Return on ad spend (ROAS) is a helpful measurement to evaluate the overall efficiency of a specific sponsored ads campaign, ad group, product, or targeting strategy. ROAS is available for vendors and sellers in campaign manager and through downloadable reports.
We calculate ROAS by dividing the total sales generated by the advertising spend invested on the campaign (ROAS = Sales / Ad Spend). For example, from the campaign below, we spent £5,997.18 and made revenue of £25,269.62. The ROAS is therefore 4.21, indicating that we are making more than 4 times the money we are investing in advertising. This is a ratio of 4.21 : 1, above the common benchmark for ROAS at 4 : 1.
It is important to note that the acceptable level of ROAS may differ from company to company. Some companies may need higher ROAS to stay profitable, while others may still grow sustainably even below the benchmark ratio.
ROAS is the inverse of Advertising cost of sale (ACOS). In other words, as ROAS increases, ACOS decreases. ACOS is calculated by dividing advertising spend invested by the total sales generated (ACOS = Ad Spend / Sales). ROAS is represented as a number that is interpreted as an index (multiplier) rather than a percent (%).
How to use ROAS
Use ROAS to understand how efficient your advertising investment is at driving attributed sales. As ROAS increases, your campaign becomes more efficient. Depending on your performance objective, ROAS is one metric that can be used to measure the effectiveness of ad products, campaigns, and keywords. Comparing ROAS over time or against similar tactics can help provide insight into where additional resources should be allocated.
If you want to learn more about how you can improve your ROAS, do not hesitate to contact us for FREE 15 minutes consultation.