What is (ROAS) Returning on Ad Spend?

Return on ad spend, or ROAS, is a marketing metric that measures the amount of revenue your business earns for each dollar spent on advertising.

 

ROAS sounds similar to return on investment, or ROI, but these two metric measurements are used for different purposes. 

Before going into ROAS, let’s explain the difference between ROAS and ROI. 

ROI is the return on investment for all marketing investments. This formula is used to measure the collective gain of the company from all of the marketing strategies. These marketing strategies can be PR packages, billboards, social media, etc. 

En contrario, ROAS measures the amount of revenue from each advertising campaign. ROAS is more used for digital marketing You can view how successful your pay per click initiative has been. 

Before checking your insights for your ROAS, you want to know what it is that you want to accomplish with this ad. ROAS are used to measure the amount of purchases your ad campaign has successfully done. 

You need to set a ratio per dollar you spend on the ad, or a target ROAS. An example of this is for every five dollar purchase made on your site from the ad, you want to spend one dollar on the ad. The ratio would be 5:1. 

After you set your target ROAS, you can now measure the ROAS using the following formula: 

REVENUE – COSTCOST= ROAS

LETS BREAK THIS FORMULA DOWN

REVENUE: incoming money from the advertisement

Cost: the cost for making the advertisement

Here’s how you would use this formula, I’m going to use the same numbers from the first example. 

The revenue is five dollars. Your cost of advertising was one dollar. Subtract ($5-$1). You get four dollars. Divide ($4/$1). Your ROAS is $4. This example is a simple way to explain. ROAS can get more complex when you have a bigger campaign. It’s important to keep track of what ad campaigns are working for you and if the amount of money being invested is working for your campaigns. 

ROAS can help you create better campaigns for attract potential customers. 

Por qué ROAS? 

Esta technique te daria insights más specific que los ROI. EL ROI es un overall view of your marketing campaign. ROAS will let you know what ads work and don’t work. BUT every ad campaign has different outcomes and goals, you should not compare all ad campaigns’ success to each other. 

Aqui en Vaquero, we can help you understand and measure your ROAS. Let us get to the nitty gritty of your ad campaigns. Call us!

Saludos!

 

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