The full form of ROAS is Return on advertising spend. It is the process of measuring earned money from digital marketing. It is essential to track Return on advertising spend for advertisers to understand the profit and losses.
If they are facing losses, then they can immediately improve advertisements to get overcome from it. It is the way of getting high Returns with the help of advertisements. For ROAS calculation, follow a simple formula; just divide your ad revenue by your ad costs.
To get more details regarding the same, you must read out this entire article. We are definitely sure that it will be helpful for you. You can measure it by following 5 effective steps mentioned below.
Do you know what ROAS is?
Return on advertising spend is a simple process of measuring revenue per dollar spent on advertising. To calculate it, just divide ad revenue by ad cost. If you want to know how much your ad campaign is successful, then you must calculate the resulting amount. If a ROAS is less than the resulting amount, then it means you are in loss. But if it is more than it, then it means you are generating profit.
How to Calculate ROAS in 5 Steps
Those who don’t know how to calculate ROAS in 5 effective steps must move in the below section. Here, we have discussed the same in detail.
- Collect Relevant Data
If you want to calculate Return on advertising spends, you have to collect all of the data to calculate Return on ad spends on a particular campaign. It includes many factors such as:-
- ad spend,
- the average cost per click (CPC),
- conversion rate,
- and your estimated customer lifetime value
To find all of these values, you can check in your advertising accounts, such as Google Ads Manager or Facebook Ads Manager.
- Divide Monthly Ad Spend by Average CPC
If you want to get your number of monthly clicks, then you have to divide your monthly ad spend by your average cost per click. For instance, you are required to calculate ROAS on a Google ad for your business. It spent $600 per month on ads and had an average CPC of $2.11.
The calculation: $600 / $2.11 = 284.36 clicks per month on average
- Multiply Monthly Clicks by Your Conversion Rate
To calculate a number of conversions per month, you have to figure clicks per month. For this, follow the step above given. After that, multiply clicks per month by your conversion rate. You will get your number of conversions per month. If you don’t understand this way, then you can take an example the same as the above given. According to this, let’s assume the business had an average conversion rate of 2.5%.
The calculation: 284.36 x .025 = 7.1 conversions
- Multiply Conversions by Your Average Customer Lifetime Value
To get estimated ad revenue, you have to go with your monthly conversions and multiply it by your estimated customer lifetime value or CLV. By following the example above said, the business has an estimated CLV of $400.
The calculation: 7.1 x $400 = $2,840 gross monthly ad revenue
- Divide Ad Revenue by Ad Spend
Finally, it’s time to divide ad revenue by ad spend to get your Return on ad spends for the campaign. Remember that this is a ratio of revenue generated per dollar of ad spend, so $1 is the break-even point. If you get a final number of the equation is greater than one, then it means your ad campaign is in profit. If the number is small, then you are facing loss.
The calculation: $2,840 / $600 = 4.73 return on ad spend (a positive return)