1. RETURN ON AD SPEND (ROAS) DEFINITION

ROAS (return on ad spend) could be defined as a marketing metric which measures the return of an investment on advertising for a business.

While ROAS is similar to ROI (return on investment), ROI is the estimation of the return of a whole investment, which also includes ad spending while ROAS only includes the cost of advertising. ROI reflects the big picture; therefore, it could be affected by several factors such as inventory cost. Meanwhile, ROAS reflects the effectiveness of advertising and campaigns and such, which are advertising costs in general.

So, in other words, ROAS could also refer to whether your money being spent on advertising is paying off or not. For example, if your ROAS is 10:1 then you are getting $10 back for every $1 you spent on advertising.

2. HOW TO CALCULATE RETURN ON AD SPEND (ROAS)

The formula for calculating return on ad spend (ROAS) is fairly more simple than ROI. It goes as follow:

ROAS = REVENUE / ADVERTISING COST

3. WHEN TO CALCULATE RETURN ON AD SPEND (ROAS)

ROAS could be calculated at the start of a marketing campaign, then at the mid-point, and finally at the end and at last compare all the products altogether so that businesses could get a glimpse of whether running this campaign is effective or they should opt for another method.

4. RETURN ON AD SPEND (ROAS) LIMITS

ROAS could be misleading if one only relies merely on it. In fact, the success of one’s business depends on several factors. If the whole budget in general is not well-calculated, this could also lead to losses despite a high ROAS. 

Also, not every method of advertising could allow businesses to gain insights easily. For example, it is fairly easy just by using some tools in order to gain insights into an email campaign but it is not the same when it comes to determining the effectiveness of a highway billboard.