What Is ROAS? Understanding and Calculating Return on Ad Spend

Definition: 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.

On this page, we’re diving into all things return on ad spend! So, just keep reading!

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

ROAS Calculator

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.

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?

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.

ROAS Formula ROI Formula

ROAS = Revenue / Cost

ROI = 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. Return on ad spend measures your average return from advertising, while ROI measures your total return from advertising.

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“Working with WebFX, everything is very organized and strategic. We’re only a year into our partnership, and our expectations have definitely been met.”

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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, 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!

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