks may have generated. The ROAS, on the other hand, gives an exact ratio and allows marketers to keep an eye on their campaigns, associated expenses, and profits. The ROAS value is used especially in the context of a Google AdWords strategy when conversions with very different amounts are to be expected. This requires workable Conversion-Tracking. With Google AdWords, the targeted ROAS corresponds to the average value of a conversion, which is targeted per euro invested in the advert.

Moreover, ROAS key figures can be transferred to scoreboards to provide a tool to decision-makers in management positions. This is particularly useful in the planning of future campaigns, but also gives an insight into ROAS figures of past months and years if scoreboards are created regularly. Thus, changes in the effectiveness of individual ads and campaigns can be responded to quickly.[2]

References[edit]

  1. What is Return On Advertising Spend (ROAS)? brickmarketing.com. Accessed on 09/16/2014
  2. The Return on Advertising Spend Metric techwyse.com. Accessed on 09/16/2014