ROAS – Return On Ad Spend
Everything You Need to Know About ROAS
When a brand or business in the food industry decides to spend money on advertising, the end goal is to get something in return. Ads can bring in clicks, leads, potential customer, and final customers. We don’t spend money on ads for no reason– there must be something known as a ROAS or Return On Ad Spend.
But how does ROAS work, and how can it be calculated for the benefit of the advertiser and the publisher alike? Let’s take a look.
What is ROAS ?
ROAS is an online advertising term that refers to Return On Ad Spend. ROAS is an advertising metric that measures the effectiveness or success of a digital online advertising campaign. ROAS helps online businesses in the cuisine world evaluate which advertising methods are working to bring in new clients or customers, and how they can improve future advertising efforts.
The calculation of ROAS is fairly simple:
Gross Revenue from Ad campaign / Cost of Advertising Campaign = ROAS
For example: A business spends $30,000 on an online advertising campaign in a single month. In this month, the ad campaign results in gross revenue sales of $90,000. Therefore, the ROAS is a ratio of 3 to 1 (or 500 percent) as $90,000 divided by $30,000 = $3.
$90,000 / $30,000 = $3 OR 3:1
For every dollar that the business spends on this specific advertising campaign, it generates $3 worth of revenue.
There are other factors to consider when calculating ROAS in addition to the basic formula. Advertising incurs more cost than just the listing fees for placing the ads. To calculate what it truly costs to run an advertising campaign, be sure to not forget these factors:
Partner and vendor costs. There are usually fees and commissions associated with partners and vendors that assist in the advertising campaign or channel level. An accurate accounting of in-house advertising personnel expenses, such as wages and other related fees, must be taken into consideration. If these factors are not accurately quantified during calculation, ROAS will not properly explain the efficacy of individual marketing efforts and its utility as a metric will start to decline.
Affiliate commissions. The percent of commission paid to affiliates, as well as network transaction fees, is a part of ROAS.
Clicks and impressions. Metrics such as average cost per click, the total number of clicks, the average cost per thousand impressions, and the number of impressions actually purchased all factor into the result of a ROAS calculation.
What is Considered a Good ROAS?
An acceptable ROAS is influenced by profit margins, operating expenses, and the overall health of the company in general.
While there’s no completely right answer to this question, a common ROAS benchmark is a 5:1 ratio, or $5 revenue to $1 in ad spend. Brand new small businesses with lower budgets may require higher margins, while e-commerce stores committed to growth can afford higher advertising costs.
Some companies require a ROAS of 10:1 in order to stay fully profitable, and others can grow substantially at just a small ratio of 3:1. A company can only gauge its total ROAS goal when it has a defined budget and firm idea of its profit margins.
What techniques increase ROAS ?
There are many factors that we look at to optimize a campaign towards a ROAS Campaign Goal, these being (but not limited to) mostly around minimizing reducing advertising wastage;
Frequency Caps ie 3/24 or 10 Lifetime
Frequency Limits to 1 ad impression per page load
Time & Day Parting
Tightening up the Targeting
Optimizing for Click Though Rate
Optimize for Conversion Rate
Optimizing for Viewability