There are a lot of different metrics that businesses use today in order to get a better understanding of their growth and investment decisions. Return on ad spend, which is often abbreviated to ROAS, is a critical metric that will give you a look at the bigger picture. This metric will enable you to have improved insight into what is leading to conversions, as well as the amount of revenue that the conversion actions are generating. With that being said, below, we are going to explain more about what ROAS is and why it is so important.
What is return on ad spend?
ROAS is a marketing metric that measures the amount of revenue your company earns for each dollar (or total dollars) that is spent on marketing and advertising. At a basic level, return on ad spend is going to measure how effective your advertising efforts are. After all, the more successful your marketing messages connect with your target consumer base, the more revenue you are going to generate from each dollar you spend on advertising. So, the higher your return on ad spend, the better.
How do you calculate ROAS?
A lot of people assume that this is going to be difficult to calculate because it is such an important metric. However, it’s actually really simple! All you need to do is divide your total conversion value by your advertising spend. What is the conversion value? This is the amount of revenue that your company earns from a given conversion. For example, let’s say you spend $20 on advertising in order to sell one unit of a product that is priced at $100, your return on spend is going to be $5. For every dollar spent on advertising, you are getting $5 back. You can use our more detailed ROAS calculator here.
Why is your return on ad spend so important?
In the current digital age that we live in, the best marketing practices are all about data. It is no longer good enough to simply concern yourself with metrics like visibility, followers, and increased traffic. You need to know exactly how much revenue your advertising and marketing campaigns are generating. ROAS gives you the ability to create reports that show exactly how much revenue your advertising campaigns are generating for your company. Furthermore, it enables you to figure out which ad campaigns are the least and most successful. You may even decide that one of the ad campaigns you are running simply is not worth the cost. Ultimately, you are going to be refining your spend so that you can make sure you end up generating the most revenue for the least costs. This is what building a truly profitable business is all about!
All in all, there is no denying that we need to choose metrics with care when it comes to understanding business performance. Return on ad spend is something you should definitely measure in order to understand just how effective your advertising campaigns are in terms of the money that is being spent on them.