WHAT IS ROAS?
When we make an investment of any kind, we must always take into account a subsequent metric in order to review the results obtained. Was my investment worthwhile?
There is a performance indicator that has a significant influence on digital marketing called ROAS (Return on Advertising Spend), which is defined as the 'Return on Advertising Investment'. It is often confused with ROI (Return on Investment) due to its revenue and cost factors, but each has its own purpose in the market, so let's take a look at them.
ROI: An indicator that reflects the profitability of a business. Its formula is:
(REVENUE – COSTS) / COSTS X 100
ROAS: An indicator that measures the effectiveness of an advertising campaign investment. Its formula is:
(REVENUE / COSTS) X 100
In simpler terms, ROAS tells us the profit obtained for each unit invested. So, if an AdWords campaign generated a profit of $10,000 and the initial investment was $750, we would have a ROAS of $1,333.33. At first glance, this is a very promising result that greatly favors the next decision-making process in your advertising campaign.
- Which ads are most effective?
- Is the information provided correct?
- What was the customer's response?
- Where will my next investment be?
- Budget adjustments?
One of the many questions we can ask ourselves for the next investment plan. If we take a closer look at the effectiveness of this formula, we have more information that can be complemented with other indicators such as ROI or KPIs. Highly accurate data to generate consistent profits.
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