What is ROAS?

ROAS in an acronym for “return on advertising spending” and is often referred to “return on ad spend”. As you can probably tell, it is used as an indicator of the effectiveness of your advertising dollars. The resulting number would then answer the question “for every dollar that I spend on advertising, how much revenue did I make?”.

How to calculate ROAS

To calculate ROAS (return on advertising spending) you simply take the revenue generated by the ad and divide it by the cost (Revenue/Cost). A major weakness of ROAS is that it might lead you to think that as long as the numerator (revenue) was larger than the denominator (cost) that your campaign was a success. Unfortunately, that is no always the case. If you have a cost of $50 and you make $50 then your ROAS would come out to be 1 or %100 which might look good but really you are just breaking even.

Something Better than ROAS

A better calculation would be ROI which goes one step further and subtracts the total cost from the numerator. Unfortunately, this information is not always easy to integrate with your web analytics. Omniture does provide Data Base VISTA rules that allow you to change incoming analytics information to account for more than just your marketing costs and has been one of the better solutions for taking care of this problem. If you are unable to do this then you can at least take the revenue, subtract the marketing cost, and then divide by the revenue. Just be careful not to call this ROI, which takes in total cost. It would probably be best to call it the marketing contribution.

This entry was posted on Thursday, January 18th, 2007 and is filed under Whatever. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.