What is Return on Ad Spend (ROAS)? – Formula and Ways to Increase Return on Ad Spend [With Examples]

What is return on ad spend (ROAS)?

Return on ad spend (ROAS) metric measures the return on the amount invested in ads, or in simple words, it is a measurement of how many dollars you will earn for every dollar you spend on advertising. ROAS is the online advertising equivalent of ROI.

How to calculate ROAS?

To calculate ROAS, divide the total ‘revenue generated’ from FB ads by the ‘total amount spent’ on ads. Measuring the ROAS of your Facebook ads is directly linked to your Facebook pixel and conversion tracking.

Formula for calculating ROAS

FB ROAS formula
FB ROAS Formula

Real-life example of ROAS

Let’s understand ROAS with an example:

You run an e-commerce company and you spent $50,000 on Facebook ads. At the end of the campaign, the ad generated $150,000 in sales for your company.

So, the ROAS will be: 150,000/50,000 = 3:1 – that’s a 3x ROAS

What’s considered a good ROAS? (benchmark)

A minimum of 4:1 ROAS is a good sign for your Facebook ad campaign, which means, you get 4 dollars back in profit for every dollar spent. ROAS largely depends on your advertising goals, industry, and more, so a good ROAS for your business might vary.

About 30% of marketers see a 6-10x average return on ad spend and nearly 25% say 4-5x is their average ROAS. While only about 5% say that their average ROAS is greater than 80x.

You can set a benchmark for yourself, by looking at the above numbers.  

Ways to increase your ROAS

  • Know your audience: $37 billion is wasted in ad spend every year from ads that fail to engage the target audience. You can’t focus your ads on every and any audience. You need to understand your target audience and their pain points to craft a strong ad and targeting.
  • Test dynamic ads: Dynamic ads display relevant ads to your potential customers based on their browsing history on your site. Target, the American retail giant, has seen a 20% increase in conversions when utilizing Dynamic Ads.
  • Build a marketing funnel: Building a marketing funnel will help you understand your buyers’ journey so that you can target different ads to different stages of customers. Read the guide: How to Create a Powerful Marketing Funnel

Also Read: Related Metrics

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