ROAS calculation, 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, social network ads, display... do you really know if 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'll have gathered, it's an indicator designed to measure the profitability of your advertising, in all its forms.

Nevertheless, 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.

As a result, ROAS measurement 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?

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

ROAS calculation is therefore a component of ROI.

💡Ouradvice: we recommend that companies study both 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 the profitability of the service.

How to 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 Facebook Ads ROAS calculation:

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

Your ROAS is therefore 2.5 euros (for every euro invested, 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 subcontractors who work with you on your campaigns.
    
    
• Take into account revenue from advertising, and only advertising, to ensure the accuracy of your results. Exclude revenues 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 your target is reached by your advertising campaign and the moment 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 to 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 expenses.

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

👉 Short video to find out more about this... somewhat technical method :

Why measure Return On Ad Spend?

Identify your strengths

Like many companies, you're probably dealing with a large number of advertising channels.

Thanks to ROAS, you're in a position to distinguish the best performers, so you can focus your efforts on what really works.

💡 And don't forget: to identify your strengths, ROAS calculations can be accompanied by AB testing.

Achieve savings

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

Eliminating them will save you money on your marketing budget.

Manage your budget more effectively

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

You'll be able to budget your actions more accurately, and avoid making advertising a volatile expense item. This gives you greater stability, so you can better prepare your future strategy.

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

What's the right ROAS?

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

Spoiler: there's 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, a negative one, as this means that your actions are simply not profitable.

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

You can start on the following basis:

• ROAS of 1 to 3 😐: that's good, you're breaking even. Nevertheless, this result isn't really enough to ensure the company's overall profitability.
  
  
• ROAS of 4 😃: presented as the target to reach for most organizations, it indicates that your marketing is actually generating profit.
  
  
• ROAS of 5 or more 🤩: every euro you spend 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.

In fact, 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 ROAS on 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 organization, and, of course, to think about implementing actions to make it grow over time.

💡Ouradvice: observe the famous ROI and any other relevant indicators in parallel, in order to assess your overall performance as accurately as possible. Indeed, 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 optimize it?

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

Learn from your mistakes

As we've seen, calculating ROAS is an excellent tool for determining what works and what doesn't (ads that aren't being clicked on, for example).

So the first step is to pinpoint your weak points and react accordingly.

Redefine your objectives

A low ROAS may mean that you've been too ambitious with your objectives. Or that the strategy you adopted did not serve your ultimate purpose (traffic, conversion, brand awareness, etc.).

To ensure that your advertising campaigns don't turn into a money pit, take the time to regularly challenge your objectives, 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 precisely identify your personas, segment them and understand their buying journey.

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

💡 Good to know: in the world of Ads, perfect knowledge of your audience helps you refine your keyword strategy. Sometimes, it's better to target a smaller population (using less generalized queries), but one that's more qualified. They'll click more!

Optimize the customer experience and the buying process

Sometimes, you've succeeded in winning over web users with your advertising, attracting them to your website... but then they've run away before they've even reached for their wallets!

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

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

• increase the performance of your web pages,
• develop a responsive site, i.e. one that is compatible with mobile use,
• personalize your landing pages according to the prospect's position in the conversion funnel (they must remain in line with their degree 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 ultimately earn, 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 many ways to reduce your CPC, or cost per click:

• choose your keywords wisely (cost, volume, intent, etc.),
• improve your quality score,
• improve the relevance of your ads,
• use negative keywords, etc.

Keep an eye on your competitors

On Google Ads, competitors can sometimes use your brand name with impunity to lure 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 monitors your competitors for you, then identifies 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 and IT experts is on hand to 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, capitalize on them and optimize your marketing budget. Combined with other indicators, such as ROI, you gain the visibility you need to optimize all your strategies, always with a view to your company's overall performance.

But once you've calculated your Return On Ad Spend, you face a major challenge:

• first, to determine whether it's a satisfactory ROAS,
• If it's 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 find the magic formula, the one that, abracadabra 🪄, will transform all your actions into success.