ROAS (Return on advertising spend)
What is ROAS?
ROAS is the acronym for Return On Advertising Spend, it is a metric used in marketing to understand if a campaign is working or not, i.e. if your KPIs are bringing the expected results.
1. How to calculate ROAS?
The formula for calculating ROAS is very simple, you have to divide the revenue generated by the investment made (to find out when each euro spent has brought us a return).
ROAS = (Ingresos - Gastos)
An example will make it clearer. Let’s suppose that last month we created an Adwords campaign that cost us 6,250 euros, and thanks to it we have managed to sell T-shirts worth 15,500 euros.
ROAS = (15.500 / 6.250)
Therefore, for every euro we spent, the ROAS obtained was 2.48 euros.
2. ROAS and ROI
ROAS (Return On Advertising Spend) and ROI (Return On Investment) are two metrics that are very commonly confused. It is true that ROAS and ROI have certain similarities, but it is necessary to learn to differentiate them.
Let’s start with ROI. This is a metric used to calculate the return on investment, that is, the percentage of profitability. ROI is the metric that gives the value of the profits obtained after subtracting expenses and is calculated as follows:.
ROI = (Ingresos - Gastos) / Gastos x 100
ROAS, on the other hand, reports the gross income that has been generated in the campaign, for it only compares the amount earned and the amount spent. As indicated above, it is calculated as follows:
ROAS = (Ingresos - Gastos)
3. Advantages of measuring ROAS
The correct interpretation of measuring ROAS will bring us a series of advantages, such as:
- It allows us to establish tighter budgets for future advertising campaigns.
- It allows us to find the best platforms where our advertising campaigns have been more profitable, which will help to boost our performance according to our objectives.
- It helps to develop more effective/profitable advertising strategies. It reveals in numbers if we have been successful or not.
- It allows us to make good decisions, since it helps us to detect problems in ongoing campaigns, as well as to promote the most effective channels/actions.