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What is ROAS
ROAS stands for “Return on Ad Spend.” As the full name implies, it tells you how much money you’re earning as a result of the amount you spend on advertising.
Return on ad spend is a calculation that measures the cost-effectiveness of advertising efforts. It can help businesses and other entities figure out if their advertising strategy is worth it or not.
When a business tries a new advertising campaign, they may compare the ROAS at the start of the campaign, at the mid-point, and at the end.
This can help determine whether they should renew the campaign or try another method of outreach.
Here’s how to calculate ROAS: divide the total revenue you earned from advertising by the amount you spend on advertising:
ROAS = (Revenue Earned From Advertising / Advertising Expense) x 100
For example, if you spend $3,000 on Google Ads and earned $6,000 from people who clicked on those ads, then your ROAS is $6,000 / $3,000 or 2. In accounting terms, that 2 means 200%.
Is it different to ROI?
Yes ROAS is not the same thing as ROI “Return of Investment“.
That’s because ROI is a measurement of strategic investment while ROAS is a measure of tactical spend.
One of the biggest differences between ROAS and ROI is that ROAS is a ratio derived from comparing how much you spend to how much you earn, while ROI accounts for the amount you make after paying your expenses.
The sole purpose of ROI is to determine whether the campaign is worth the investment or not. By taking the margin into account, you can quickly determine your overall profits and determine what your actual ROI is.
To calculate ROI, you should use the following formula:
ROI= (((Turnover x Margin Rate) – Expenses) / Expenses) x 100
For example, if you spent $100,000 on online marketing last year and earned $150,000 from your marketing, then your ROI is ($150,000 – $100,000) / $100,000 or .5. In accounting terms, that’s 50%.
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