As a marketer, I have never been good at math. I mean most of us spend our time writing emails and copy. I have had my spreadsheets done for me due to this reason. I can read the numbers. Figuring out how to get those numbers, that is like reading Latin to me.
Reading numbers and understanding what they are is important. Knowing how to get those numbers is just as important. We as marketers need to understand how well our campaigns are doing. One of the biggest ones you need to understand is ROAS, “Return on Ad Spend.” I am going to explain how to get this number today. Let’s get started.
What is ROAS?
This is the metric that explains the revenue generated for every dollar spent on a campaign. Here is an example. Let’s say you spend $5 on a campaign. That campaign earns you $50. This means your ROAS is 10:1. ROAS is meant to measure the effectiveness of your campaign, not your ROI (Return of Investment).
Tracking analytics and measuring your campaigns is extremely important. Data is the only true measuring tool you have. Not only does it show the effectiveness of your campaigns, but it also shows the revenue you are bringing in or losing. You use these numbers to change your marketing strategies and approach.
Remember analytics don’t measure everything. You can’t see your brand awareness. Just because people are signing up and downloading your lead magnet, doesn’t mean that it is bringing in revenue. When you analyze your data remember the context of it. Review qualitative data as well as quantitative data.
ROAS vs. ROI
ROI calculates your return on investment. ROAS only calculates your return on a specific campaign. The only cost considered in the ROAS is the cost of the campaign. The goal of each ad campaign is to generate a positive return from the amount you spend on your ad. You use your ROAS to determine how much to spend on your campaigns. This will help determine how successful your campaigns are as well.
How to Calculate ROAS
The formula is easy. It’s revenue generated by ads / cost of ads. It can’t be said any simpler. This equation will show you whether your campaign is working or not.
Yes, the equation is simple. Gathering the data needed to get the numbers for the equation is a little more difficult. Numbers you will need for this are things like the cost of ad bid, labor costs for the creative assets, affiliate commissions, and vendor costs. You need these numbers to get an accurate estimate of the money spent on the ad.
Now that we know how to get an accurate number for the ad spend, let’s talk about goals. What’s a good ROAS? A good ROAS to aim for when you are starting is 3:1. Remember, not all ad campaigns are to make immediate revenue. Increasing your brand awareness will increase your ROAS in the long run. In this case, having a lower ROAS is acceptable. If you are having an issue boosting your ROAS, you might want to lower your ad spend and tweak your landing page.
There you have it. That’s ROAS explained in basic terms. I hope you learned a lot and this helps you earn more. That is all I have for you today. ‘Till next time!