An Amateur-Friendly Guide to Return On Ad Spend

August 1, 2019

Ah yes. I still remember the days when I knew nothing about online marketing and advertising. Those days were the worst. Trying to learn the online marketing dictionary.

Guess what? It’s your turn now! And you will be learning Return On Ad Spend or ROAS for short.

DISCLAIMER: As you may have noticed, this blog post is geared towards beginners in the online marketing and advertising industry. If you already know all of this shit, this won’t be as valuable. Though there’s no problem if you want to freshen up yourself a little bit!

All that said and done, let’s now learn what ROAS is!

What’s ROAS for?

Return On Ad Spend is very important metric for measuring how effective an advertisement is. It’s almost used by all of the online advertisers you will come across. That’s how important it is.

This metric of measurement is commonly used for eCommerce businesses. Its main use is to measure how effective an advertisement is. The higher the results of your ROAS, the better!

A bit confusing right? Don’t worry, it will all make sense once you get to see the formula! It’s just really easy so just stick with me.

ROAS can also be used for comparing different advertising campaigns. If ad campaign 1 has has a higher ROAS than ad campaign 2, then ad campaign 1 is more cost-effective no matter how much sales ad campaign 2 generates.

Are you getting all of this? This is what ROAS is for and why it is deemed to be an important metric of value!

How can you do ROAS?

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FORMULA: Revenue/Cost = Return on Ad Spend

Disgustingly easy right? If you still don’t get it, let me make it up with words.

You divide the Revenue you made from your advertisement from the Cost of your advertisement. The value you get is your Return On Ad Spend!

EXAMPLE! (Just skip this part if you don’t need further understanding)

My Ad campaign 1 has a revenue of $500. The money I spent or the Cost of Ad campaign 1 is $200.

500/200 = 2.5 or 250%

So my Ad campaign 1 has an ROAS value of 2.5! Fucking Easy!

But to be honest, 2.5 is a below average value when it comes to ROAS. But does below average mean bad? What’s a good ROAS anyway? What’s a bad one? That’s what we’re discussing next.

What’s a good ROAS and a bad one?

To get things started, what’s the average ROAS that people have? The general average across all industries is $2.87.

That means my Ad campaign 1 ROAS, 2.5 is just slightly below average. Does average mean good? No!

Keep in mind that the average ROAS doesn’t mean it’s the value that the majority of people get. It just simply means if you combine the value of all the people get and divide it the number of all the people, that’s your average.

Consider my Ad campaign 1 which has a ROAS of 2.5. That means for every $1 I spend in advertising, I get $2.5 back. Now, that seems good at first right? More than doubling the cost.

But that doesn’t account for the other expenses that you have! Advertisements are not the only thing you’re spending money on! How about the payment of your staff? Shipping and costs? You have to take into account first all of this.

A good ROAS is generally thought to be $4 and above. For every $1 you spend, you get $4 back. $6 of ROAS and above is amazing. Below $4 until the average which is $2.87 is considered okay. Below the average is generally considered to be bad.

Know Your Objectives and Goals First!

I’ve given you the values of which are good, okay, and bad. But is that all there is to it? Absolutely nooo! A big fat NO.

First of all, you need to know first what’s your objective. If you’re just starting your eCommerce business, then getting 4x ROAS is not your best focus is it?

You might first want to build your brand awareness instead of focusing all on profits. You might want to focus your reach first before profits.

It’s not all black and white. There’s always a gray area. Only you truly knows what’s good for you and what’s not.

What you should take From this

FORMULA: Revenue/Cost = Return on Ad Spend

Average ROAS is $2.87

You generally aim for higher, DEPENDING on your goals and objective.

Only you know what’s the best for your business.

Now that all that’s said and done, You now know what ROAS is, what it’s for, and the informations regarding ROAS. You now have learned one out of the many metrics that you will be tackling! I wish you best of luck 😉

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