What is Return On Ad Spend?

What is Return on Ad Spend (ROAS)?

ROAS meaning is closely linked to Return on Investment (ROI). But unlike ROI, ROAS focuses specifically on your advertising spend. It’s your total income from advertising divided by your total advertising spending.

Measuring ROAS is incredibly important. First, it’s comparative. You can compare your ROAS today with your ROAS yesterday to see if the effectiveness of your campaigns is increasing or decreasing. You can also compare your ROAS from each channel to see where you should be spending money.

Second, it’s informative. It tells you whether you should be increasing your spend. If your return on ad spend is continuing to remain static, there’s no reason you shouldn’t continue to spend more money on advertising (presuming that you are able to scale up).

So, ROAS is one of the most important metrics that a marketer can track. But the challenge with ROAS is that, while it’s simple, it requires that your numbers be very accurate.

For digital marketers, that could be a challenge. How you tell what revenue came from Facebook? What revenue came from LinkedIn?

It’s all about tracking. Without tracking, you can never really know your ROAS, because you don’t know which returns are coming from which channels. You know how much you’re spending, but you don’t know what campaigns are bringing money back in.

So, return on ad spend is an important metric, but it has to be backed by data. When it isn’t backed by data, it will not yield results that you can actually make decisions based on.

ROAS is often used alongside ROI to determine whether your marketing strategies are operating correctly. In rare cases, you can use return on ad spend to compare to industry or other company averages, but this is rare because ROAS is so unique to the company and the channel.

You can also use ROAS in more complicated calculations, provided you have the data. For instance, you could identify the return on ad spend toward specific demographics.

What is the ROAS Formula?

The basic ROAS formula is as follows:

[Advertising Income]/[Advertising Spend]

And it’s expressed as a percentage.

If you spend $100 and get $500 in return, your ROAS would be:

500/100 = 500%

Could this formula be different? The formula is usually always the same, otherwise, it wouldn’t be the return on ad spend formula. But the return on ad spend formula isn’t the complicated part.

While the formula is simple, the process of deriving the two values is not.

Your revenue (not income) in the ROAS calculation formula is the total amount you’ve made. But usually, you’re tracking a specific channel or campaign, not all your advertising. If you track all your advertising, the ROAS formula becomes less useful.

So, you need detailed tracking that tells you where your income is coming from. Every strategy and every channel has to have unique markings or signifiers, which indicate where the revenue has come from. Without this, you’ll be lost.

This information is typically tracked through a digital intelligence platform.

What is a ROAS Calculator?

If you don’t want to figure out the return on ad spend formula, just use a Return on Ad Spend Calculator. Given the right data, any ROAS calculator should work. You can also find other things, such as an ad spend calculator or a break even ROAS calculator.

Here’s a very simple ROAS calculator. And if you don’t know your revenue, it can calculate how much you would need to make to break even on your advertising spending. There’s also the Omni ROAS calculator which links to many other useful calculators for determining the right ad spend.

ROAS calculators work by taking the two amounts and dividing one by the other, then expressing them in terms of a percentage. So, they’re not very complicated at all. But it can be useful to have a calculator that will do everything for you.

Now, here’s the challenge. Those calculators work if they’re provided with the right return on ad spend. The calculators themselves do nothing unless the data they’re given is accurate. Usually, you need a platform like Lumenad to help. And these platforms come with ROAS and ROI functions already built in.

You can also create your own ROAS calculator in Google Sheets or Excel, if needed.

What Is A Good ROAS?

What is a good ROAS? It really depends.

ROAS is highly situationally dependent. This is why most companies actually compare their ROAS to their own historical ROAS. Across all industries, ROAS is about 287% That means that for every dollar you spend, you get a return of $2.87. But that depends on each individual industry. Still, you know that if you’re getting more than that, you’re doing quite well.

But both ROI and ROAS need to be taken as they are; relative. You need to be able to show whether your ROI/ROAS is improving or not. If your return on ad spend is going down, perhaps you’ve reached true market saturation. Otherwise, perhaps your current strategies aren’t as effective. So, essentially, what is a good ROAS? A good ROAS is anything above your organization’s average ROAS.

You’ll often find that different channels perform better. The return on ad spend of Facebook tends to be very high because you can market directly to your core demographics, while paid advertising is usually fairly low because people tend to block out advertising on websites. Email ROAS is usually high because people have already opted in.

How Do You Calculate ROAS Facebook?

What about ROAS Facebook? ROAS Facebook ads is the same as any other calculation, but there’s one special consideration. As noted, calculating your revenue is important.

How do you find out how much revenue has come from Facebook when calculating the ROAS Facebooks? Facebook uses something called the Facebook Pixel, which tracks users on your website so they can see whether they convert.

But if you’re booking conversions a different way (say, via phone) it may be more difficult. You might need to ask consumers directly where they have come from or have surveys and polls when people check out and make a purchase.

So, like other things, your ROAS Facebook is going to be determined by how accurate your tracking system is. Because you might be using a dozen channels, you also need to be tracking a dozen channels.

What is a good ROAS for Facebook ads?

Facebook ads usually see an ROI of 400 percent to 600 percent, making them more viable than many other advertising channels. However, that also depends on your service and our company. Facebook ads are often more effective for impulse purchases and low value purchases rather than higher value products.

ROAS vs ROI: What’s the Difference?

Let’s take a look at ROAS vs ROI.

First, there’s the obvious. ROI is broad. ROI refers to return on investment and it can be any investment, from purchasing equipment to renting out a space. So because of that, it’s not as niche as ROAS.

ROAS looks at only your advertising spend. So, it’s far more specific and it’s intended for advertising alone. You want to look at ROAS and think about ROAS as your ROI for advertising.

Most platforms will give you your ROAS and your ROI. Keep in mind even for advertising, ROAS and ROI isn’t the same. ROAS is purely advertising spend; the amount you’ve allotted toward the advertising fees. ROI for advertising might also include graphic design, marketing strategy development, and more.

So, ROAS is fairly niche but that also means that it offers you more information. ROI can give you a broad spectrum overview of how your organization’s investments are improving, but ROAS is what will tell you whether you should throw more money at a given advertising channel.

What Is A Good ROAS For Google Ads?

What is a good ROAS for Google Ads? On average, the ROAS for Google Ads is 200 percent. You might note that’s lower than the average across all channels, which is 284 percent. You might also note that it’s significantly lower than Facebook at 400 percent.

So why are so many people on Google Ads?

First, you can use a ROAS calculator Google Ads to find out what your own organization’s ROAS for Google is. You could find that it’s much higher than average. Google works particularly well for organizations that have not yet achieved a following. These organizations may not yet have been able to build up or ramp up their marketing campaigns.

Second, Google Ads is very, very accessible. Anyone can start a Google Ads campaign. And because of that, there are more amateurish or in targeted campaigns on Google Ads, which drives the advertising averages down.

Because Google Ads is easy and still has a positive ROAS (200 percent is nothing to scoff at), many advertisers still throw money its way. but it’s easy to see that this ROAS could likely be improved through better strategies. Further, it’s easy to see why many are moving toward social media campaigns and LinkedIn campaigns.

This highlights the fact that a good ROAS for one channel might not necessarily be a good ROAS for another channel and why it’s so important to compare like-kind channels. You might think a 300 percent ROAS on Google is very bad compared to your 400 percent ROAS on Facebook, but it’s much higher than average.