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‍What is Return on Ad Spend (ROAS)?

When you pit revenue against ad spend, you get return on ad spend (ROAS). 

ROAS measures the amount of revenue a marketing campaign ropes in for each dollar spent. In broader terms, it tells you whether you’re allocating marketing budgets effectively, how well your advertising resonates with your target audience, and if you’re getting new customers and sales.  

It is a measure of the total revenue generated by your ads as compared to what is spent on advertising. This is a useful indicator to judge the effectiveness of your online campaigns in terms of sales. 

There are two primary means by which marketers leverage ROAS to maximize their bottom line.

1. Campaign budget optimization: Digging into ROAS helps sort out high-performing ads from the average ones. From there, digital marketers can reallocate the budget to profitable ad sets and fine-tune the marketing mix accordingly.  

2. Agile decision-making: Having to weed through a whole bunch of metrics and irrelevant data points is very much counterproductive. That’s why ROAS is a game-changer. It makes plain which ads are worthy of further investment or vice-versa, setting the stage for quick and effective decision-making.

What is a good ROAS?

Well, the higher, the better, of course. But as a general rule of thumb, 400 percent is the target ROAS most marketers aim for, which is twice that of what’s considered an average ROAS.  

That’s not to say campaigns with a mark below 200 percent are a lost cause. In a vacuum, a low ROAS simply means that there’s likely room for improvement.

You should aim for a ROAS of 2.87:1 for your paid search ads. This is the average ROAS across every industry vertical, according to a study by Nielsen. This means for every dollar spent on advertising, you’d make $2.87. But if you’re in e-commerce, the ratio goes up to 4:1. 

The average ROAS also differs across different types of advertising media. For every dollar spent, you can make:

• $2.63 on display
• $2.55 on linear TV
• $2.45 on mobile
• $1.53 on digital video
• $3.94 on magazines
• $2.62 on cross-media

Source: Benchmarking Return on Ad Spend: Media Type and Brand Size Matter

However, with lots of customer touchpoints across different channels, the challenge is to attribute every dollar of revenue and cost to a specific ad campaign. 

Some dashboards go the extra mile and offer custom alerts that go off when a campaign falls below or exceeds a target ROAS, allowing users to turn off money-leaking campaigns or reallocate their budget to high-performing ones in real time.

How to calculate ROAS

Calculating ROAS is straightforward. To calculate ROAS, simply take the influenced revenue and divide it by the allocated budget. In other words, divide your revenue by the amount of money you spend on ads. The formula would look like this:

For example, say $100 went into Google Ads, and generated about $500 worth of sales. The ROAS would be 500 percent. A marketing dashboard will show you exactly what your ROAS is for each of your campaigns, without having to calculate it yourself or use spreadsheets.

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Improving ROAS is no rocket science. It’s a simple matter of hacking the formula, just as is the case for any given metric. 

In practice, boosting ROAS easier said than done. But it doesn’t have to be all that complicated either. For ROAS specifically, there are three ways to go about it.

• Increase the revenue
• Decrease the cost of ads
• Better yet, do both

‍ROAS and Adriel 

We can’t emphasize this enough. No KPI is meant to be a standalone measure. Not even a metric as valuable as ROAS. But the thing is, keeping tabs on a whole slew of metrics can get tricky. Well, without a solid digital marketing dashboard, that is.

The real-time, custom alarm feature on Adriel’s marketing dashboard lets you set a series of alarms for certain conditions depending on channels, including ROAS fell and low ROAS.

Adriel maximizes workflow efficiency for users with a unique real-time alarm system that notifies you when ads, campaigns, or marketing channels aren’t performing as expected.

With a focus on ROAS, Adriel determines which investments are yielding the most returns. This granular approach leads the competition by enabling users to compare ROI not only by channel, but down to the specific ad creative they are investing in - with instant, live data.

To see what it’s like to measure and analyze campaign performance with absolute ease, head on over to your workspace on Adriel and play around with intelligent dashboards powered by cutting-edge ad operations technology.

Talk to our product specialist or sign up now for 14-days free.