What is ROAS?
ROAS stands for Return on Ad Spend, the revenue your advertising generates for every dollar you put into it. The formula is simple: total sales divided by total ad spend. Spend $1,000 on ads that drive $5,000 in sales and you have a 5x ROAS, or $5 back for every $1 spent on ads. It is the single most important number for judging a sales campaign, which makes it important to understand.
Want to skip the math? Use our free ROAS calculator.
A quick example
Say you sell jeans for $100 a pair. You spend $100 on paid ads and sell 10 pairs, which is $1,000 in sales. $1,000 divided by $100 is a 10x ROAS. If your target was 5x, you doubled it, and those jeans were more profitable than you planned for.
Which campaigns should be judged on ROAS?
Digital campaigns generally fall into three buckets: awareness, consideration, and conversion. Only conversion campaigns should be measured primarily on ROAS. Awareness and consideration campaigns are building the audience that converts later, and judging them on immediate return will make you stop strategies that are actually working.
What is a good ROAS?
We treat 3x as the baseline, but many large advertisers are happy with lower than that. Our e-commerce clients typically land between 3x and 10x once campaigns are optimized, and strong product and creative combinations can go well past that. We have driven a 15.8x ROAS for a local landscape supply client and better than 5x for many product brands. You can see those results on our clients page.
Where should your target be set?
Your target should come from your real costs, not from an industry chart. Every sales channel takes a cut somewhere. A marketplace takes fees off every order, a retailer takes margin, and ads take spend. When you know what a sale truly costs you in each channel, you know what ROAS makes advertising your most profitable one. High sales do not automatically mean high profit.
Four things to keep in mind
- Calculate your actual costs first. That tells you which channel earns you the most per sale.
- ROAS is hard to predict without history. Early campaigns are a test. Returns usually climb as data comes in and campaigns get optimized.
- A higher ROAS is not automatically better. Think of an apple tree: the low apples are cheap to pick, but there are only so many of them. If you only chase the highest possible ROAS, you stop reaching the customers higher up the tree and leave sales behind.
- If you want help setting a target and hitting it, that is what we do all day. Reach out.