How to Build (& Understand) Your ROAS Calculation

How to Build (& Understand) Your ROAS Calculation

Are you trying to get a more accurate return on ad spend (ROAS) calculation, but not sure the best way to go about it?

Calculating your ROAS is easy, so long as you keep your eyes on the right metrics. That’s why, in today’s post, we’re going to show you how to create the most accurate ROAS calculation for your marketing strategy.

That way, you can learn how to scale your business without breaking your budget. Then, toward the end of this post, we’ll share what a “good” ROAS is so you can see if your current advertising efforts are paying off.

Ready to get started? Let’s dive right in.

How to Calculate ROAS

how to calculate roas

The ROAS calculation is simple enough on paper. All you’re doing is working out how many dollars you earn for each dollar spent on advertising.

But before you can do this calculation, you’ll need two pieces of information.

First, you need to know the total amount you spent on an ad campaign.

If you are using PPC advertising on social media, Google, or other search engines, they should automatically give you a figure for how much you’ve spent with them.

Don’t forget to add in staff time and any external design or copywriting work too for an accurate assessment of exactly how much a campaign has cost. If you’ve used the same creative or copy across multiple campaigns, divide the cost of the work between the campaigns.

Second, you’ll need the total revenue generated by your ad campaign. This can be more difficult to calculate, especially for brands that have a longer sales funnel.

If you are an eCommerce brand, you might be able to calculate the total revenue easily from direct sales. Often your sales funnel will be short and clear – customer sees ad, customer clicks on ad, customer buys product.

Attributing revenue to the correct ad campaign is therefore pretty straightforward.

For longer, more complex sales funnels, you’ll need to decide which attribution model to use. Our post on the different types of attribution models explains this in more detail.

If you can’t get the exact revenue for your campaign, you can come up with a close estimate by creating conversion goals in Google Analytics and assigning a value to each goal.

For example, if your brand’s ad campaigns are aimed at lead generation, you might make completing a contact form one of your conversion goals. If you convert 10% of leads and the average value of a converted lead is $100, you’d assign this goal a value of $10.

Once you have these two figures, simply divide the total revenue by the total ad spend.

Sticking with the example above, let’s say you spent a total of $200 on your ad campaign and 100 people completed your contact form. We’ve already worked out the approximate value of each of these conversions is $10, so we calculate the total revenue as $10 x 100 = $1,000.

In this scenario, your ROAS is $1,000 / $200 = $5 or 5:1. In other words, for every dollar spent on advertising, you’ve earned $5 of revenue.

You might also see ROAS expressed as a percentage – just multiply by 100 to get this. 5 x 100 = 500%.

Why It's Important to Understand Your ROAS

why you need to understand roas

ROAS is a vital metric for assessing the performance of your advertising campaigns and comparing the effectiveness of different marketing channels. It has several benefits for digital marketers wanting to make smart decisions about their advertising.

1) Optimize Future Ad Campaigns

By looking at the ROAS of your various ad campaigns, you can see which ones have been most effective at getting the best return for every dollar you spent. This helps you optimize future campaigns for maximum return.

After all, a campaign that has brought in thousands of dollars might look great on paper. But when you realize that each dollar it has brought you has cost far more than other, more modest campaigns, you see that it might not be as successful as you first thought.

2) Identify Your Most Lucrative Advertising Channels

With so many different digital marketing channels available, the ROAS is also essential in helping you plan where to concentrate your efforts (and budget). You might find that the cost-per-click (CPC) of your Facebook ads is cheaper than your Google ads, but that your Google ads have a better ROAS, for example.

In this case, if you only looked at the CPC, you’d conclude that Facebook was the better advertising channel for your brand. But when you factor in the ROAS, you find that it’s actually better to invest more in Google ads.

3) Understand Your Audience

Of course, the ROAS can also help you build a better picture of your audience and how your prospective customers respond to different ads. A high ROAS suggests you’ve targeted your ad at the right people.

4) Report on Your Campaign Performance

When you are reporting back to clients or senior management, knowing your ROAS is vital. While you and the rest of the marketing team will be interested in the nitty-gritty details of every campaign, the rest of the company are most concerned by the impact on the bottom line.

If you can show that your campaigns bring in a great return, you’ll find it easier to get support for an increased budget in the future.

What Makes a "Good" ROAS?

what is a good roas

What you consider a good ROAS depends on many factors, including your industry, your niche, and your profit margins.

Companies competing in an over-saturated niche will need to spend more to get their brand noticed and might accept a lower ROAS because of this.

On the other hand, brands with tight profit margins need every cent they spend on advertising to work as hard as it can. They need a higher ROAS than a business with more generous profit margins, as there’s so little wiggle room in their budget.

Ideally, you’ll develop your own benchmark for what makes a good ROAS for your company by looking at the performance of past campaigns. Factor in your available budget and consider doing some competitor research to find out what others in your niche spend on advertising.

As you continue to learn more about your target audience and gather data to help you optimize your ads, you should see the ROAS improve.

Only you know what represents success for your brand. But most marketers aim for a ROAS of at least 4:1 – that is $4 of revenue for every dollar they spend.

The ROAS will also vary depending on the platform. For example, Google says it works on the assumption that companies will make an average of $2 for every dollar they spend on PPC ads, giving an average ROAS of 2:1 for Google ads.

Ultimately, your brand’s own targets for ROAS are more important than generalized averages. But taking these benchmarks as your starting point might help you set those goals if you don’t yet have your own data to work from.

Keeping Track of the Data

The biggest factor in your ROAS calculation is understanding your data and making sure you’re consistently bringing in more revenue than you’re spending.

But you already learned that in Business101.

What you didn’t learn, though, was how to stay on top of all that data. And for that, there’s simply no better tool than Metrics Watch:

metrics watch homepage

Metrics Watch is the best report building software on the market. It allows anyone to quickly and easily create marketing reports in a matter of minutes to pull data from their favorite channels, such as:

  • Google Analytics
  • Google Search Console
  • Google Ads
  • Facebook (organic and paid ads)
  • Instagram (organic and paid ads)
  • LinkedIn (organic and paid ads)
  • And much more…

And since everything can be done with the drag and drop report builder, you don’t need any coding or “tech skills” to build reports FAST.

Then you can determine who needs this data and when. That way, your ROAS reports will automatically propagate and send on a daily, weekly, or monthly basis.

But what really separates Metrics Watch from the competition is how these reports are shared. Everything gets sent straight to your recipients’ inbox. Not as a PDF attachment and not as a link to a 3rd-party dashboard.

Instead, your reports arrive with custom branding in a format your customers already know and love.

Want to see it in action for yourself? Click below to start your 100% risk-free Metrics Watch trial today:

Start Your Risk-Free Trial Today!

And that’s all for now. This has been an in-depth post on ROAS calculations, why they matter, and what makes a “good” one.

We hope you found this post helpful. If so, you’ll definitely want to check out the following resources:

These articles will have even more information on how you can improve your advertising strategy and consistently increase your bottom line.

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