Have you ever run an ad campaign with high expectations only for it not to deliver?
I did, and it sucks. ๐
But if the campaign was actually successful, how successful it was?
Well, this is what my ROAS calculator tells you. Try it out.
ROAS Definition
Return on Ad Spend ROAS is a metric that tells you how much revenue $1 spent on an ad brings back into the business.
You can use this metric to:
- Adjust Budget: Allocate more budget to high-performing campaigns.
- Track Progress: Monitor campaigns over time to see what drives results.
- Performance Indicator: It indicates how well your campaigns are performing.
The higher the ROAS, the more profitable the ad campaign will be. But what is the benchmark? How do I know if my ROAS is good?
For example, you get ROAS of $4 for every $1 spent on ads. This leaves your with $3 after you take $1 off for ad.
Out of those $3, you most likely have other costs associated with the product.
It might be the physical cost of producing or digital (hosting servers, mailing, etc.). You might need to pay fees for payment processing, shipping costs, etc.
You need to understand those and subtract them from your ROAS. Say you have additional costs of $1.5, leaving you with $1.5 profit after all the expenses.
Are you happy with it? If so, you have great ROAS; if not, you may optimize.
The generally accepted value is that ROAS $5-7 is okay, and you should aim for $8+. Anything below $5 is poor, leaving a thin profit margin after the expenses.
ROAS Formula
To calculate ROAS, you use the formula:
ROAS = Revenue / Total Advertising SpendROAS Example Calculation
To calculate ROAS (Return on Ad Spend), you need two fundamental values: revenue generated and dollars spent on advertising.
Imagine you have a campaign that generated $10,000 in revenue. You spent $2,000 on this campaign.
Plugging in the numbers:
ROAS = $10,000 / $2,000 = $5This means that you earn $5 in revenue for every dollar spent.
Additional Important Metrics
Average Order Value (AOV) helps you understand how much customers spend on average.
If you had 200 orders from your campaign and generated $10,000 in revenue, your AOV would be:
AOV = $10,000 / 200 = $50Profit Margin is also vital. If your product costs $30 and you sell it for $50, the profit margin is calculated as follows:
Profit Margin = Product Price - Cost to Produce
Profit Margin = $50 - $30 = $20The margin here would be $20.