ROAS calculator helps you evaluate return on ad spend, a key metric that indicates the effectiveness of paid ads. Do you ever wonder why some companies ask you where you learned about them, particularly when you’re filling in a form? Well, maybe you already know this, but they’re trying to gather information to know whether their advertising is yielding profit.
So, how did you hear about Omni’s ROAS Calculator? Don’t tell 😜. Keep reading to learn what does ROAS means, the ROAS formula, and the factors influencing your ROAS metric. And make sure also to check out the online marketing conversion calculator.
What is ROAS? — ROAS meaning
Return on ad spend or ROAS is the amount of revenue a company generates for every dollar spent on an advertising source.
When a business tests a new advertising source for a campaign, it may compare the ROAS at different stages of the campaign with other advertising sources to gauge their performance and determine which should get renewed.
How to calculate ROAS? — ROAS calculation formula
The ROAS formula is:
ROAS = (Revenue from advertising / Cost of advertising) * 100
That means that if you spent
$1,000 on Facebook ads in one month and your revenue for that month is
$3,000, your ROAS is
($3,000/$1,000) * 100 = $3 * 100 = 300% per dollar spent on advertising.
But if you made $900 in revenue in the same month, your ROAS is
($900/$1000) * 100 = $0.9 * 100 = 90%.
90% may look acceptable at face value, but don’t be fooled by anyone throwing such ROAS numbers. Anything less than 100% is a loss when evaluating ROAS. The ROAS calculator will help you make sure you don’t interpret your ROAS results wrongly or confusing them with your ROI.
ROAS is NOT ROI!
While ROI gives a more accurate evaluation of your entire business performance, ROAS is restricted to the performance of your ad spend.
What is a good ROAS?
Using our example above, is the ROAS of 300% a good return? It depends.
A 300% ROAS means that you gained 200% or $2 from the ad campaign.
Although different businesses have different objectives for their advertising and marketing campaigns, most focus on improving revenue and, ultimately, profit. That means you need to establish some margin of safety if you want to protect your net profit margin. Therefore, a good ROAS is accompanied by profitability after you have accounted for less obvious advertising costs, e.g., vendor fees, commissions, transaction fees, and other business overhead costs.
According to Classy Llama, most businesses, particularly e-commerce businesses, are within profit territory when ROAS is 800% and above.
A ROAS less than 400% means you need to reevaluate your advertising strategy. If it’s within the 400–799% range, you can still be profitable after removing your business operational cost. Just make sure to keep tracking the metric with the ROAS calculator and optimize for opportunities.
How to use the ROAS calculator?
- Input the
Ad spendor the cost of an ad source.
- If you’ve not determined the revenue from your advertising, or you want a ROAS target, select “I don’t know my revenue”. Otherwise, fill the following fields.
- Provide the ad revenue derived from the ad source to get your ROAS. If you're wondering how to calculate break even ROAS, simply input 100% in the ROAS field to get the breakeven ad revenue.
- To compare your ROI with ROAS, input your profit margin in the calculator
advanced modeto get your results in a chart.
Factors that influence your ROAS metric
Some factors that can influence your ROAS metric are:
- Your brand popularity. If you are new in a market, you’re likely to have a low ROAS compared to when you’ve established your brand.
- The type of advertising or ad source. If you’re using banner ads, you may have a low ROAS since banners are less likely to be clicked, but they effectively improve your brand awareness.
- Failing campaign. In general, if you’ve got a foothold in a new market and your ROAS is below 300%, review your audience targeting and optimize your campaign to get the best result from your marketing budget.
- Customer reviews.
- Product/service description and images.
- Product price.
What does ROAS mean?
ROAS means return on advertising spend. It is a metric that evaluates the performance of the cost of advertising.
How to calculate ROAS?
Perform the following steps to calculate the return on ad spend:
- Determine the revenue from your advertising source.
- Divide the revenue by the cost of the advertising.
- Multiply the result by 100 to get the percentage ROAS.
- If your ROAS is less than 100%, your advertising is at a loss.
How to calculate break even ROAS?
To break even on your ad spend, your ROAS has to be 100%. Therefore, if you want to calculate breakeven revenue for your ROAS, multiply your cost of advertising by 100%.
What is a good ROAS?
What is a good ROAS depends on how you define ROAS and your primary objective for advertising or marketing. A ROAS is good if it covers all associated advertising costs. If your calculated ROAS is 100%, you've broken even. If it's over 400%, you're probably in a good spot to account for less obvious costs such as vendor fees and commissions. But if ROAS is 800% and above, you definitely have a great ROAS to cover your business operational costs.