How do I calculate a ROAS?
In this blog post, we will show you how to calculate ROAS, provide you with practical formulas, and show you how to put them into practice with an application example.
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Author: Marc Heiss
Position: Management
Updated: 17.03.2023
What is the ROAS?
ROAS is the ratio of revenue generated by advertising spend to the cost of that advertising spend. In this blog post, we’ll go into more detail about how to calculate ROAS and how you can use this metric to make better online marketing decisions.
When it comes to online marketing, it’s important to understand how effective your advertising spend is. One metric that helps with this is ROAS (Return on Advertising Spend). Especially to run successful Google Ads campaigns or Google Shopping, this is a very important metric.
The key figure Return on Advertising Spend (ROAS)
As online marketers, we know how important it is to measure and analyze the success of our marketing campaigns.
ROAS is a critical metric that helps us assess the profitability of our advertising spend.
How do I calculate the ROAS?
ROAS, often expressed as the ratio of sales to advertising spend, is an important metric for evaluating the success of advertising campaigns. ROAS can be used to determine how much revenue is generated per euro invested in advertising.
Formulas for calculation: To calculate the ROAS, you only need two values: the generated revenue and the advertising spend. The basic formula is:
ROAS = sales / advertising spend
Alternatively, ROAS can be expressed as a percentage value by adjusting the formula as follows:
ROAS (in percent) = (sales / advertising spend) x 100
Application example
Let’s assume you ran an online marketing campaign and invested a total of 10,000 euros in advertising. This campaign has brought you sales of 50,000 euros. To calculate the ROAS, use the formula above:
ROAS = € 50,000 / € 10,000 = 5
This means that for every euro you have invested in the campaign, you have generated 5 euros in sales. To express ROAS as a percentage:
ROAS (in percent) = (50,000 € / 10,000 €) x 100 = 500 %.
This means that your campaign has achieved a 500% return on your advertising spend.
Final part
Calculating ROAS is an effective tool to measure the success of your online marketing campaigns and adjust your marketing strategy.
It is also important to mention here that you should try to map this metric automatically via your Google Analytics 4 or another analytics tool, which would of course save you the ongoing calculation.
A high ROAS indicates that your ad spend is profitable and helping you achieve your business goals.
With the formulas and application example presented, you should now be able to calculate ROAS for your own campaigns and make informed decisions for future advertising efforts.
Remember to monitor ROAS regularly to constantly optimize your marketing strategy and get the best ROI for your business.
Questions and answers
ROAS is a critical metric because it measures the return on advertising spend. It helps marketers evaluate the success of their campaigns and adjust their marketing strategy accordingly. A good ROAS shows that a campaign is effective and has a positive impact on sales.
By regularly monitoring the ROAS of your campaigns, you can assess their performance and take optimization measures if necessary. If the ROAS of a campaign is low, you should rethink the strategy, for example by adjusting the targeting, the advertising budget or the platforms used. This way you can continuously increase the effectiveness of your marketing campaigns and increase ROI.
A good ROAS value depends on several factors, such as the industry, individual business goals, and the company’s profitability threshold. In general, a ROAS of at least 4 is considered good, as it means that for every euro invested in advertising, you generate 4 euros in revenue. However, the ideal ROAS value can vary depending on the situation, and it is important to define your goals and expectations realistically.
Although ROAS is an important metric, it should not be considered in isolation. It is important to include other metrics such as cost per acquisition (CPA), click-through rate (CTR), and conversion rate to get a comprehensive picture of campaign performance. Combining different metrics allows for more sophisticated analysis and helps you make more informed decisions for your marketing strategy.
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