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Return on Ad Spend (ROAS) is an essential marketing metric that is used to measure the amount of revenue generated per dollar invested in an advertising campaign. By analyzing ROAS, marketers can understand how well their advertising programs are performing and make better decisions on how to invest their budget. Improving advertising efficiency is particularly important today, with 75% of CMOs reporting that they’re currently facing increased pressure to “do more with less” budget (Gartner, 2023).
ROAS is calculated by dividing the amount of revenue attributed to a specific advertising campaign by the total cost of the campaign.
Campaign revenue
________________________ = ROAS
Campaign cost
For example, if a Facebook Advertising campaign generated $2,000 in revenue, and it cost $1,000 in total, it will result in a ROAS of 2.
$2000
_________ = 2
$1000
Sounds simple, right? As is often the case in calculating metrics, the devil is in the details. When determining ROAS, it’s important to consider how you are calculating revenue and costs.
There are several different methods for calculating the amount of revenue generated by a specific advertising campaign. The customer journey is often composed of multiple customer touchpoints, and different attribution models can be used to attribute revenue to different points of the customer journey.
Single-touch Attribution models attribute revenue to a specific touchpoint, such as the first touch in the journey or the last touch before conversion. Multi-touch Attribution attributes revenue to all touchpoints in customer journey equally.
For more information on how to choose the right attribution model for your campaigns, we’d recommend reviewing ad attribution platform Branch’s information on the topic here. When calculating ROAS, it’s important to be thoughtful about how you’re attributing revenue to your advertising campaigns to ensure that your ROAS accurately reflects the value advertising campaigns are bringing to your business.
In addition to deciding how to attribute revenue to an advertising campaign, it’s also important to consider how you’re defining costs when calculating ROAS. There are multiple cost categories involved in running an advertising campaign. In addition to platform costs, you may also encounter costs such as partner and vendor fees, and/or external agency or contractor costs. It’s important to consider which, if any, of these costs should be included in your advertising costs figure to ensure that your ROAS accurately reflects the amount of marketing budget required to launch an advertising campaign.
A ROAS greater than 1 means that your advertising campaign(s) are returning more revenue than it costs you to run them (this is a good thing!). A ROAS of exactly 1, often referred to as “break even ROAS,” means that the revenue generated from an advertising campaign is equal to the amount of budget required to run the campaign. A ROAS of less than 1 means that your advertising campaign(s) are generating less revenue than it costs you to run them (not a good thing!).
As with any marketing metric, however, it’s important to evaluate ROAS in context. Campaign type should be considered when you are using ROAS to evaluate campaign success. For example, top-of-funnel, brand awareness campaigns may have lower ROAS than bottom-of-funnel, direct conversion campaigns. But that does not mean that you should abandon all top-of-funnel campaigns. Rather, it’s helpful to use additional metrics, such as Click Through Rate (CTR), alongside ROAS to further analyze campaign performance.
It’s also important to consider your average Customer Lifetime Value (CLTV) when evaluating ROAS. Businesses with high retention, such as Financial Services, may be willing to accept a lower ROAS score, as they know that once a customer converts they are likely to remain a customer for a long period of time. Businesses with lower retention, such as eCommerce, may expect a higher ROAS, as they have less certainty that customers will make repeat purchases over time. Based on 2024 ROAS industry benchmarks, Financial Services averaged a ROAS of 1.05 for PPC advertising, while eCommerce averaged a ROAS of 2.05 for PPC advertising. To understand healthy ROAS for your industry, you can see FirstPageSage’s 2024 ROAS industry benchmarks here.
Once you’ve understood how to measure ROAS for your business, ROAS can be extremely helpful for managing campaigns and optimizing advertising spend.
Calculating ROAS for specific ad campaigns, or channels, can help you compare the efficiency of different programs. By analyzing the ROAS of two campaigns within the same channel, you can understand which campaign is more effective and allocate your budget accordingly. You can also compare the ROAS of two different channels, such as Facebook and Google Ads, to understand which channels are more effective at reaching your target audience. As you test your campaigns over time, you can use ROAS as a Key Performance Indicator (KPI) to understand the impact of your tests.
Once you’ve identified a target ROAS score for your campaigns, you can use this target as a threshold to optimize spend. When launching new campaigns, establish a minimum ROAS threshold in advance so that you know whether you should turn a campaign off. This will prevent you from wasting money on underperforming campaigns.
As informative as ROAS is, it’s always good practice to analyze ROAS in combination with other metrics in order to get a deeper understanding of campaign performance. Customer Acquisition Cost (CAC), for example, measures the amount of money spent in order to acquire a new customer with a given campaign or program. By analyzing campaign CAC and ROAS together, you can understand not only how efficiently the campaign is generating revenue, but also how many revenue-generating customers are acquired by the campaign.
As marketing budgets become more and more scrutinized, optimizing advertising spend is crucial for scaling marketing programs.
John Joe Smith, founder and CEO of WasteNot, is hosted by Tom Triscari, founder of Quo Vadis, for a Q&A conversation on the future of audience suppression.
Many advertisers waste up to 40% of their ad budgets due to inefficient targeting, and they aren't even aware of it. In this article, we'll walk through how brands can use modern audience suppression strategies to improve advertising efficiency and performance.
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WasteNot is the only platform focused on allowing marketers to activate and optimize real time ad exclusions across all biddable media.