What Is A Good ROAS?

What is ROAS in digital marketing?

ROAS, or return on ad spend, is a key metric in digital marketing. It measures the profitability of an advertising campaign. We calculate it by dividing the revenue generated by the campaign by the amount spent on advertising.

The resulting number is then expressed as a percentage. A higher percentage indicates a more profitable campaign.

Measuring ROAS is important for businesses because it allows them to assess the effectiveness of their advertising efforts. By understanding the return on their ad spend, businesses can make more informed decisions about how to allocate their advertising budget and optimise their campaigns for better performance. Additionally, measuring ROAS helps businesses identify which channels and tactics are most effective for driving conversions and sales.

How do we measure it?

Measuring ROAS is relatively simple. We calculate it by dividing the revenue generated by the campaign by the amount spent on advertising. The resulting number is then expressed as a percentage.

For example, if a business spends £1000 on advertising and generates £2000 in revenue from that advertising, the score would be 200%. This means that for every pound spent on advertising, the business is generating 2 pounds in revenue.

It is important to note that ROAS should be measured over a specific period of time.  This may be monthly or a quarterly, to get an accurate picture of the campaign’s performance. Additionally, businesses should track and analyse their returns across different channels, tactics, and campaigns. This enables you to gain a comprehensive understanding of their advertising performance.

Why is it useful to know?

Measuring ROAS is important for businesses because it allows them to assess the effectiveness of their advertising efforts. By understanding the return on their ad spend, businesses can make more informed decisions about how to allocate their advertising budget. You can also optimise campaigns for better performance.

Additionally, measuring it helps businesses identify which channels and tactics are most effective for driving conversions and sales.

For example, if a business is spending a large amount of money on a particular advertising channel but is not seeing a high ROAS, they may want to reallocate their budget to a different channel. Consequently, they may adjust their tactics to improve performance.

Also, if a business is seeing a high ROAS on a particular channel or tactic, they may want to invest more resources in that area to drive even better results.

Knowing ROAS is also important for businesses to understand the profitability of their advertising efforts. A high ROAS indicates that the business is making more money than it is spending on advertising. A low ROAS indicates that the business is not seeing a good return on their investment.

What decisions might you take ROAS into account?

ROAS is a key metric in digital marketing that can influence a variety of business decisions. Some examples of decisions that ROAS can influence include:

• Advertising budget allocation: By understanding the return on their ad spend, businesses can make more informed decisions about how to allocate their advertising budget. For example, if a business is seeing a high ROAS on a particular channel or tactic, they may want to invest more resources in that area to drive even better results.
• Campaign optimisation: Measuring ROAS can help businesses identify which channels and tactics are most effective for driving conversions and sales. By understanding which campaigns are performing well and which are not, businesses can make adjustments to optimise their campaigns for better performance.
• Channel optimisation: ROAS can vary depending on the channel and tactics used. For example, a business may have a higher ROAS on social media advertising than on search engine marketing. By understanding the ROAS for each channel, businesses can optimise their advertising efforts to focus on the channels that are performing the best.
• Product pricing: By understanding the profitability of their advertising efforts, businesses can make decisions about product pricing. If a business is seeing a high ROAS, they may be able to increase the price of their products.
• Market expansion: A high ROAS can indicate that a business is making more money than it is spending on advertising, allowing them to expand to new markets and acquire new customers.
• Investing in new technology: If a business is seeing a high ROAS, they may have the financial resources to invest in new technology and tools to improve their digital marketing efforts.

Overall, ROAS can play a crucial role in a business’s decision-making process. It allows you to make data-driven decisions that lead to better performance and increased profitability.

What is a good ROAS score?

When it comes to determining a “good” ROAS, it’s important to consider the specific goals of the campaign. It can also vary depending on the industry the business operates in. For example, a business selling high-end luxury goods may have a higher return threshold than a business selling more affordable products.

Additionally, the figure can vary depending on the stage of the sales funnel. For example, a business may be willing to accept a lower return for a lead generation campaign, as the ultimate goal is to build a pipeline of potential customers.

That being said, a general rule of thumb is that a good ROAS should be greater than 100%. This indicates that the business is making more money than it is spending on advertising.

However, a result of 200% or higher is considered excellent. This means that the business is generating double the amount of revenue for every pound spent on advertising.

It’s also worth noting that ROAS can vary depending on the channel and tactics used. For example, a business may have a higher return on social media advertising than on search engine marketing. Additionally, it can be affected by factors such as targeting, ad creative, and landing page design.

In conclusion, ROAS is a key metric in digital marketing that allows businesses to measure the profitability of their advertising campaigns. Knowing a good return is essential for businesses to make informed decisions about how to allocate their advertising budget. They can also optimise their campaigns, and identify the most effective channels and tactics for driving conversions and sales.

While a ROAS of 100% or higher is considered a good rule of thumb, businesses should consider their specific goals and the industry they operate in. Additionally, businesses should track and analyse their returns across different channels, tactics, and campaigns to gain a comprehensive understanding of their advertising performance.