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ROAS (Return on ad spend)

ROAS, or Return on Ad Spend, is a key metric in the marketing and advertising world. It serves as an important metric that provides insight into how effective an advertising campaign or marketing activities are in terms of generating revenue in relation to the cost spent on advertising.

Juliane Fuchs
Last updated: Nov 3, 2023

What is ROAS?

Imagine you're the owner of a coffee shop and you decide to run an ad campaign to attract more customers. You spend £1,000 to advertise your coffee shop.

As part of the campaign, you record how much extra revenue you get from the new customers who visit your coffee shop as a result of the ads. Let's say you calculate that these new customers have spent a total of $5,000 buying coffee, pastries and other products in your coffee shop.

This is where ROAS comes in. ROAS is like measuring how much "value" you get back for every dollar you've spent on ads. In this case, you've spent £1,000 on advertising and you've received £5,000 in revenue from those ads.

So, to calculate ROAS, you simply divide the $5,000 in revenue by the $1,000 you spent on ads:

How to calculate ROAS

In this case, your ROAS is 5, which means that for every dollar you spent on ads, you got $5 in revenue back. This is a positive ROAS and indicates that your campaign has been profitable as it has generated more revenue than the advertising costs you invested.

ROAS helps you measure whether your ads are a good investment or not.

What is the difference between ROI and ROAS?

When it comes to measuring the results of a marketing campaign or investment, you'll often come across acronyms like ROI and ROAS. While they are both key indicators to assess performance, they represent different ways of looking at investment and revenue.

ROI (Return on Investment):

  • ROI calculates the amount you earn after paying all your expenses. It's a more comprehensive metric that can be used to evaluate the overall health and profitability of a business or investment over time.

ROAS (Return on Ad Spend):

  • ROAS focuses specifically on advertising spend and revenue generated from ads - for example Google Ads. ROAS measures how effective advertising has been at generating revenue in relation to advertising costs. It is a more narrow metric that is typically used to evaluate specific advertising campaigns or channels.

One KPI is not more important than the other. Both ROI and ROAS are valuable insights, but it's important to know the difference between them as they are used in different contexts and for different purposes.

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