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What is ROAS? ROAS v/s ROI

What is ROAS? ROAS v/s ROI

What is ROAS? ROAS v/s ROI

ROAS (Return on Advertisement Spending) is a calculated metric used to measure the overall effectiveness of advertising expnditure. ROAS can be easily calculated by dividing the gross revenue generated from an advertising campaign by the aggregate of expenses incurred to run and manage the campaigns.

ROAS = Revenue / Cost

Effectively measuring ROAS is helpful to understand the usefulness of a particular advertising campaign and to understand it’s associated dollar value. An ROAS ratio of more than 3:1 signifies that your campaign is generating revenue that is 3 times your overall spend, while anything below 1:1 means this is going to be more of an expenditure than return because of overall costs of order fulfilment. Please note that ROAS<1 doesn’t always mean that your campaigns are performing poorly as can be understood with below reasoning:

Target ROAS is a commonly used term across advertisement platforms with smart bidding feature. This is a mode where algorithms work in the background to optimize your spending for maximum returns. If you are using Google Ads, you should have a minimum of 50 conversions in the last 30 days for it to work.

Note that ROAS is an advertiser-centric metric whereas ROI is a business-centric metric. In other words, ROAS focusses only on how one of your ad campaigns is performing and how much revenue are you making for per dollar ad spend, whereas, ROI takes business running costs into account to calculate overall profit from any campaign.

ROI = ((Revenue – Costs)/Costs)*100

Both the metrics are equally important to evaluate the success of a campaign and to measure its overall business impact.

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