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Marketing Acronyms: What's ROAS?
ROAS = Return On Ad Spend
Return on Ad Spend is a simple way to assess the success of your ad campaigns. The formula is as follows:
Revenue / Cost = ROAS
Basically, if you earn $2000 from an ad campaign and you spent $1000 your ROAS = 2
It is important to have a valid metric for measuring your ad spend (that’s pretty easy) and the revenue generated (that’s much harder)
A couple of things you should keep in mind when tracking your ROAS on a campaign.
This is a metric commonly associated with paid ads such as Google Adwords. For example, the average ROAS on marketing is $2.87 for every $1.00 spent.
ROAS is not the same as ROI - If you spent $1 to earn $5 your ROI is $4 or 4:1
ROAS doesn’t determine the profitability of a campaign - for example, if you spent $1000 on ads and generate $3000 in revenue - but your product, shipping and overhead costs you $2,000, you have an ROAS of 3:1 but you’ve broken even in terms of profit.
ROAS is generally easier to track from ecommerce sales than when selling services - just because you need to track your leads, lead sources, when the lead converts to a sale, etc.
Many times only the immediate transaction is considered when tracking ROAS - not the follow on sales and revenue that occur when a customer returns to purchase again.
To sum it up, ROAS is a solid but somewhat general metric to track. It’s best to know your profit margins and goals when using this metric to measure success.
Hope that was helpful!