What Is ROAS (Return On Ad Spend)?
Return on Ad Spend, or ROAS, is the metric by which the efficiency of money spent on advertising is judged. It can be calculated by dividing the gross revenue from an ad campaign by the cost of that campaign.
ROAS vs. ROI
There are some key differences between ROAS and Return on Investment. Where ROAS strictly measures monetary investment, ROI can be the sum of a number of factors, like the value of the time of employees.
ROAS is a metric that’s based on revenue, while ROI involves overall profitability. If a campaign doesn’t make as much money as it costs, but increases a company’s brand awareness, that campaign could be thought of as having a negative ROAS but a positive ROI.
Generally, ROI is a reflection of the long-term value of any particular action within a company, whereas ROAS is used to identify opportunities for short-term growth
When to Use ROAS
Due to the way digital marketing is structured, we tend to think of campaigns as being part of specific channels, like Facebook ads or Google Ads. ROAS can be used to contrast which channels in a particular ad campaign were the most successful.
Provided the attribution path is clear, ROAS can assign a specific monetary value to every impression a campaign generates, helping companies understand at which point spending more money will only lead to incremental improvement.
ROAS is also a very useful metric in the context of a targeted campaign.
While the overall ad spend is likely to be significantly lower than a more general campaign, a high ROAS validates that the targeted prospects are willing to buy your company’s offering. Not only can this data help inform your next campaign, it also serves to identify niche markets.
The Issues With ROAS
As it focuses on short-term possibilities, ROAS is a very useful metric. That said, there is some confusion and contention surrounding how ROAS is calculated and used.
Despite the differences between ROAS and ROI, it can be easy to mistake one for the other.
It’s also argued that when dealing with goods or services, the true ROAS can only be calculated when you subtract the costs of those offerings from the generated revenue.
Since ROAS relies on the siloed value of individual channels, some believe it’s not an accurate representative of today’s sales processes since they can span across multiple channels.
While the singular focus of ROAS prevents it from serving as a reflection of a company’s overall health, there may not be anything wrong with that.
ROI is one of the most important metrics in business, so that ROAS falls short should be no surprise. Its power is in its simplicity and straightforwardness, and at the end of the day, it is customers, not awareness, that keeps your company afloat.