THE MEDIA ENCYCLOPEDIA
Return on Ad Spend
Return on Ad Spend (ROAS) quantifies the efficacy of ad spend relative to its associated sales, conversions, or revenue.
What is Return on Ad Spend (ROAS)?
A popular KPI for direct response marketing, Return on Ad Spend (ROAS) quantifies the efficacy of ad spend relative to associated sales, conversions, or revenue.
What is the formula for Return on Ad Spend (ROAS)?
ROAS = Revenue / Ad Spend
What is an example of Return on Ad Spend (ROAS)?
Return on Ad Spend (ROAS) is typically calculated when running digital advertising campaigns which are associated with direct marketing or performance marketing objectives, such as sales, leads, and more general conversion-based campaigns.
As an example, a DTC brand selling an innovative new product may create a campaign on Facebook to drive sales. The sales price of the product is $50.
To ensure the campaign is profitable — that the Return on Ad Spend (ROAS) is greater than 1 — the DTC brand needs to ensure that there is at least 1 sale for every $50 spent on Facebook Ads.
The campaign, which is set to run with a daily budget of $500, is activated with broad interest targeting and registers a Return on Ad Spend (ROAS) of 2.5 (or $1,250 in total sales associated with the ad) at the end of the month.