If you’re in the advertising industry, you’ve probably heard the term return on advertising spend, also known by its acronym ROAS. It refers to the profits you get from advertising campaigns.
When you figure out your ROAS, you can know for sure if your marketing campaign is working.
What’s the Formula for ROAS? Fairly Simple!
ROAS = Revenue / Cost
The formula is straightforward, as you can see. Just divide the profits you gained from advertising by the total amount of money you have spent running a specific advertising campaign.
How to Evaluate your Advertising Costs
The first step is to identify your total advertising expenses with the revenue you get from the ROAS, instead of the earnings. The actual price for advertising is deducted the first time.
Most advertisers are interested in having a high ROAS because they believe that it’s a surefire sign that you’re earning money. Monitoring the ROAS is a must because it enables the company to identify which advertising campaigns are deserving of the cash allocated to them.
Any organization will benefit from knowing if their advertising, whether digital or billboard, is worth the time and money. Apart from this, it also measures the optimal capacity of their investments. The success of the business relies on ROAS, particularly when launching new products. All companies need to gauge whether a specific approach is working or not. Because anyone with good sense will take a step back to walk away from any indication of a failing campaign.
How to Boost Your ROAS
You can find websites with advertising banners. Most of them have a lower ROAS than expected. Advertisers tend to turn their attention to cost-per-action (CPA) or pay-per-click advertising instead. It provides a much more significant profit margin for the ROAS. You can use it to track conversion rates. The higher the conversion rate, the better the ROAS.
Look up free or paid services online. There are many options to choose from that will help your business track their ROAS. Google Adwords, for example, can identify whether a particular ad campaign bears fruit. Such services have a significant impact because it gives them more tangible results, something to work towards.
However, consider this — a business platform is only one part of the equation. The other part is to devise a foolproof campaign. If you fulfill only one side, thousands of dollars will be at stake.
The Key Takeaway
ROAS is significant to a business, but it hinges on its marketing campaign goals, conversion factors, and money spent. Some campaigns have great ROAS, but it does not guarantee business success. Some companies end up in debt because of production and shipping costs, not about the ad budget. Therefore, a high ROAS is not the end-all-be-all to achieve business success.
When a company does lose money, it does not mean that your campaign efforts were in vain. To reiterate, ROAS only determines the advertising costs. Nothing else. Other factors that might take away chunks of the profits, such as shipping costs surge, are not taken into consideration.
Overall, ROAS contributes value to your businesses, provided you use it correctly. It helps you identify how your ad campaigns are faring from the get-go, instead of finding out any bad news when it’s already too late.