What is Roas ?
Return On Advertising Spend, (ROAS), is a marketing metric that measures the efficacy of a digital advertising campaign. ROAS helps online businesses evaluate which methods are working and how they can improve future advertising efforts.
Advertising is about making sales, not just driving traffic or earning clicks. Traffic and clicks are good — but revenue is what really matters at the end of the day.
If you can’t turn traffic into revenue, something is wrong.
ROAS provides a deeper insight into what is working for ads, ad groups, or ad campaigns so you can make informed decisions about what to keep doing and what strategies it is time to drop.
Why Return On Ad Spend matters
While ROAS is similar to ROI (return on investment), ROAS looks specifically at the cost of an ad campaign, versus the overall investment that might be counted in ROI. ROAS is essential for quantitatively evaluating the performance of ad campaigns and how they contribute to an online store's bottom line. Combined with customer lifetime value, insights from ROAS across all campaigns inform future budgets, strategy, and overall marketing direction. By keeping careful tabs on ROAS, ecommerce companies can make informed decisions on where to invest their ad dollars and how they can become more efficient.
If your ROAS is 5:1, that means you are making $5 in revenue for every $1 you spend on advertising.
What is a good average ROAS?
There is no single ‘good’ ROAS. A good ROAS can vary by campaign, industry, or even marketing goals. There are even some cases where a lower ROAS might not be a bad thing.
However, in general, a ROAS of 4:1 or higher indicates a successful campaign.
Keep in mind that the accuracy of ROAS is highly dependent on getting accurate numbers for cost and total revenue generated. If you have a low ROAS, your first step should be to make sure you are attributing revenue correctly.
When is a lower ROAS okay?
A lower ROAS might not indicate a failing campaign in several situations. For example, if you are using banner ads which tend to have low click-through rates, but are effective at increasing brand awareness, your ROAS might be lower.
Or, if you are working to take over a new market, a low ROAS might be okay as your brand works to gain traction.
In general, however, a ROAS at or below 3:1 should give you pause. It may be time to reevaluate how the metric is calculated or shift gears with your advertising.