Return On Ad Spend Calculator
Use our free tool to calculate ROAS (Return On Ad Spend) for your ad campaigns.
Frequently Asked Questions
What is Return on Ad Spend?
Return on Ad Spend (ROAS) is a key metric used as an indicator of the cost performance of advertising. It can help businesses and other organizations determine whether or not their advertising efforts are worthwhile.When a business tests a new advertising campaign, it may compare the ROAS at the start of the campaign, midpoint, and end. That can help determine whether they should renew the campaign or try another method of outreach.
How do I calculate ROAS?
The formula used to calculate ROAS is quite simple. However, the numbers factoring into its calculation can cause discrepancies if its accuracy. Let's talk about how to calculate ROAS, and then we can dig into making sure those numbers are accurate.The equation for ROAS is:This equation gives you a ratio to determine whether or not a marketing campaign is working. For example, if your campaign generates $20,000 in revenue and costs $5,000, your ROAS is 4:1 or 400%.Does that equation seem familiar? You might notice it's quite similar to the equation used to calculate overall ROI.However, ROAS and ROI are not the same things.
How does ROAS differ from ROI?
ROAS is similar to return on investment (ROI); however, ROAS specifically focuses on an ad campaign's cost, versus the overall investment, potentially factored into business ROI.In essence, ROAS helps to measure how efficiently you spend your marketing budget.For instance, if your ROAS is 6:1, that means you are making $6 in revenue for every $1 you spend on advertising.
Why should I calculate ROAS?
Marketing effectiveness is all about numbers. ROI, click-through-rate (CTR), response rates, conversions, cost-per-click (CPC), cost-per-mille (CPM), and cost-per-acquisition (CPA) are all vital metrics when assessing the performance of your ad campaign.However, those numbers don't paint a complete picture (to clarify, ROI does, but it's insufficiently nuanced — too broad stroked).CTR indicates how many people clicked an ad but not how many made a purchase. Conversions could mean sales, but they could also be lead magnet downloads or email subscriptions.Make no mistake — tracking those numbers can be useful. However, if you don't also track ROAS, there's a good chance you are making decisions based on insufficient data.
What numbers should I factor in when calculating ROAS?
Suppose you want to gain an accurate insight into the effectiveness of your campaigns using ROAS. In that case, consider all of your ad costs.Naturally, that would include the actual ad spend, but what other costs should you factor into your ROAS calculation?Consider less obvious advertising costs, including:● Vendor fees and commissions paid to partners and vendors who assist in your campaign.● Salary costs of in-house staff who help in the campaign.● Affiliate commissions as well as network transaction fees.Accurately accounting for costs is essential to avoid wasting ad budget on ineffective campaigns and running out of funds during high-performing campaigns.
What is a good ROAS score?
ROAS can vary by campaign, industry, and marketing objective. As a rule of thumb, a ROAS ratio of 4:1 or greater is an indication of efficient ad campaign performance. Bear in mind that ROAS accuracy is highly dependent on using accurate numbers for costs and total revenue. If you calculate a low ROAS, you should double-check that your revenue has been attributed correctly.When might a ROAS lower than 4:1 be acceptable?A low ROAS might not indicate a failing campaign in several situations. For example, if you use banner ads — which tend to have low click-through rates, but are effective at increasing brand awareness — you could observe decreased ROAS.Or, if you're entering a new market, a low ROAS might be okay as your brand strives to gain traction.In most instances, however, if your campaign has a ROAS at or below 3:1, take a more in-depth look at your targeting, ROAS accuracy, and ads costs to try to identify opportunities for optimization.
How can I improve my ROAS metric?
What do you do when your ad campaign’s ROAS is low? Don’t pause your ads before taking these steps first.
Review ROAS accuracy If your ROAS isn’t accurate, you could unnecessarily cancel a high-performing campaign.When faced with a sub-par ROAS, your first course of action should be to review your metrics. Are you accounting for all of the costs of your advertising? What advertising attribution model are you using?(Attribution model is telling your analytics which channel or keyword to give credit for the sale/conversion) First or last-click attribution models can affect ROAS, causing a high-performing campaign to appear unsuccessful. Be sure to use an attribution model that makes sense for your campaign.Are you including costs external to your advertising costs? If so, these costs could distort your ROAS.
Lower your ads costs ROAS incorporates two metrics: your ad costs and your revenue. If you can decrease your ad cost, you can significantly improve your ROAS.How this looks can vary depending on your business niche, your ads manager, and the ads types you're running. However, factors to consider when attempting to reduce your ads costs are:● Decrease time spent on ad management: If you're relying on an ad management agency, you could shift it in-house. If your in-house staff struggle and spend too much time, you might consider outsourcing it.● Review negative keywords: Ensure you're not wasting ad budget on keyword terms you don’t intend to target. On average, Google Ads account users waste up to 76% of their budget unintentionally on non-targeted keywords.● Improve quality score: Google’s Quality Score measures quality, and whether or not an ad is relevant to its target keywords. A higher Quality Score results in a higher ad ranking, which can significantly reduce wasted ad budget and increase revenue.
Increase revenue generated by ads The other vital factor in ROAS is revenue. If you’ve done all you can to decrease your ads' cost, look for ways to increase your ads revenue generation. Consider ROAS, among other metrics like CTR and CPC, to identify where your ads might be falling short. Then try these tactics to increase revenue generation from your ads:● Optimize landing pages: If an ad demonstrates a high CTR and a low ROAS, it could be a sign that your landing page is not converting efficiently. Be sure to use consistent language on both the ad and the landing page, and include a compelling call-to-action.● Rethink your keywords: Are you targeting the less competitive keywords? If your ROAS is low, revisit your keyword research. Try to identify keywords with less competition for which your ads can boost performance.● Automate bidding: If you're running Google ads, consider using Google’s automated bidding features, which allow you to set a target ROAS.
There is no silver bullet approach to improving ROAS. Analyze ROAS in tandem with other relevant metrics you're tracking for the most thorough method of identifying where your ad campaign strategy could be bolstered.It could be your ad, your conversion funnel, target keywords, or multiple other factors. That said, by following the above-stated tips, you can set out on the right foot.