What Is Return On Ad Spend (ROAS) And How To Calculate?

Return on Ad Spend (ROAS) is the return on the ad spend. It is a measure that aids app marketers in determining which promotions and advertisements are effective. What is Roas? Is really important to measure how much revenue was earned in comparison to how much budget was spent. Roas is typically explained in the form of a ratio and the higher the Roas calculation the better the campaign has performed

The reasons why Roas is important

Roas is important as it helps to understand the basic question “Are my app marketing efforts really working. This guides decision making where to invest more to budget and when to scale back. An example is if you are running a campaign that is delivering top-quality results and generated significant revenue in your app. But in reality, you end up paying more than what you gain from the users this campaign cannot be rated to be a success. This is what helps you determine what is a good roas.

It is good to consider Roas calculation at various levels, from the bird’s eye view of platform-specific campaigns and advertising budget down to a single campaign. Even you end up adopting a creative approach to the type of insights you are looking to extract.

Suppose you calculate a fractional Roas formula it can also be valuable more so if analytical analytics are elaborate. All the metrics involved will enable you to make better decisions on future budgets, product roadmap and marketing campaigns.

Roas formula is outlined in the following form= revenue from an ad campaign/ cost of an ad campaign.

The outcome is obtained as a percentage. For example, if you are spending $ 1000 on an ad campaign and you make $ 2000 in profit the Roas would be 200%( 100% is the break-even point)

Of course, you could end up having a negative Roas. An example is if you spend $ 100 on an ad and only generate $ 50 in revenue the Roas would be 50 %. A negative Roas indicates it is the right time to reassess your creativity along with marketing channels to discover where the problem lies. Then you can optimize accordingly.

The positives of using Roas

Roas is a useful metric but it is not perfect. Let us dig deep and find out about the positives of Roas

• The choice of the best channel- Most of the campaigns use multiple channels such as social media, out-of-home, email etc. When you measure Roas across all channels you can understand which is going to bring the bang for your buck. Hence you will be able to focus on those and ditch anyone draining your budget for little reward.
• The focus is on the short term- You must establish a time scale in order to measure Roas, but it usually just takes a few minutes. The reason is that you are measuring behaviour in relation to a specific ad. To understand your revenue over the long term you have to consider customer lifetime value.
• You do not see the bigger picture- The advertisements don’t exist alone. Someone might click on a Facebook advertisement after reading a review, seeing a banner, or being evaluated by a friend. They may know and already like your brand. It is challenging to demonstrate that returns are totally attributable to spending on a single ad because advertising is just one component of the marketing mix.
• It does not showcase volume- the Roas calculation may be positive with a small number of customers. There is a possibility you may have run a cheap campaign with a small number of customers as your revenue looks high in comparison.

It is worth mentioning how privacy rules have an impact on how to calculate roas.

The definition of a good Roas

This is a common question that is asked by marketers all over the world. A clear answer to the question is there is no clear answer. The main thing that points to what is a good roas is that it has to be positive. This may take a considerable amount of time sometimes months to drive profit from a campaign or a user.

What may turn out to be a good Roas for an organization may not be the case with others. It all depends upon the targets. Good roas calculation also varies according to the advertising platform. Though in some cases the numbers may not seem impressive they are averages. It is not broken by industry size, audience or company size so there is no need to panic if the results do not look different.

The ways by which you may improve Roas

The goal of a marketer is always to increase revenue and conversions. So let us figure out ways by which roas formula derives benefits

Set benchmarks

To be aware on what is a good target you need to be aware of a good Roas and set it as a benchmark. Being aware of the baseline of each campaign and channel can help highlight where you have been successful. This may serve as a viable model for future campaigns.

Test and learn

A successful Roas would depend on a variety of variables, thus it’s critical to know which campaigns, channels, and creatives produce the best outcomes and the most value users. You may use A/ B testing to experiment with different creatives, placements and targeting strategies.

Optimize your landing pages

If your ads are generating a substantial number of clicks, and still the roas is low observe where the ads are taking people. Do you find your land page clear and engaging? Does the page load clearly or are the call to action clear? To keep the users moving smoothly through the purchasing journey.

Lowering the cost of your ad

It may seem to be obvious but one of the viable ways to get more return on you spending is to reduce the same. You can do this by improving your quality score. A better-quality score will result in higher-ranking ads and hence a lower cost per click. Keywords have an impact on cost too. Searching for long-tail keywords or those associated with your niche is preferable to using popular terms.

Know your audience

Undertake a robust search of your audience to be aware where your target market is. This will give you an idea when they are online and what would be the areas of their interest. When you carefully align your message to the audience you are bound to drive higher conversions and do not end up wasting money on the wrong channels.

Bid smarter

A suggestion to have a positive Roas formula is to bid in a smart way. You may save some money by adjusting your maximum bid that uses automated bidding and setting different bids for mobile and desktop

Use predictive analytics

With Roas optimisation, being aware of the most valued users who monetize throughout their time using your app could prove to be a game changer. If you are able to correlate with the initial actions in the funnel and future monetization you may significantly improve the Roas.

To conclude by now you have an idea of what is roas and it is evident that it is important for marketers. But a point to consider is that roas are not going to reveal a lot and it is better if you use them along with other metrics. How to calculate Roas is dependent upon the company and the platform that you are using but it needs to be positive. To achieve a positive Roas could take a considerable period of time.

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