What is ROAS (Return on Advertising Spend)?
ROAS, or return on advertising spend, is a marketing metric that shows how much revenue a business earns for every pound spent on advertising. It helps measure the effectiveness of your ad spend, whether across your full marketing strategy or within a specific campaign.
To calculate ROAS, divide the revenue generated from advertising by the total advertising cost. For example, if you earn £5,000 from a campaign that cost £1,000 to run, your ROAS would be 5:1. ROAS can be tracked at both a high level and campaign level, giving you insight into which efforts are driving results and which may need adjustment.
Why is it important to track return on ad spend?
Tracking ROAS helps businesses understand whether their advertising investments are delivering a return. A high ROAS typically signals a successful campaign, suggesting that the strategy or creative is resonating with the target audience. However, ROAS alone doesn’t give a complete picture of profitability. It should be considered alongside other key metrics, such as profit margins, customer acquisition cost (CAC), and customer lifetime value (LTV). For instance, a campaign might generate strong ROAS but still be unprofitable if margins are thin or if customers don’t return.
It’s also important to track ROAS over time and across different platforms or ad sets. This allows you to spot trends, identify outliers, and refine your strategy based on real performance data. Ultimately, ROAS is a vital tool for optimising ad spend, guiding budget allocation, and improving the overall efficiency of your marketing efforts.
