Digital Paid Advertising 101: What is ROAS?
You may have heard the term ROAS thrown around a lot and nodded like you totally know what that means. But in reality, you thought to yourself “Why does marketing have so many acronyms? Does anybody even know what they all stand for?!”
If you have, you’re not alone! We get this question all the time, which is why we’re breaking down exactly what ROAS is and why it matters.
What is ROAS?
The definition of ROAS is Return on Ad Spend. It’s an important concept to understand when it comes to digital advertising on any platform. It mostly applies to advertising campaigns that have the goal of generating purchases. On the digital side of things, this means you have to set up tracking on your website for whichever ad platform you’re using, so the platform can track how much revenue is being generated by which ads.
ROAS is calculated by dividing the amount of revenue generated (income from the advertisement) by the amount spent (total spent on the advertisement).
So for example, if you spent $1,000 on Google ads for a given month, and those ads generated $5,500 in revenue, then your ROAS would be 5.5.
It’s important to note that when calculating the true return on your ad spend, you shouldn’t just be looking at your conversion campaigns. Any spend you used on prospecting campaigns or “upper funnel” advertising should also be included in your calculations. The goal is for your conversion campaigns to be paying for all of your campaigns (and some!) so that you’re revenue positive on all of your digital advertising.
Why does ROAS matter?
ROAS is a key metric for gauging whether or not your ad campaigns are successful. If you have a goal of driving website purchases through your Facebook Ads, Instagram Ads, Pinterest Ads, Google Ads, YouTube Ads, or ads on any of the other platforms, but you have a ROAS of 1 or lower, you’re really just breaking even. A healthy ROAS is around 3 or higher, which means you’ve generated 3 times as much money from the ad as you spent on the ad.
Now What?
Now that you understand the marketing concept of ROAS, are you looking to take your paid digital marketing efforts to the next level by generating a solid return on your investment? If you’re looking to drive e-commerce sales through your Facebook, Instagram, Google, Pinterest, YouTube, TikTok, or any other social ads, we at Social Supply Co. can build you a custom paid advertising strategy to help you turn ad spend into revenue for your business.
Reach out to us today so we can help you achieve the ROAS of your dreams!
