Calculating ROAS, or the magic formula that reveals the impact of your advertising campaigns

If there's one thing marketers don't like, it's moving forward blindly! That's why they operate with KPIs, reporting and other performance monitoring systems. And that goes for advertising too.

Paid search, ads on social networks, display... do you really know whether your campaigns are profitable?

Find out with ROAS. There's no complex equation here, just a very basic formula that hides behind its simplicity many truths you need to know if you want to perform well!

Focus today on how ROAS is calculated, its benefits, and the best practices you can deploy to improve it!

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What is ROAS?

The acronym ROAS (for Return On Ad Spend) could be translated as " return on advertising investment ". As you will have gathered, this is an indicator designed to measure the profitability of your advertising, in all its forms.

However, experts are increasingly associating this notion with online campaigns, largely because the internet allows more precise measurement of the results obtained, whereas offline is more nebulous.

ROAS measurement therefore applies in particular to the following digital marketing channels:

• advertising on social networks
• paid search,
• display ads
• affiliation
• sponsored links
• email marketing, etc.

💡 Please note: many online resources on calculating ROAS focus on advertising campaigns such as Google Ads and Facebook Ads.

ROAS VS ROI

As a seasoned marketer, doesn't ROAS remind you slightly of the concept of ROI?

ROI stands for Return On Investment.

Here's how ROI is calculated:

What's the difference between ROAS and ROI, you might ask?

Whereas ROAS relates exclusively to advertising expenditure, ROI relates to all the company's development activities, such as sales processes and other marketing strategies, such as SEO.

Calculating ROAS is therefore a component of ROI.

💡Ouradvice: we recommend that companies study the two indicators together. Sometimes ROAS is positive... but ROI is not! In this case, it's best to consider adjustments, particularly to the overall marketing budget, to ensure that the service is profitable.

How do you calculate ROAS?

Calculating ROAS

Let's get to the heart of the matter.

Here's how to calculate ROAS, expressed in monetary units:

👉 Example of how to calculate Facebook Ads ROAS:

You spend €10,000 on a Facebook Ads campaign. It earns you 25,000.

Your ROAS is therefore 2.5 euros (for every euro you invest, you earn 2.5).

A few tips

• Make sure you consider all your advertising costs, i.e. :
  • your direct costs,
    e.g. what you pay to advertising platforms such as Google Ads,
  • your indirect costs,
    e.g. the service providers and other sub-contractors who help you run your campaigns.
    
    
• Take into account revenue from advertising, and only from advertising, to ensure that the results are accurate. Exclude revenue generated by your other marketing or sales operations.
  
  
• Bear in mind that there is a time lag (more or less long depending on your sales cycle) between the moment when your target is reached by your advertising campaign and the moment when they make a purchase. So adapt the frequency of your ROAS calculation accordingly, and compare the results at different stages in the deployment of your strategy.

How do you calculate Google Ads ROAS?

In absolute terms, the calculation remains the same. It's still a question of dividing the sales achieved by the associated expenditure.

However, on Google Ads, you can opt for a target ROAS bidding strategy.

👉 A short video to find out more about this method... which is a bit technical:

Why measure Return On Ad Spend?

Identify your strengths

Like many companies, you probably deal with a large number of advertising channels.

Thanks to ROAS, you'll be able to distinguish the best performing ones, so you can focus your efforts on what really works.

💡 Good to know: with the aim of identifying your strengths, ROAS calculations can be accompanied by an AB testing approach.

Make savings

At the same time, you can identify the advertising levers that are not generating sufficient revenue in relation to your investments.

Eliminating them will enable you to make savings on your marketing budget.

Manage your budget more effectively

By calculating ROAS, you gain a more detailed understanding of how your advertising expenditure works: you know what you need to spend to get the results you want.

You'll then be able to budget your actions more accurately, and avoid making advertising a volatile item of expenditure. You gain in stability, so you can better prepare your future strategy.

In short, ROAS is a powerful tool for optimising your advertising budget and strategy.

What is the right ROAS?

How do you calculate the minimum ROAS to guarantee the performance of your advertising campaigns?

Spoiler: there is no such thing as a good or bad ROAS.

You should, of course, avoid ending up with a result of less than 1 or, worse still, a negative result, as this means that your campaigns are simply not profitable.

But once your ROAS is positive, at what point should you get excited?

You can work on the following basis:

• ROAS of 1 to 3 😐: that's good, you're breaking even. However, this result is not really enough to ensure the overall profitability of the company.
  
  
• ROAS of 4 😃: presented as the target to reach for most organisations, it indicates that your marketing is really generating profit.
  
  
• ROAS of 5 or more 🤩: every euro spent earns you 5. Bravo, your advertising campaigns are performing very well!

However, take these figures with a grain of salt, since everything depends on your ambitions, and above all on the margin achieved by your company.

The fact is that each structure evolves in a different configuration, and has its own growth objectives. For example, a start-up that needs to break even quickly will prefer to achieve a substantial ROAS. If your margin rate is high and your operating costs low, your return on investment in advertising expenditure may be revised downwards.

Moral: it's up to you to calculate the ideal Return On Ad Spend based on the specifics of your organisation, and, of course, to think about implementing actions to make it grow over time.

💡Ouradvice: look at the famous ROI in parallel with any other relevant indicator in order to assess your overall performance as accurately as possible. In fact, sometimes your advertising campaigns generate positive effects that are difficult to quantify and palpable, such as an increase in your brand awareness.

How can you optimise this?

There are many ways to improve your ROAS. Here are a few tips:

Learn from your mistakes

As we have seen, calculating ROAS is an excellent tool for determining what works and what doesn't (ads that visitors don't click on, for example).

The first thing to do is to pinpoint your weak points so that you can react accordingly.

Redefine your objectives

A low ROAS may mean that you have been too ambitious in your objectives. Or that the strategy you adopted was not serving your ultimate goal (traffic, conversion, brand awareness, etc.).

To ensure that your advertising campaigns don't turn into a money pit, take the time to challenge your objectives regularly, in the light of your company's real needs.

Identify your personas

Reaching (or failing to reach) the heart of your target audience largely determines the success of an advertising campaign. That's why you need to identify your personas precisely, segment them and understand their buying patterns.

That way, you'll be able to send them the right message, at the right time, through the right channels.

💡 Worth knowing: in the world of Ads, knowing your audience inside out means you can fine-tune your keyword strategy. Sometimes it's better to target a smaller population (using less generalist queries), but a more qualified one. They'll click more!

Optimise the customer experience and the buying process

Sometimes you manage to win over web users with your advertising, to attract them to your website... but then they slip away before they even reach for their wallets!

Could this be due to a poor customer experience and/or a lack of fluidity in the buying process?

Whatever the case, always take care of these aspects. For example, you can

• improve the performance of your web pages,
• develop a responsive site, i.e. one that is compatible with mobile use,
• personalise your landing pages according to the prospect's position in the conversion funnel (they should reflect their level of maturity).

Reduce your budget

When you're embarking on an advertising investment for the first time, but don't know how much you'll end up making, it's best to go lightly. In other words, start by injecting a small budget, just to take the temperature and test things out. Then, depending on the results, open the floodgates.

💡 Good to know: when it comes to Ads, there are plenty of ways to reduce your CPC, or cost per click:

• choose your keywords wisely (cost, volume, intent, etc.),
• improve your quality score,
• make sure your ads are relevant,
• use negative keywords, etc.

Keep an eye on your competitors

On Google Ads, certain competitors may use your brand name with impunity to attract Internet users into their fold. This practice, known as brand squatting, not only affects your brand image, but also increases the cost of your advertising campaigns.

💡Ouradvice: use software such as Monibrand to thwart this problem. The tool will monitor your competitors for you, then identify in real time those who are exploiting your brand. It then sends them a notification requesting the removal of the ads concerned. At the same time, a team of legal experts and IT specialists will help you make the right decisions.

See all software Search Engine Marketing (SEM)

What's in it for me?

(Investment income - Investment costs)/Investment costs

Thanks to this simple formula, you hold the keys to guaranteeing the profitability of your advertising campaigns. By calculating ROAS, you can identify your strengths, capitalise on them and optimise your marketing budget. Combined with other indicators, such as ROI, you gain greater visibility so that you can optimise all your strategies, always with the aim of improving your company's overall performance.

But once you have obtained your Return On Ad Spend, you face a major challenge:

• firstly, to determine whether it is a satisfactory ROAS,
• If not, you need to take appropriate action to increase it (redefining your objectives and personas, reducing your budget and CPC, etc.).

It's up to you to try and find the magic formula, the one that, abracadabra 🪄, will transform all your actions into success.