Performance Marketing 101: How to Calculate ROAS Effectively

When you put in money, you’ll want to see returns. Be it a direct impact on revenue, improved consumer trust, better reputation, or superior brand awareness.

That’s just how business is done.

To better quantify your efforts, you need metrics to track what you’re getting back.

For marketers, especially the ones in performance marketing, this means finding metrics to justify their ad spending. To do that, you’ll need to calculate ROAS or return on ad spending.

It is a key metric that allows you to stay in control of your marketing expenses and business budget and, importantly, highlight what ad campaigns are working.

Here’s a guide on everything you need to know about ROAS, brought to you by Digitactix — one of the top providers of SEM services in India.

What is ROAS?

As mentioned above, ROAS stands for return on ad spend. It helps you measure the performance of your ads and understand how much you’re making back for your performance marketing efforts.

Specifically, it refers to the revenue generated as a result of any advertising expenditure, including sales or new customers acquired through a specific campaign.

ROAS can be applied to your entire advertising and marketing budget or individually be applied to specific campaigns. For instance, if you’re running a PPC ad campaign, a direct marketing campaign, and a print publication campaign, you might want to see how much your investment returns overall.

How Do You Calculate ROAS

It’s quite simple. To calculate ROAS, you divide the revenue generated by your advertising spend.

So, for instance, if you spent Rs. 2,000 but made Rs. 10,000, your ROAS would look like this:

10,000 (revenue) / 2,000 (advertising spend) = Rs.5 (ROAS)

This means that for every rupee you spend on advertising, you’re making back Rs. 5. This is usually expressed as 5:1, or Rs. 5 for every rupee spent.

At Digitactix, a provider of the top digital marketing services in India, we optimize and target your campaigns in a way that your ROAS always stays in double digits.

Why Should You Use ROAS?

Put simply, the main objective behind any campaign, directly or indirectly, is to ensure that the profit margin is as big as possible.

Combining ROAS with other metrics, such as cost per acquisition (CPA) or cost per lead, can show you how effective your advertising campaigns are.

For instance, if your ROAS is low and your CPA is high, you might need to change your strategy. Similarly, if your ROAS is high and CPA is low, you’re doing everything right, and you can focus more funds on that specific channel.

This may seem quite obvious. But measuring these results and understanding how to optimize your profit margins using ads isn’t always a walk in the park.

You can calculate ROAS anytime during the campaign or after it. However, it’s best to check it during a running campaign to keep adjusting parameters or stop it if it’s proving to be ineffective.

What is a good ROAS?

A good ROAS would be anything above your break-even ROAS, which is the ROAS that you require to remain profitable. At the very least, you need to be afloat above this level.

Otherwise, you enter a situation where your ads are costing you more than they are earning you profit. You’ll never be able to break even.

As for a good ROAS, there’s no one-size-fits-all figure. It depends on your industry, your scale, and your goals. The best thing to do is check industry benchmarks on ROAS to understand what you should aim at.

You can also change your ROAS benchmarks based on how your current campaigns are performing. For example, you can afford lower ROAS on your acquisition campaigns if your retention and retargeting campaigns are driving a higher ROAS as a result.

Break industry benchmarks in regards to ROAS with the best SEM agency in India – Digitactix.

Wrapping Up

As you can see, the value of ROAS cannot be underestimated. It’s an essential metric that provides deep insights into how effective your advertising campaigns are, and you understand the direct return on your ad spend.

By regularly tracking your ROAS, you can maximize your budget, make data-driven decisions, and ultimately drive profitable growth.

Partner with Team Digitactix today to make the most of your ad spending. Get in touch with us to know more.