Return on Ad Spend (ROAS): What is It & How to Calculate?

How do you measure the success of your digital marketing campaigns? Do you analyze conversion rates, click-through rates, cost per conversion, or your return on investment? While all of these are crucial metrics to measure, you may be missing out on one of the most crucial ones – ROAS, or return on ad spend- a critical metric for assessing the effectiveness of your marketing and advertising effort.

Measuring your ROAS gives you real-time insight into how your campaign revenue compares to costs. Yes, costs per conversion also give you great insights, but ROAS gives you a comprehensive view. 

In the blog, you will get an insight into the following:

1. What is ROAS, and what is its importance in measuring your marketing effectiveness?
2. How to calculate ROAS
3. Return on ad spend formula
4. Pros and Cons of ROAS in Digital Marketing, and much more.

While this may sound technical and intimidating for some, we promise to break it down into simple, understandable sections. So here goes:

What is Return on Ads Spend (ROAS) in Digital Marketing?

Return on ad spend is an essential key performance indicator (KPI) in digital marketing in mobile and online marketing. It is a metric measuring the revenue generated for every rupee spent on advertising. It measures the ROI (return on investment) of money invested in digital advertising. Plus, ROAS can be measured more granularly based on certain ads, targeting, campaigns, and so on.

In other words, return on ad spend measures the financial effectiveness of online advertisers. The more efficacious your messaging can connect with your prospects, the higher the ROAS and the higher the revenue generated. Join an online digital marketing course led by an expert team to skyrocket your career.

Practical Example of Return on Ads Spend Use in Digital Marketing

Let’s look at some practical examples of how return on ad spend is used in digital marketing:

1. Google Ads Campaign

Consider you have invested ₹500 in a Google Ads campaign to promote your online healthcare products store. After a week, you receive ₹1500 in sales attributable to this campaign.

As per the ROAS formula mentioned below, you get an ROAS of 3. Though this value is lower, it is regarded as a good result since for every rupee invested in advertising, you got ₹3 back.

2. Advertising Campaigns on Social Networks

As a fashion company owner, you invested ₹1000 in an ad campaign on Instagram to promote your new clothing collection. After one week, you get ₹5000 in sales directly attributable to this campaign.

As per the ROAS formula mentioned below, you get an ROAS of 5, meaning that for every rupee invested in an ad, you get ₹5 back. This is an excellent result in terms of ROAS.

Also Read: The 5 D’s of Digital Marketing: Comprehensive Guide

3. Email Marketing Campaign

Suppose you launch an email marketing campaign with software that fares ₹200 monthly. From this campaign, you earn ₹1200 in sales.

As per the ROAS formula below, you get a ROAS of 6, which is again a positive result.