ROAS stands for Return on Ad Spend, which is a marketing metric that measures the amount of revenue earned for each dollar spent on advertising. It is a key performance indicator (KPI) in online and mobile marketing that helps advertisers and marketers determine the overall efficiency of their campaigns by calculating the exact amount of money earned from a campaign relative to the exact amount of money invested into it. ROAS can be calculated with a simple formula: ROAS = (revenue attributable to ads / cost of ads) x 100. For example, if a company spends $2,000 on an online advertising campaign in a single month and the campaign results in revenue of $10,000, the ROAS is a ratio of 5 to 1 (or 500 percent) as $10,000 divided by $2,000 = $5.
ROAS is essential for quantitatively evaluating the performance of ad campaigns and how they contribute to an online stores bottom line. By keeping careful tabs on ROAS, ecommerce companies can make informed decisions on where to invest their ad dollars and how they can become more efficient. Tracking and calculating ROAS is an effective way to identify areas where businesses can decrease advertising spend (on low-ROAS programs) and opportunities to “double down” (allocating more budget to high-ROAS programs) . A good ROAS depends on a number of factors, including advertising goals and industry.
ROAS is similar to return on investment (ROI), but it measures the ROI of money invested into digital advertising specifically. While ROI is best leveraged to help gain visibility over long-term profitability, ROAS might be more helpful in optimizing for short-term or very specific strategies. When building out a high-level mobile marketing campaign or strategy, utilizing both ROI and ROAS formulas is a best practice.
