What Is ROAS? Calculating Return on Ad Spend

In the present digital marketing scenario, knowing the efficiency of a marketing campaign holds the utmost importance. Marketing your brand’s products and services without calculating the return on advertising is beating around the bush.

It is necessary for budget allocation. The future of every marketing campaign depends on Return on Ad Spend (ROAS), a key performance indicator (KPI) in digital and mobile marketing.

This is where Mobile Measurement Partner (MMP) plays a crucial role. MMPs provide accurate attribution and analytics, helping brands track ROAS effectively.

Whether calculating it for a single campaign, a month, or a year’s efforts, MMPs offer data-driven insights to optimize marketing strategies.

ROAS can be positive or negative, and a good ROAS depends on the brand’s nature. It also helps identify weaknesses in marketing campaigns, enabling businesses to refine strategies and improve future performance. Let us look at how ROAS is calculated :

Calculating ROAS

ROAS is typically expressed as a ratio, the higher the ratio the better the ROAS. It is calculated by dividing the gross revenue from ads by the cost of advertising.

For example, if your brand spends Rs.1000 in advertising and earns a return of Rs.5000, then the ROAS will be Rs.5.

This means that for every single rupee spent by the brand, they receive 5 rupees. Partner and Vendor costs, affiliation commissions, clicks, and impressions are some of the important measurements that can affect the calculation of ROAS.

Benefits of ROAS

There are many benefits for ROAS. Some of them are :

1. Understanding ROI – Return on investment is the most important metric in the business world. However, if there is no proper calculation of ROAS, the understanding of ROI can be inaccurate. Revenue can be higher as a response to certain efforts. This may not remain constant, to assess the return on investment, ROAS calculation is inevitable.
2. Proper Budget Allocation – The budget will always consider the cost of advertising, thus proper ROAS will help in budget allocation. Funds can be spent more efficiently on highly-performing campaigns and low-performing campaigns can be redirected to other ways of improving business.
3. Compare Campaigns – ROAS can be used for comparing the various marketing efforts. It can scale multiple campaigns, channels, and ad platforms. It helps us to know where our profits come from. It can help us to determine the future marketing direction.

Now we have seen some of the benefits of ROAs. Let us now further explore some of the cons of ROAS.

Limitations Of ROAS

There are some limitations for ROAS, which should be seriously taken into consideration. Some of them are :

1. It is short-term – ROAS can be applied for a longer period but most of the results we see through  ROAS are short-term oriented. This is because the ROAS calculated will be mostly associated with a particular ad campaign or particular marketing efforts done at a certain period. To understand revenue over a longer period, we need to know the lifetime value of ROAS.
2. Doesn’t show Volume – A higher ROAS can be created with a less number of customers. Less amount spent on advertisement can show higher ROAS in comparison. Thus ROAS may be imperfect in showcasing the profit of advertising efforts. There are also chances for misinterpretation if ROAS is not calculated concerning other key performance indicators.
3. Easily Influenced – ROAS can be easily influenced by seasonal changes, marketing trends, and the success of a single campaign. This may not show the true effectiveness of the campaign. The lifetime value of customers and the customer acquisition cost are not considered by ROAS.
4. Limited to direct attributes – The ROAS has relied on direct attributes. It does not focus on all the touchpoints involved in the user’s journey. Multi-touchpoint attribution can provide a comprehensive view of the scene. It also undermines the non-monetary benefits that a brand receives from advertising. Brand awareness, user engagement, and visibility are some of the non-monetary benefits.

Now let us focus on the tips that we can follow to increase ROAS.

Tips to Improve ROAS

Improving ROAS is very important in business. Here are some tips for that :

1. Test and Learn – Do test all your marketing campaigns and find out which one is more efficient than the other. Compare various channels and ad networks constantly.
2. Lower the cost of ads – Reducing the coat of ads can impact your ROAS. Follow innovative methods of advertising rather than the traditional ones.
3. Target Audience – Use negative keywords to exclude users who are not looking for your products and services. Use data to personalize your ad campaigns.

In conclusion, ROAS is a very significant metric in the digital marketing domain. Your brand should also remember that tracking and calculation are very important, for this you can seek the aid of Apptrove MMP.

Apptrove can help your business in various terms. It can be a constant source of support for your brand to establish a strong position in the market.

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