ROAS (Return on Ad Spend, return on advertising expenses) — a metric that shows whether advertising expenses pay off and how much revenue the advertising generates.
Unlike ROI, ROAS specifically accounts for advertising expenses. Other expenses of the business or team are usually not included in the calculation.
How to calculate ROAS
Formula:
ROAS = Advertising revenue / Advertising expenses × 100%
For example, $1 000 was spent on an advertising campaign and it generated $1 300 in revenue:
$1 300 / $1 000 × 100% = 130%
The ROAS was 130%. This means that for every $1 spent on advertising, the campaign generated $1,30 in revenue.
ROAS may also be expressed as a multiplier rather than a percentage. For example, a ROAS of 1,3x means the same as 130%: for every $1 in expenses, the advertising generated $1,30 in revenue. A ROAS of 3x corresponds to 300%.
If the advertising generated $800 with expenses of $1 000:
$800 / $1 000 × 100% = 80%
The ROAS will be 80%: for every $1 spent, only $0,80 was returned.
How to evaluate ROAS
If only advertising expenses and generated revenue are considered, the values are interpreted as follows:
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ROAS above 100% — advertising revenue is higher than advertising expenses;
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ROAS of 100% — revenue is equal to advertising expenses;
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ROAS below 100% — revenue is lower than advertising expenses.
But a ROAS above 100% does not mean that the business or campaign setup as a whole is profitable. For example, with a ROAS of 120%, the advertising generated $1,20 for every $1 spent, but the difference may be consumed by the cost of goods, commissions, salaries, services, and other expenses.
This is why there is no universal «good ROAS». For one project, 150% may be a profitable result, while another may require 300% or higher to become profitable.
How ROAS differs from ROI
ROAS accounts only for money spent on advertising and the revenue it generated. ROI can be calculated using all expenses: for example, in addition to the advertising budget, expenses for accounts, proxies, services, and commissions can be included.
Using our example with $1 000 in expenses and $1 300 in revenue, the ROAS will be 130%. If only these $1 000 in expenses are included when calculating ROI, the ROI will be 30%.
This means that a ROAS of 130% and an ROI of 30% in this example describe the same result but are calculated differently.
