What is ROAS?
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There are many ways to determine your marketing campaigns’ success. Revenue and conversions are two. But what about really digging into the numbers? What can you learn from them to help you optimize performance and get more out of your campaigns?
That’s where return on ad spend (ROAS) can be a marketer’s best friend. In a world where data is increasingly important, yet it’s often more challenging to find the signal in the noise, a key performance indicator like ROAS can help measure the effectiveness of your campaigns.
Curious about how you can do more with ROAS? Let’s dig into this marketing metric.
Why ROAS matters
Return on ad spend is a marketing metric measuring how much revenue your business earns for each dollar spent on advertising. It may sound similar to return on investment (ROI), and it is, but in this case, the ‘investment’ you’re tracking is your digital advertising spend. This measures your effectiveness and returns on a specific part of your business — digital advertising.
Essentially, ROAS helps marketers determine the effectiveness of advertising efforts. And can help you optimize for more revenue. The higher your ROAS, the better. It shows your marketing is connecting with your potential customers. For example, if you make $7 for every $1 you spend, your ROAS is 7:1. Traditionally, a good ROAS is considered around 4:1, and an average one is around 2:1, so you can use those numbers as a benchmark.
One benefit of return on ad spend is you can measure it throughout your marketing efforts. It’s just as easy to view it through your entire digital ad spend or break it down far more granularly into specific campaigns.
How to calculate return on ad spend
Yup, it’s equation time. The formula for ROAS is pretty simple.
Here’s how it works:
ROAS = Ad revenue / Ad spend
Take your total advertising revenue and divide it by your total advertising spend, which gives you ROAS.
For example, if you get $50,000 in revenue from a campaign and spent $10,000 on digital advertising for that campaign, your ROAS is 5:1, which is very good.
Although the equation is straightforward, many marketers still have trouble finding the total numbers. While getting your revenue from a campaign is relatively easy, it’s more difficult to determine your exact ad spend. That’s because many different factors go into it besides just dollars spent. You may also want to consider labor costs for the people creating and running the campaigns, vendor costs, and commissions.
How does ROAS apply to email marketing
You can apply ROAS to your email marketing strategy by tracking the revenue generated directly from your campaigns. There are a few ways to do it, such as:
- Including UTM parameters on email links to track sales and conversions from email campaigns.
- Creating dedicated landing pages for email promotions.
- Using analytics tools integrated with your email platform and eCommerce system.
ROAS isn’t just for digital advertising spend. So, don’t limit your data to just that. When viewed through the lens of email marketing, ROAS has a bunch of benefits that can be helpful in determining the effectiveness of your email marketing.
With the importance of email personalization to generating revenue, you don’t want to ignore this data — and ways to improve it.
What are some of the benefits of return on ad spend?
Calculating and understanding ROAS offers several benefits that can help your brand. For email marketing specifically, here are a few of them:
- Optimizing campaigns: Use ROAS to see which emails and campaigns generate the highest return. And make tweaks on content, send times, personalization, and other variables to increase it.
- Content strategy: With ROAS, you can determine which emails connect with your readers. For example, personalized emails may drive far more revenue than generic ones.
- Your budget: Email marketing is part of your overall marketing strategy. But if it’s over-indexing on ROAS while other channels struggle, it can help you see where to put resources.
- List health: A healthy email list is key to success. If you’re seeing ROAS declining with email campaigns, it may indicate your list needs some cleaning up.
Get more from your ROAS
If you’d like to see how email personalization can help drive clicks and conversions — improving your ROAS and generating more revenue — we’d love to chat.
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