What is ROAS and how do you calculate it?

What is ROAS and how do you calculate it?

ROAS is an essential indicator to measure the return on investment of advertising spending by advertisers on the Internet. In the order of $ 4 billion in 2017, this measure continues to be used by companies to assess the success of their digital campaigns and adapt their strategies.

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Why calculate the ROAS?

Calculating the ROAS of an advertising campaign, regardless of its size, allows you to assess its average performance as well as its return, in comparison with the resources invested for the implementation of the project.

As part of a long-term advertising campaign, calculating your ROAS is a great way to anticipate increased expenses. The result of the calculation constitutes an interesting basis for knowing the extent of the investments to be made in the coming months.

From a purely strategic point of view and apart from any financial consideration, using ROAS is relevant to identify the best performing advertising campaigns. Its calculation can also be combined with an A / B testing approach. This methodology consists of launching two advertising campaigns at the same time and comparing their results.

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More broadly, the ROAS makes it possible to rely on a stable average in order to evaluate current and future advertising campaigns in the same way.

Differences between ROAS and ROI

The calculation of ROAS is the same as that of ROI, an indicator that is better known and more commonly used in marketing strategy. The difference between the two measurements is the object to which they relate.

While the ROAS concerns a particular advertising investment, the ROI is a global indicator that can be used to measure the returns of a campaign, but also of a marketing or sales strategy in its own right. To calculate your ROI, you have to take into account all the expenses related to the implementation of the strategy, the campaign or the business operation as a whole.

For example, if a brand wants to calculate the return on investment of its strategy for social networks over a whole year, it must integrate the human and material resources mobilized in the broad sense. If it intends to stick to the expenses generated by the purchase of advertising space and the implementation of campaigns, it should prefer the ROAS.

Thus, return on investment (ROI) is an effective measure for evaluating the performance of an ad or an advertising campaign, but also the quality of the work carried out by the teams concerned.

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The formula used to calculate the ROI is as follows: (Income – Cost) ÷ Cost.

To obtain the percentage of the ROI, the following calculation must be carried out: (Income – Cost) x (100 ÷ Cost).

What is a good ROAS?

To fully analyze the performance of a campaign or an individual advertising ad, it is important to correctly interpret the ROAS obtained. The result of the calculation must be relatively high. This proves that the investments made by the advertiser made it possible to generate profits.

If the ROAS turns out to be negative, the campaign or ad is not profitable. However, this does not necessarily mean failure. In some campaigns, it is indeed possible that the first announcements are not profitable from a financial point of view, but that the following ones come to compensate for this lack. The important thing is to take into account the ROAS at the scale of an entire advertising strategy and to compare different ROAS between them at all stages of the campaign. In addition, a “low” ROAS can be an opportunity to tailor future campaigns by accurately analyzing what led to such a figure.

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Finally, a good ROAS must be consistent with the ROI, that is to say with broader objectives than that of succeeding in a particular advertising campaign. Likewise, the relevance of this indicator depends on the very nature of the campaign. In many cases, it can be too limited since factors such as the commercial margin achieved by the advertiser or the value created in terms of notoriety or brand image are not taken into account. As these elements vary widely depending on the business sector and the products or services marketed, ROAS taken alone does not constitute a satisfactory method of calculation. Indeed, what counts for the advertiser is the net margin generated after taking into account their advertising investments and their profitability.

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