What is ROAS? How to calculate ROAS? 

Return on Ad Spend (ROAS) is a critical metric for digital marketers aiming to evaluate the effectiveness of their advertising campaigns. Understanding how to calculate ROAS can empower businesses to make data-driven decisions, optimize their marketing budgets, and enhance overall profitability. This guide will walk you through the steps to accurately calculate ROAS and discuss how to interpret and apply these insights to improve your marketing strategies.

What is ROAS?

ROAS stands for Return on Ad Spend, a metric used to measure the revenue earned for every dollar spent on advertising. It is a straightforward yet powerful indicator of an advertising campaign’s financial performance. By calculating ROAS, marketers can assess which campaigns are generating the most value and adjust their spending accordingly.

Why Calculate ROAS?

Calculating ROAS helps businesses:
Optimize Advertising Spending: Identify which campaigns are performing well and allocate the budget more effectively.
Measure Campaign Effectiveness: Evaluate the financial return of different advertising channels and campaigns.
Make Strategic Decisions: Use ROAS data to support strategic decisions about scaling up successful campaigns or revising underperforming ones.
Calculating ROAS addresses all these common queries for advertisers. For example, "Which campaign should I allocate my advertising budget?"; "If I invest X amount in ad campaigns, how much profit can I expect?
Therefore, this metric should be one of the primary key performance indicators for your advertising campaigns.

What ROAS are considered good?

There's no one-size-fits-all ROAS for every advertising campaign. Achieving a 4% ROAS within three days might be considered a great outcome for a campaign while falling below 13% could be deemed a complete failure for another. Determining an appropriate ROAS depends on multiple factors, including the monetization strategy, profit margins, retention effects, and overall objectives.
A general guideline is to aim for a 3:1 ROAS, meaning your revenue should be at least three times your advertising spend. For instance, for every $1 you invest in advertising, you should ideally earn $3 in return.

How to Calculate ROAS

To calculate ROAS, you use the following formula:
ROAS=Revenue from Ad CampaignCost of Ad Campaign/Cost of Ad CampaignRevenue from Ad Campaign​

Step-by-Step Calculation:

  1. Identify Revenue from Ad Campaign: Track and sum up all sales directly generated from the specific campaign during a set period.
  2. Determine Cost of Ad Campaign: Add up all expenses associated with the campaign, including ad spend, creative costs, software tools, and more.
  3. Apply the ROAS Formula: Divide the total revenue by the total cost of the campaign.
    If you spent $5,000 on a campaign and generated $20,000 in sales, your ROAS would be:
    This means you earn $4 for every dollar spent on the campaign.

ROAS is relatively easy to track, as it is directly listed as the image shows.

For example, in the image below, this campaign is to sell tickets with a high unit price and precise audience targeting. Therefore, the ROAS is relatively high.

How to Improve ROAS

To improve your Return on Ad Spend (ROAS), focus on optimizing several key aspects of your advertising campaigns.

Strategy 1: Focus on Audience Targeting

Effective audience targeting is crucial for the success of any advertising campaign. While basic demographic targeting (age, gender, location) is essential, you need to go beyond that.

Implement Remarketing Ads:

Remarketing ads are a powerful tool for re-engaging with website visitors who have previously interacted with your brand. By targeting individuals who have shown interest in your products or services but haven't completed a desired action, such as making a purchase or filling out a form, you can increase conversion rates and drive valuable leads.

Implementing remarketing ads allows you to stay top-of-mind and remind potential customers of the value you offer. Tailor your ad content to align with their previous interactions, whether it's showcasing products they viewed or promoting special offers tailored to their interests. With strategic placement across various online platforms, remarketing ads can effectively nurture leads and guide them toward conversion.

Utilize Lookalike Audiences:

Expand your reach and tap into new markets by leveraging lookalike audiences. Lookalike audiences are groups of users who share similar characteristics with your existing customer base. It allow you to target new users who may not know you yet but are likely to become your customers.
For example, if you want to generate more shoppers from your existing customers, or if you want more people from your existing prospects to register on your website, then such "seed audiences" should consist of at least 100 people before you can create similar audiences.
We need to provide a sample audience you want. The ad networks will gather all available data based on the sample and look for audiences with commonalities.
You can use Bigspy to check a specific ad campaign's audiences. It will help you to create lookalike audiences.

Strategy 2: Adjusting Advertising Budgets

Running ad campaigns often starts by creating multiple ad groups and ads to run, and then selecting the optimal ad (group) based on performance, i.e., the ad that spends the least money and reaches the most audience (winning ad).
Once this winning ad is selected, we can optimize it in two ways.
First, pause other ad placements to save costs.
Then gradually increase the budget for this ad, typically keeping each adjustment between 15% to 20%, otherwise the algorithm may treat it as a new ad and restart the learning phase.
After each adjustment, whether or not the algorithm has restarted, let the ad campaign run for at least 24 hours. Once stable, decide whether to make further adjustments.

Strategy 3: Optimize Landing Pages for Conversions

A well-optimized landing page is essential for turning ad clicks into paying customers:
Align Your Message: Ensure your landing page content and design seamlessly connect with your ad message and resonate with your target audience.
Speed is King: Prioritize fast page loading times to minimize bounce rates and deliver a smooth user experience.
A/B Test for Success: Test different calls to action, form fields, and other landing page elements to optimize your conversion rates.

Calculating ROAS is essential for managing and optimizing your digital advertising efforts. By understanding and implementing this metric, marketers can enhance campaign performance, make informed budgeting decisions, and ultimately drive better financial results. Begin integrating ROAS calculations into your reporting today to unlock deeper insights into your marketing effectiveness.