Home E-commerce university ROAS – why should you measure this KPI?

ROAS – why should you measure this KPI?

Do you invest in advertising? Do you know which ones are actually profitable? If you haven’t analysed the profitability statistics for ads so far, it is worth changing the approach and taking a closer look at the ROAS indicator.

What is ROAS?

The return on advertising expenses, or ROAS (Return on Ad Spend), is a term used in the advertising world to estimate the profits generated by advertising campaigns. Simply put, ROAS helps in calculating the return on advertising expenses.

How to calculate ROAS?

ROAS = \dfrac{income\: from\: advertising\: campaign}{cost\: of\: advertising\: campaign}

 

For example, if you spent £100 on an advertising campaign and thanks to it you sold products for a total of £1 000, ROAS will be 10.

How to interpret this result? In this case, the ad generated 10 times more revenue than the campaign cost.

You can calculate ROAS for ads on a given channel, in a specific campaign, for a group of ads or even individual keywords.

The detail of the analysis depends on the purpose of the campaign you have to implement. The company’s general and operational costs, margin and general e-commerce condition also influence this ratio.

Why is it worth to measure ROAS?

This indicator provides extremely important data at every stage of company development. A better understanding of the return on ad spend can help you to:

  • better estimate the budget in the future,
  • estimate where to invest your advertising budget,
  • develop an even more effective promotion strategy that will allow you to get the desired customer responses and increase the visibility of your company on the Internet.

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