What Is ROAS? Return on Ad Spend in Under 5 Minutes

Last updated: November 24, 2023

What is ROAS?

Return on ad spend (ROAS) is a marketing metric that measures the amount of revenue earned for every dollar spent on advertising. You can calculate your return on ad spend using the following formula: Revenue Attributed to Ad Spend / Advertising Costs.

Asking yourself, “what is ROAS?” or “what does ROAS mean”? Well, you’re in the right place!

On this page, we’re diving into all things return on ad spend! So, just keep reading to learn more about the ROAS definition!

Key Takeaways

• ROAS is a marketing metric that assesses the performance and financial return of a digital advertising strategy, campaign, or ad group.
• To calculate ROAS, use the ROAS formula, which divides your ad strategy’s total revenue by its total cost, to calculate your return on ad spend: ROAS = Revenue / Cost
• ROAS in marketing is essential for informing your company and your team about the performance and quality of your ad campaign.
• A good ROAS is usually a 4:1 ratio — $4 in revenue to $1 in ad costs.

Here’s a quick overview of everything we’ll cover below:

• What is ROAS?
• How to calculate ROAS
• Why ROAS matters
• What is a good ROAS?
• ROAS vs. ROI

P.S. Don’t have time to manually complete the return on ad spend calculation? Use our free ROAS calculator below!

What is ROAS?

ROAS is a marketing metric that assesses the performance and financial return of a digital advertising strategy, campaign, or ad group. Using and measuring this metric can help companies improve their ad strategies and monetary returns.

How to calculate ROAS

Now that you know the answer to the question, “what is ROAS in marketing,” let’s dive into how to calculate ROAS.

The ROAS formula

ROAS = Revenue / Cost

To calculate ROAS, use the ROAS formula, which divides your ad strategy’s total revenue by its total cost, to calculate your return on ad spend: ROAS = Revenue / Cost

Why ROAS matters

So you now know how to calculate ROAS and the answer to the question, “what is ROAS.” Now let’s explore why it’s important!

ROAS in marketing is essential for informing your company and your team about the performance and quality of your ad campaign. Return on ad spend provides you with actionable data you can use to optimize your ad spend. Without the calculation, it becomes easy to waste your ad spend and diminish the number of leads and sales coming in from advertising.

What is a good ROAS?

What is a good ROAS?

A good ROAS is usually a 4:1 ratio — $4 in revenue to $1 in ad costs.

A good ROAS is usually a 4:1 ratio — $4 in revenue to $1 in ad costs. There is no right answer, however, because some businesses might need more or less revenue to operate. The average return on ad spend is 2:1 — $2 in revenue to $1 in ad costs.

What determines a good ROAS?

Now that you know the answer to the question, “what is a good ROAS,” let’s dive into what determines it. When it comes to determining a good ROAS for your company, you need to think about the following:

• Your industry
• Your profit margins
• Your average cost-per-click (CPC)

Once you figure out these details, you can uncover the optimum dollar amount for your business.

View Average Google Ads ROAS By Industry

ROAS vs. ROI: What’s the Difference

So you know the answer to the question, “what is a good ROAS.” Now let’s dive into the main differences between ROAS and ROI.

ROI calculates how much your company makes from advertising (or another channel) after expenses, which includes operational costs, turnover, and more. In comparison, return on ad spend determines how much your business earns (on average) from advertising only.

Since they measure different aspects of your campaign, return on ad spend and ROI also use different formulas.

If you’re struggling to remember the differences between ROI and return on ad spend, think about the two from this perspective. ROAS in marketing measures your average return from advertising, while ROI measures your total return from advertising.

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Improve your ROAS with help from WebFX

So now you know the answer to “what is ROAS,” along with how to calculate ROAS in marketing, why it’s important, and what makes a good return on ad spend.

But when your ads fail to generate the revenue and results that your business needs, it places your company (and you) in a difficult spot.

Professional ad management services from WebFX can take away the stress and worry over your ad campaigns and provide the results and revenue you need.

Learn more about how our paid advertising services, from search to social, can help your business earn an impressive return on ad spend by contacting us online or calling us at 888-601-5359 to chat with a strategist about your goals, company, and more!