What Is ROAS? Return on Ad Spend in Less than 5 Minutes

Return on Ad Spend (ROAS) is a metric that helps businesses understand how effective their advertising is. It shows how much money the business makes for every dollar spent on ads. To calculate ROAS, you use this simple formula:

ROAS = Revenue from Ads / Cost of Ads

This means you divide the money earned from ads by the amount of money spent on those ads. For example, if you made $500 from an ad campaign that cost $100, your ROAS would be 5. This means you earned $5 for every $1 spent on advertising.

ROAS is a marketing metric that assesses the performance and financial return of a digital advertising strategy, campaign, or ad group.
To calculate ROAS, use the ROAS formula, which divides your ad strategy’s total revenue by its total cost, to calculate your return on ad spend: ROAS = Revenue / Cost
ROAS in marketing is essential for informing your company and your team about the performance and quality of your ad campaign.
A good ROAS is usually a 4:1 ratio — $4 in revenue to $1 in ad costs.

How to calculate ROAS

Now that you know the answer to the question, “What is ROAS in marketing?” let’s dive into how to calculate it.

To calculate ROAS, use the ROAS formula, which divides your ad strategy’s total revenue by its total cost, to calculate your return on ad spend: ROAS = Revenue / Cost

What is ROAS?

ROAS is a marketing metric that assesses the performance and financial return of a digital advertising strategy, campaign, or ad group. Using and measuring this metric can help companies improve their ad strategies and monetary returns.

Why ROAS matters

So you now know how to calculate ROAS and the answer to the question, “What is ROAS.” Now let’s explore why it’s important!

ROAS in marketing is crucial for evaluating how well your ad campaigns are performing. It gives your company and team valuable data to optimize your advertising budget. Without knowing your ROAS, you risk wasting money on ineffective ads, leading to fewer leads and sales.

What is a good ROAS?

A good ROAS is typically a 4:1 ratio, meaning $4 in revenue for every $1 spent on ads. However, there is no one-size-fits-all answer, as different businesses may require more or less revenue to be successful. On average, the return on ad spend is 2:1, which means $2 in revenue for every $1 spent on advertising.

What determines a good ROAS?

Now that you know what a good ROAS is, let’s explore what factors determine it. To figure out a good ROAS for your company, consider the following:

Your industry
Your profit margins
Your average cost-per-click (CPC)

ROAS vs. ROI: What’s the Difference

So you know what a good ROAS is. Now, let’s explore the main differences between ROAS and ROI.

ROI (Return on Investment) calculates how much your company makes from an investment, including advertising, after all expenses like operational costs and turnover. In contrast, ROAS (Return on Ad Spend) focuses solely on how much revenue your business earns from advertising.

Because they measure different aspects, ROAS and ROI use different formulas.

If you’re having trouble remembering the difference between ROI and ROAS, consider this perspective: ROAS measures your average return specifically from advertising, while ROI measures your total return from advertising.

Improve your ROAS with help from SteveAyo

So now you know the answer to “what is ROAS,” along with how to calculate ROAS in marketing, why it’s important, and what makes a good return on ad spend.

But when your ads fail to generate the revenue and results that your business needs, it places your company (and you) in a difficult spot.

Professional ad management services from SteveAyo can take away the stress and worry over your ad campaigns and provide the results and revenue you need.

Learn more about how our paid advertising services, from search to social, can help your business earn an impressive return on ad spend by contacting us online or calling us at (+255) 783-957-836 to chat with a strategist about your goals, company, and more!