Return on Ad Spend (ROAS)

By Emily Wood

Digital Marketing expert

ROAS is a popular metric in digital marketing and is many times used in eCommerce as a standard measure for effectiveness of a marketing campaign. Is it an abbreviation for “Return On Ad Spend” and it is calculated simply by division of the revenue obtained by a campaign to the spend;

ROAS = Revenue/Spend.

ROAS is fundamentally different than other ‘return-on-investment’ (ROI) metrics because marketing is not a similar investment. Instead of money spent on technologies or inventories (CAPEX), marketing spend is ‘risked’ and normally considered OPEX.

It should be stressed that high ROAS is not a directly relate to profitability as it does not account for cost of goods sold or other related company expenses. However, because of its simplicity, ROAS provides an excellent measure for the success of a paid advertisement campaign.

ROAS is expressed wither as a ratio or in percent, namely if the ad-spend is a $1,000 and resulting revenue is $5,000 the ROAS will read either $5:1 or 500% where both terminologies are accepted in the industry and mean that you generated $5 of revenue for every $1 spent.

ROAS in itself does not indicate the economic value, therefore it is normally considered a management figure that once greater than 1 (or 100%) should lead to review of the ROI figures.

Further readings

Corporate Finance Institute® (CFI), ROAS, A measure of revenue generated per dollar of marketing spend.
Bigcommerce, What is ROAS? Calculating Return On Ad Spend
Disruptive Advertising What is ROAS?

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