Definition
Return on Ad Spend (ROAS) is a commonly used marketing metric that helps to estimate the total amount of revenue generated per dollar of digital advertising spend. This metric is commonly used to check the efficiency of paid media campaigns. ROAS is similar to Return on Investment (ROI). However, while ROI can be used to check the efficiency of any investment, ROAS is primarily used to estimate paid media spend efficiency.
Example
Return on Ad Spend (ROAS) = Net conversion value/ Net ad spendSuppose a SaaS company wants to know the efficiency of paid advertising on LinkedIn over the last 30 days. The company's ad spend in this category is $5,200 for 30 days. With Linkedin advertising, the company has managed to get 18 new customers in 30 days, equivalent to revenues of $18,000.Thus, Return on Ad Spend (ROAS) = $18,000/$5,200 = 3.46A ROAS of 3.46 means that the company is earning $3.46 per dollar of its Linkedin ad spend.
Why it matters
ROAS helps businesses to understand the impact and efficiency of paid media spends. It helps in addressing questions like:a. Is the advertising spend fetching a profit or resulting in losses?b. Which specific ad campaign, is driving the maximum profits?c. Which paid media platforms are driving profits?d. What is the profitability of paid media spend vis-a-vis customer acquisition strategies?A high ROAS can help companies rapidly accumulate the resources required to scale their operations efficiently.