ROAS: Return on Ad Spend
Return on Ad Spend
ROAS: Return on Ad Spend. As a business owner, you will be presented with opportunities to spend your hard-earned money on advertising from teams of people who are in the business to sell advertising. They might tell you anything you want to hear to get you to buy from them. Should you? The answer is not always clear up front, but over time, if you properly analyze the money you spend on advertising, you can determine the types of advertising that work best for you and your company. One good way to analyze your ad spend is by calculating your Return on Ad Spend. Do this with each campaign and over time the more successful campaigns will stand out.
How to Calculate
ROAS stands for return on ad spend. The formula is simple. Take the amount of revenue (or net profit) your company generated from an advertising campaign and divide it by how much you spent on that advertising campaign. If you sponsor a baseball team to advertise your company to the community and you get three jobs from that sponsorship, each bringing in $10,000 each, your ROAS will be $30,000 divided by the cost of the sponsorship.
Things to Think About
There is a challenge when it comes to knowing how much revenue to attribute to a campaign. The easiest way to do this is to simply ask people how they heard about your company. Be prepared, however, that they may say Google or the Internet, when the truth may be that they looked up your number on Google but really heard about you through the sponsorship or their neighbor who has a kid on the team. This detail may come out in a conversation with the customer. Don’t be afraid to ask.
There is no right answer. Sometimes you spend money on sponsorships or benevolence that is strictly for the good of the community and while any advertising benefit is good, it is not the primary purpose. In those cases, a lower ROAS is fine. Some campaigns result in a high ROAS. Don’t hold all campaigns to the same level. Keep track of them all and use your judgement when analyzing each one.
Learn more about marketing benchmarks in our article about CPL or Cost per Lead.
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