There are a variety of metrics to use when it comes to evaluating a digital marketing campaign and one of them is Return on Ad Spend (RoAS). If you’re unfamiliar with this one, no need to worry, you’re not alone. We’re going to walk you through what it is, how to calculate it as well as how to calculate Amazon’s version of RoAS.
WHAT IS RETURN ON AD SPEND
RoAS is the average revenue earned for each currency unit (USD, EUR, etc.) spent on advertising. For example, for a brand in the U.S., RoAS tells you how many dollars of revenue were a result of $1 spent on an ad campaign. Sounds good, right? But how do you actually calculate it?
HOW TO CALCULATE ROAS
The good news is that RoAS is easy to calculate. The RoAS calculation is total attributed sales, divided by the total cost of the ad campaign(s).
RoAS = Total ad attributed sales / total ad spend
The reason to focus on RoAS is to maximize the efficacy of your ad spend. This metric allows data-driven decisions on where to invest your ad dollars and how to increase efficiency. It answers the question of “did that lever I pulled increase sales?” Converting to RoAS also allows for easier comparisons to other parts of marketing, since this is a standard marketing metric.
CONSIDER OTHER FACTORS
A higher RoAS doesn’t always mean that you’ve achieved better marketing goal(s). As with any time you analyze data, you want to keep in mind there are other goals and factors to consider. Here are a few examples of when a lower RoAS can be a good thing:
- Brand awareness or customer acquisition: for these campaigns, the focus should be on metrics such as impressions, click thru rate (CTR) and cost per acquisition (CPA)
- Driving top line sales or profit on a COGS: calculation on these business goals doesn’t include the investment made to sell the goods making RoAS less relevant
- Moving products: when the focus is on moving products, RoAS takes a back seat to metrics such as units sold