Sarah Berry is a Lead Web Marketing Consultant at WebFX. With more than 10,000 hours of experience, she offers practical insights and strategies you can use to grow your digital revenue. When she isn’t polishing her Time Magazine Person of the Year Award, she’s spending time with her flock of ducks.
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.
Return on ad spend (ROAS) can help you determine your marketing strategy’s effectiveness. However, you have to know how to calculate it and how it compares to other revenue-measuring metrics.
So, what is ROAS really? And why does it matter for your marketing budget?
On this page, we’re diving into all things return on ad spend! Keep reading to learn the ROAS definition, formula, and more:
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
To calculate ROAS, divide your ad strategy’s total revenue by its total cost. The ROAS formula is “ROAS = Revenue / Cost.”
For example, say you invested $500 into a summer email campaign. If you earn $1000 from that investment, your ROAS would be 2:1. in this case, for every dollar you spend, you make two back.
Why does ROAS matter?
ROAS in marketing is essential for informing your company and your team about the performance and quality of your ad campaign. This formula 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.
Say you see an influx of customers from a particular ad campaign. Without ROAS, you might see this as a success, which it is partially. But if you spent more to get those customers than you earned (a negative ROAS), you may have wasted your advertising budget.
ROAS can help you learn more about your campaigns and understand what ads are effective at driving the most revenue.
Expert insights from
Rebekah L.Senior Internet Marketing Producer
“Tracking ROAS allows you to measure how your campaigns are performing and if they’re profitable to ensure you’re making the best use of your marketing dollars. This can help you determine where to allocate budget or which campaigns need more attention to bring your ROAS up to par.
Having a ROAS target also allows you to monitor the impact of your optimizations over time, so you can learn what does and doesn’t work to build a stronger strategy over time.”
What is a good ROAS?
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.
ROAS FAQs
Do you still have questions about return on ad spend? Find the answers here!
There are a few factors that will impact your ROAS, other than your campaign itself. Consider the following:
Your industry
Your profit margins
Your average cost-per-click (CPC)
Your overall investment
Expert insights from
Rebekah L.Senior Internet Marketing Producer
“There are a variety of factors that need to be considered when determining a ROAS, the main one being profit margins. A larger profit margin can support a lower ROAS while a smaller profit margin will need a higher ROAS to remain profitable.”
Once you figure out these details, you can uncover the optimum dollar amount for your business.
While ROAS is a valuable metric, it doesn’t tell the full story of your marketing campaign. That’s why ROAS shouldn’t be the only metric you rely on.
Here are the limitations of ROAS:
Limited scope of your marketing: ROAS only looks at the revenue you earn from paid advertising, when you might earn revenue from other marketing strategies.
Missing details: ROAS assumes causality where there might be none, like when conversions happen that would have occurred without the ad campaign.
Incorrect volume: You can still get a positive ROAS with a relatively small number of customers. For example, if you run a cost-effective campaign, your revenue will look high in comparison, even if you didn’t earn that many sales.
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.
ROAS formula: Revenue / Cost
ROI formula: Net Profit / Total Investment*100
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.
Ideally, you should use ROI and ROAS when monitoring your ad campaign. While ROAS will give you an average return, ROI will give you a full-picture, total return value.
You can use ROAS to see how much advertising contributes to your ROI. ROI can also help with long-term profitability, while ROAS is helpful for short-term or specific goals and strategies.
Improve your ROAS with help from WebFX
When your ads fail to generate the revenue and results that your business needs, it places your company (and you) in a difficult spot.
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 888-601-5359to chat with a strategist about your goals, company, and more!
Try our free Marketing Calculator
Craft a tailored online marketing strategy! Utilize our free Internet marketing calculator for a custom plan based on your location, reach, timeframe, and budget.
Craft a tailored online marketing strategy! Utilize our free Internet marketing calculator for a custom plan based on your location, reach, timeframe, and budget.
There are a few factors that will impact your ROAS, other than your campaign itself. Consider the following:
Your industry
Your profit margins
Your average cost-per-click (CPC)
Your overall investment
Expert insights from
Rebekah L.Senior Internet Marketing Producer
“There are a variety of factors that need to be considered when determining a ROAS, the main one being profit margins. A larger profit margin can support a lower ROAS while a smaller profit margin will need a higher ROAS to remain profitable.”
Once you figure out these details, you can uncover the optimum dollar amount for your business.
While ROAS is a valuable metric, it doesn’t tell the full story of your marketing campaign. That’s why ROAS shouldn’t be the only metric you rely on.
Here are the limitations of ROAS:
Limited scope of your marketing: ROAS only looks at the revenue you earn from paid advertising, when you might earn revenue from other marketing strategies.
Missing details: ROAS assumes causality where there might be none, like when conversions happen that would have occurred without the ad campaign.
Incorrect volume: You can still get a positive ROAS with a relatively small number of customers. For example, if you run a cost-effective campaign, your revenue will look high in comparison, even if you didn’t earn that many sales.
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.
ROAS formula: Revenue / Cost
ROI formula: Net Profit / Total Investment*100
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.
Ideally, you should use ROI and ROAS when monitoring your ad campaign. While ROAS will give you an average return, ROI will give you a full-picture, total return value.
You can use ROAS to see how much advertising contributes to your ROI. ROI can also help with long-term profitability, while ROAS is helpful for short-term or specific goals and strategies.
Sarah Berry is a Lead Web Marketing Consultant at WebFX. With more than 10,000 hours of experience, she offers practical insights and strategies you can use to grow your digital revenue. When she isn’t polishing her Time Magazine Person of the Year Award, she’s spending time with her flock of ducks.
