As a writer, I have never been good at math. I know… shocking.
Most marketers can understand, because as a group, we tend to be better at English and history than math and science.
However, as marketers, we need to be able to analyze data and calculate the effectiveness of articles or campaigns, even though mathematics may not be our strong point.
One of the calculations we need to run and the metrics we need to track is return on ad spend (ROAS).
Next, let us review ROAS. In this article, we will discuss what ROAS is, how it differs from ROI, and how to calculate it.
What is return on ad spend (ROAS)?
ROAS (Return on Advertising Spend) is a measure of the revenue generated compared to each dollar of advertising campaigns. For example, suppose you make $10 for every $1 spent on an advertising campaign. This means that the ROAS for this campaign is 10:1.
Ultimately, advertising spend is designed to measure the effectiveness of a particular advertising campaign, not your overall return on investment-see more below.
In addition to ROAS, you will most likely also measure other metrics, such as click-through rate and ROI. By measuring multiple indicators, you will understand the results more accurately.
Of course, measuring performance and tracking analysis are an important part of any marketing activity.
By tracking performance, you can improve and iterate your Technical MarketingIn addition, data is one of the only ways to truly prove that your department generates revenue, which is very important.
However, it is important to note that not everything can be used Quantitative dataFor example, calculating brand awareness and sentiment is much more difficult. Although you can calculate downloads or email registrations, these may not always generate revenue.
When analyzing any data, it is important to consider the context and look at qualitative and quantitative data.
Having said that, today we will specifically study ROAS in depth. Before we do this, let’s review how ROAS is different from ROI.
ROAS and ROI
The return on investment (ROI) measures the total return on the overall investment, while the return on advertising spend (ROAS) only calculates the return on a specific advertising campaign. Essentially, the return on investment is a more macroscopic indicator, and the return on investment is a specific indicator that measures the success of a particular advertising campaign.
Ultimately, this means that the only cost considered in the ROAS calculation is the advertising cost. On the other hand, the cost of the entire project or activity will be considered in the ROI calculation.
Of course, the goal of your advertising campaign is to generate a positive return on your advertising expenditures. But how do you determine how much advertising spending should be?
In the YouTube video below, HubSpot details how to determine ad spend by understanding the bidding system used by ad networks.
You can use ROAS to help you determine how your advertising budget is spent, and as a signal to determine the success of your campaign. This will let you know that you may need to evaluate methods of advertising.
So, at this point, you might be wondering, “How do I calculate ROAS?” Let us review now.
How to calculate ROAS
The formula for calculating ROAS is simple: The revenue/cost of advertising. With this equation, you will get a ratio that can help you determine whether your advertising campaign is effective. For example, if you make $10 for every $1 you spend, your ROAS is 10:1.
Although the equation is simple, it may be difficult for you to collect the data needed to run this calculation. For example, calculating advertising costs is not always easy. You need to consider the cost of advertising bids, the labor costs required to create creative assets, supplier costs, and affiliate marketing commissions.
However, it is important to accurately estimate the actual cost spent on advertising in order to obtain an accurate ROAS measurement. If your data is inaccurate, your findings will not be accurate.
To solve this problem, you can combine CRM software such as HubSpot with HubSpot AdvertisingTo track the income of potential customers.
Using CRM and advertising software, you can track your data and link them together-marketing leads, advertising results, etc.
Now, you might want to know, “What is a good ROAS?” with “How can I increase my return on ad spend?”
Well, a good ROAS is usually around 3:1. If you are struggling to break even, it may be time to delve deeper into the accuracy of the metrics and evaluate your advertising and bidding strategies.
However, it is important to pay attention to some goals Advertising campaign It may not be for immediate income, but to increase brand awareness. If this is your goal, then a lower ROAS makes sense.
What is a good ROAS?
Depending on the medium, the return on advertising expenditure may be between US$4-11 for every US$1 spent on advertising.
In the figure below, you can see through the media the ROAS per dollar invested in the United States in 2018.
For every dollar invested in digital search advertising, American advertisers can get about 11 dollars in revenue, making it the medium with the highest return on advertising expenditure.
How to increase return on ad spend
To increase your return on ad spend, you can lower your ad spend and review your campaign. You may want to optimize your landing page or reconsider negative keywords.
Overall, ROAS is an important tracking indicator, but it should not be tracked out of thin air. It is important to view other data and metrics to fully understand your return on investment.
Editor’s note: This article was originally published in July 2020 and has been updated to be comprehensive.