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ROAS: How to Measure the Success of Advertising Campaigns
April 22, 2024
10 mins
ROAS is an important performance marketing indicator that measures the return on advertising spend. By analyzing it, marketers calculate the profit generated by ad campaigns.
Today, Promodo marketers discuss why a single ROAS formula is not a one-size-fits-all approach.
ROAS (return on ad spend) is a crucial indicator in marketing to gauge the effectiveness of ad campaigns. It helps companies determine the revenue generated for every dollar spent on advertising and stands for the payback on advertising costs.
ROAS is the ratio between the revenue generated by an ad campaign and the cost spent on that campaign. The ROAS formula is as follows:
Let's look at how the ROAS marketing formula works in practice:
Example 1: We launch an advertising campaign on social media with a budget of $2000. The revenue from this campaign is $6000. We calculated ROAS in this case as follows:
6,000 / 2,000 * 100 % = 300 %
ROAS calculation indicates that every dollar invested in advertising yielded a profit of $3. So, the campaign was effective - it paid off and turned out profitable.
Example 2: We launch an ad campaign on Facebook with a budget of $3000. During the campaign, we’ve got $2500 back. In this case, the calculation is as follows:
2,500 / 3,000 * 100 % = 83,33 %
An indicator of less than 100% indicates that the campaign is unprofitable. In terms of ROAS digital marketing, this means that the cost of advertising was higher than the revenue it brought to the business. That’s due to multiple factors ranging from low conversion rates to betting on the wrong audience.
While the formula may sound simple, ROAS does not exist in a vacuum. A "good" indicator will depend on:
While an average ROAS for e-commerce is anyone's guess for it depends on on the type of product you sell, your target audience, as well as market competition. The ROAS benchmark for 2024 is set at 2.87 that stands for a 287% return on investment.
Businesses leverage ROAS to compare the effectiveness of various promotional channels:
ROAS also helps to allocate and optimize marketing budgets between these channels.
ROAS monitoring across multiple channels will let you identify major trends and shifts in channel performance. This will help you respond to market fluctuations properly and optimize your promotional strategies once you aim to maintain the target at the average level.
ROI (the return on investment) is the indicator that gauges the effectiveness of all resources you’ve invested in your business performance. Unlike ROAS, ROI measures all investments made to achieve your business goals. Respectively, ROI formula lets you quickly understand whether these costs have paid off.
ROI and ROAS are often conflated as metrics for measuring return on investment, but there is a significant difference in the amount of investment they gauge. For example, your social media ad campaign has brought considerable revenue reflected by high ROAS. However, to understand the value of this investment in the context of the entire business performance, marketers calculate ROI.
The percentage we get from the formula is merely a calculation. Therefore, before making any decisions, we need to know exactly what has influenced the particular ROAS. From the perspective of an ad campaign's success, we suggest looking at:
The campaign’s goal and strategy: once the goal is to attract new customers, ROAS may be low in the first months during the formation of the potential customer base.
Media channels: media channels may have different effectiveness in achieving campaign goals. Email campaigns may have a higher ROAS in the B2B segment vs. social media while the audiences of these channels may differ.
Conversion rate: analyze how often interactions with your ads result in actual sales or quality leads.
Ad costs: while higher ad spending may raise overall revenue, it doesn't warrant higher ROAS once the conversion rate and traffic quality fail to match the costs.
Time and seasonality: consider the time of year, demand seasonality, promotions, and events that all affect the effectiveness of ad campaigns.
The cooperation of a marketer and a PPC specialist will improve your ROAS advertising. Here are a bunch of tips to start with:
Once the target ROAS considerably exceeds the actual one and you are not satisfied with your campaign performance, lower the target ROAS to the actual one. This is how you’ll get your campaigns rid of limitations and let them leverage larger data sets.
ROAS is not the only metric indicative of the effectiveness of your ad campaigns. Be sure to analyze other metrics to draw a complete picture:
These core metrics will help you achieve your targeted ROAS goals, understand the financial standing of your ad investment, and an overall impact on user perception and interaction with your audience.
Journalist at Promodo
For over 4 years, I have been working as a journalist in the communications and marketing industry. I help brands communicate effectively through written content, engage with market experts, and create professional materials on topics related to business and marketing, sharing insights on working with marketing tools.
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