What is ROAS (return on advertising spend)?
ROAS (return on advertising spend, or return on ad spend) measures the amount of revenue generated by a company for each dollar spent on marketing and advertising efforts. It can be used to assess whether or not the overall digital marketing strategy of an ecommerce business is yielding results, or can be used on a micro level to measure effectiveness of a particular ad campaign. To calculate ROAS for your business, divide the revenue generated from your ads by your total advertising costs.
Why is it important to track return on ad spend?
A high ROAS can be an indicator that a particular advertising campaign or marketing campaign is yielding positive results for a company. However, this marketing metric alone is not enough to assess a company’s profitability. Rather, ROAS should be considered in combination with other factors, such as profit margins and average customer lifetime value, for a holistic understanding of a company’s financial health. This means that every business is different when it comes to target ROAS goals. Also crucial is that businesses track their ROAS for different ad campaigns over time so they can measure trends in data, identify outliers, and continually hone their strategy for future advertising campaigns.