ROAS, or return on advertising spend, is an important metric that measures the efficiency of your marketing campaigns and how much revenue you are able to generate for every pound (or other currency) spent. It’s a key indicator of how well your marketing activities are performing and a good way to determine profitability.
To calculate ROAS, you need to divide the total revenue generated by the total amount spent on marketing, to get a pre-tax percentage. For example, if you have spent £1000 on marketing, and have generated £5000 in revenue, then your ROAS formula would be:
ROAS = £5000 / £1000 = 5
Which is interpreted as for every £1 spent, you have generated £5 in revenue.
ROAS essentially gives you a way to gauge the success of your marketing campaigns and helps to decide whether you should focus on an existing campaign or switch to an alternative route. It also gives you an idea of what kind of products and services are proving most beneficial for your profits and where you can focus your attention and marketing budget.
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However, it is important to note that ROAS is not necessarily a measure of cost-effectiveness – while it measures how well a marketing campaign turns out financially, it does not take into account the cost of the actual product or service being advertised. If you have spent a lot of money on ads but the product is not priced effectively, the ROAS figure may look good, but it doesn’t actually mean that you are making a decent profit.
Additionally, it’s important to remember that ROAS can give you a good indication of how efficient your campaigns are, but it is not necessarily a definitive answer as to whether to keep running a particular campaign or not. It is wise to combine ROAS with other metrics such as customer loyalty data, customer satisfaction surveys, and conversions, in order to get an overall comprehensive picture of your campaigns.
The best practices when it comes to monitoring ROAS are to always make sure to track ROAS across both short-term and longer-term campaigns, as well as separating by geographical locations. Additionally, keep in mind the product margins and how this may factor into your figures. It is also good practice to always assess the ROAS of different marketing channels, and to identify which ones provide the most value. Finally, combine the data on marketing ROAS with other performance metrics to get more accurate and better insights.
ROAS is an important metric for marketing teams, and it offers valuable insights into the success of their campaigns. By tracking ROAS across multiple campaigns, channels, and locations, marketers can get a complete picture of their ROI and identify what kind of efforts are delivering the best results. When used correctly, ROAS can be a great way to evaluate the success of your marketing activities and make more informed decisions about your marketing budget allocations.