What is ROAS [+ understanding depth of return on ad spend]

Safalta Expert Published by: Vanshika Jakhar Updated Wed, 07 Dec 2022 08:37 PM IST

We discovered that 28% of marketers who used ROAS as a crucial marketing metric had difficulty precisely tracking and measuring it. You're likely having trouble bridging the gap between your marketing and sales given the challenges B2B marketers face, including lengthy customer journeys, offline conversions, and privacy updates.  Click here to enroll and learn from the digital marketing course. 

Table of Content
What is the ROI on advertising?
ROI vs. ROAS
Why is ROAS crucial?
How is ROAS determined?
Why is it difficult to follow ROAS?

What is the ROI on advertising?

One important marketing metric for marketers using paid channels is the return on ad spend. We explain what ROAS is and how to use it to maximize the effectiveness of your marketing.

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Source: Safalta

Return on ad spend, or ROAS is a metric used to determine how well your paid advertising is generating revenue for your company. Simply put, ROAS is a calculation that splits the amount of revenue from advertisements by the sum of advertising expenses. When evaluating your paid advertising campaigns, the return on ad spend is critical because it provides a precise estimate of the number of sales generated by your marketing.
 

ROI vs. ROAS:

Return on ad spend and return on investment (ROI) appear to be the same metrics at first glance. Both calculate the revenue resulting from a particular financial allocation. Consider it this way. A cost is a commercial. An investment is made when purchasing a tool to schedule your marketing messages. Your employee salaries represent another form of investment. One excellent example is content marketing. As long as the website and the content are online, posting content to your company's blog may increase traffic to and sales from your business. On the other hand, advertising typically aims to temporarily increase traffic and revenue. Ads could, of course, help you increase your social media following or newsletter subscribers, but the majority of the time, the objective of an advertising campaign is to boost sales while the ad is running. One would take into account the budget allocated to the advertisements. The other would include that expense along with any additional costs related to tools, paying for creative work, etc.
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Why is ROAS crucial?

Data is the foundation of modern marketing best practices. Increased traffic, followers, and visibility are no longer sufficient metrics. The exact amount of revenue that marketing and advertising campaigns bring in is what company executives want to know. You can generate reports using ROAS that show the precise amount of revenue your advertising campaigns bring in for the company. Additionally, it enables you to assess which advertising campaigns are most and least effective—and whether they are even worthwhile—helping you continuously adjust your spending to eventually produce the most income for the least investment.
 

How is ROAS determined?

Calculating ROAS is easy if you know exactly how much money you spent on advertising and how much revenue it brought in. If you'd rather not do the math, we have a handy little ROAS calculator you can use.

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Why is it difficult to follow ROAS?

The return on advertising investment isn't always a simple matter. Due to data disconnections and inconsistencies, tracking ROAS can occasionally be challenging. Let's go over some typical problems marketers encounter when attempting to track return on ad spend. To help you more effectively track the effects of your paid advertisements, we'll demonstrate how to remove each of these obstacles.

  • Lengthy customer trips

Whether you work in B2B or B2C, users can occasionally be slow to convert. Not every user who visits your website for the first time becomes a convert. If they would only Typically, they experience a protracted customer journey, moving from stage to stage as they weigh their options. The main issue here is time, even if their customer journey only involves two marketing touchpoints. The majority of analytics programs have a set lookback period, leaving you helpless to attribute a customer who made a purchase in June but first interacted with your advertisement in January.

  • Data impact on iOS

Paid marketers have suffered as a result of iOS. They are struggling more than ever to link the dots between clicks on their chosen ad platform and leads generated by paid advertisements. There are, however, workarounds. By switching to first-party cookies instead of third-party cookies, you can continue to track users and identify their lead source. You can keep sending and receiving important data from visitors to your site by using first-party cookies that are hosted on your website.

  • Data inconsistencies

Have you ever noticed that the data you see in Google Analytics and Meta Business Manager are very different from each other? Important data inconsistencies can make following ROAS challenging. You can have better control over the data you have access to by eliminating these inconsistencies. And from there, you can derive even more worthwhile insights that may affect your marketing outcomes.

  • Tracking conversions is challenging

Although less obvious, many paid marketers have trouble getting over the first obstacle. Even though you can monitor the number of calls or form fills, it will probably be difficult to show where the calls and form fill originated. And when that's a problem, you won't have a complete picture of how your paid advertisements are generating new leads and, ultimately, new clients.

You must monitor your return on ad spend if you use paid advertisements as part of your marketing campaigns. It's the best metric for assessing whether or not your campaigns are bringing in money for the company, which is what they should be doing.

What causes an increase in ROAS?

Reduce your cost per click if you want to increase your ROAS. Boost the percentage of post-click conversions. Boost your earnings per conversion.

What is a good ROAS for advertising?

The industry, average cost per click, and your profit margins are just a few of the variables that affect what constitutes "good" ROAS (CPC). Most businesses aim for a 4:1 ratio or $4 in sales for every $1 spent on advertising.

Why is ROAS crucial?

Based on their performance, ROAS enables businesses to assess the success of individual campaigns. A company can determine the types of ads that are working well so they can scale them to get the best results by looking at each campaign in detail.

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