Thulisile Khalishwayo
The great thing about ROAS is that it doesn’t just work for ad campaigns. You can also use this metric to evaluate ad groups and target keywords as well. How? For example, if you find that your return on ad spend is much higher for specific keywords, you may want to put the focus on those particular keywords. You may also want to create new Pay-Per-Click (PPC) advertising campaigns based on these top-performing keywords.
What’s the difference between Return On Advertising Spend (ROAS) and Return On Investment (ROI)?
According to Branding Mag: The differences between ROAS and ROI is that ROAS is a ratio derived from comparing how much you spend to how much you earn, while ROI accounts for the amount you make after paying your expenses. The sole purpose of ROI is to determine whether the campaign is worth the investment or not.
While calculating ROI is an essential factor, marketing campaign development, it isn’t a tell-all. It won’t help you decide whether a campaign will be successful or not. ROAS does more than calculate potential profitability, and it assists you in identifying more specific tactics that are proven to generate sales.
ROAS doesn’t calculate overall profitability as well as. ROI does.
ROAS vs ROI
This table below compares the ROAS and ROI formula.
| ROAS | ROI |
| Formula | Revenue/Cost | (Revenue-Cost)/Cost |
This is how you calculate ROAS – Revenue/Cost i.e. The money you made (revenue) divided by the money you spent on advertising (cost).
To calculate ROAS, you need to know two totals:
Total revenue (the money you made)
Total cost (the total amount you spent on advertising)
Example
As an example, you manage the paid media campaign for an e-commerce client.
In June, you spent R2,000 on Paid Media campaigns. With that R2,000, your campaigns generate R10,000 in revenue.
Formula:
ROAS = Total revenue/Total cost
ROAS = R10,000/R2,000
ROAS = 5:1 meaning for every Rand you spend on advertising you made R5
When looking at advertising spend, to create the perfect digital advertising campaign, you should consider both ROAS and ROI, to get the full picture.
What is a good ROAS?
There is no simple way to say what is a good ROAS. Many factors determine good ROAS. A good ROAS can vary on your marketing goals or industry. In some cases, a lower ROAS is not a bad thing. However, generally speaking, a score of 4:1 or higher indicates a good ROAS and indicates a successful campaign. Always keep in mind, the accuracy of ROAS is dependent on getting accurate numbers for the cost and the total revenue generated.
When is a lower ROAS okay?
There are cases when a lower ROAS is okay. A low ROAS does not indicate that your campaign is failing.
For example, in a case where you are using banner or display ads. Display ads tend to have low click-through rates, but their effect is to increase brand awareness rather than revenue. Your ROAS will be lower. Another instance will be if you are entering a new market,
a low ROAS might be okay as your brand works to gain more traction in the new market.
You can check ROAS in the middle of the month to check campaign performance. This will assist you in giving you a sense of which campaigns are generating revenues and an indication if you need to change strategy or budget allocation. It is also important to remember that low ROAS is not always a bad thing.
If you need help planning your digital paid media campaigns, contact Algorithm Agency.
