5-Minute SEO School: What is ROAS?
Have you ever heard the term “ROAS”? Perhaps in the context of, “How is ROAS calculated?” or “What’s a good ROAS percentage?”
ROAS stands for return on advertising spend. It’s a marketing metric that digital advertisers use to look at the performance of an ad campaign. By calculating ROAS, businesses can see how effective their methods are—and see where they can improve for future advertising campaigns.
The formula is actually pretty simple. Let’s say your company spends $500 on advertising in one month. By tracking the performance of this campaign, you can see that your company made $2000. So, your ROAS is a ratio of 4:1, which is found by dividing your total revenue by your spending. In our case, that’s $2000/$500, which is $400. Looking at this another, simpler way, we could say that for every dollar you spent, you made $4 in revenue. (You spent $500 and made $2000; this works out the same as spending $1 and making $4 in return.)
Math aside, we need to understand why ROAS is important for your company if you’re going to undertake a digital ad campaign.
ROAS is only one metric that marketers look at.
It plays an important role in examining the value you’re getting from your spending. If you were purchasing online ad space, you would want to make sure it was attracting customers and netting you some sales, right? Well, that’s what ROAS helps you determine with digital advertising.
Other areas include the overall return on investment (also called ROI, which looks at the big picture vs only ad spending), click-through rate, link referrals, funnel conversion rates, lifetime value of a customer, brand awareness, and sales qualified leads. If all of this is gibberish, well, that's okay--marketers spend years learning these concepts, and that's why are experts at what we do!
But back to ROAS. Let's look at places ROAS has good value:
Areas you might want to look include: Ads on Google, Facebook, Pinterest, Instagram, Reddit, LinkedIn, SnapChat, and other websites where you might be able to “rent” space on a site or blog. (This means the owner of the website allows people to purchase space in prominent areas of the site so that they can display ads for a limited time.) Essentially, no matter where you choose to advertise, you’ll still want to look at your ROAS and see if you’re tailoring your ad campaign to the correct demographics. And, as you can see, social media is a great place to start.
While there’s no magic number you should aim for, ROAS is generally considered “good” when you’re getting roughly that 4:1 ratio we mentioned above. If you’re not reaching that goal, it’s time to evaluate why your efforts aren’t paying off in the way you want.
To help you get a picture of your ROAS, we have a handy calculator here on our site. Just go here to plug in some numbers and get an idea of your ROAS ratio. We’d be happy to answer any questions you have to help you better understand return on advertising spending or any other marketing metrics!