You’ve probably heard about the ROI (Return on Investment), right? And you also know the ROAS?
If your company invests in advertising paid media, you need to know this metric. She is the most appropriate and accurate to say if these ads are generating revenue or if they are just generating expenses for your business.
Understand now what this metric is, why it is important to know it and learn how to calculate it.
what is ROAS
O ROAS (Return On Advertising Spend or Return on Advertising Investment) is an extremely important metric to measure the profit that is generated from advertising campaigns.
It offers important guidance on the results of these campaigns, showing where your business is losing money and where it is worth investing more. One ROAS low requires you to analyze the effectiveness of your ads, while a ROAS high indicates good opportunities to invest and generate more business.
Although they are not the same metric, the ROAS has a lot of similarity with ROI, as both signal return on investments. But the ROAS is more specific, while ROI is more comprehensive.
What are the differences between ROAS and ROI?
As already mentioned, these two metrics serve to measure return on investments. However, the ROI is more comprehensive, and presents the return, both from specific campaigns, and from the entire marketing strategy and even other expenses, such as the value of the product or service, for example.
To learn more and learn how to calculate your ROI, check out this post from Cryah Agência Digital. already the ROAS it deals specifically with advertising campaigns and does not take into account organic campaigns and other investments such as ROI.
When analyzed together, these two metrics offer more consistent subsidies, which increases the chances of resource optimization and more satisfactory returns.
In a way, it makes sense to think that paid campaigns deserve more attention in terms of their financial return. This is because in organic work, such as Content Marketingit is more common for perennial content to be produced, which brings a more lasting return.
While your website or blog are on the air, the contents that are published there can bring a return. On the other hand, a campaign with paid ads is something that usually has a more one-off effect, so it should show solid results in the short term.
Organic content, in turn, tends to give more long-term and not necessarily financial returns. This account includes aspects such as relationship, credibility and trust in the brand, for example.What is the role of ROAS within Digital Marketing?
O ROAS is an extremely important metric in the marketing, as it can prevent your business from losing money on campaigns. Therefore, it should not be overlooked and is practically mandatory for companies that invest in paid advertisements.
However, this metric should not be the only one to be used, as other expenses need to be accounted for.
Therefore, I strongly recommend reading the eBook. “Is my company doing a good job of Digital Marketing?”which provides an overview of the most important metrics that your company should consider for each strategy and to measure its results.
How important is this metric in a digital strategy?
In the digital world, it is essential to work with metrics and indicators to evaluate the results of strategies in action. No action should be taken based only on guesswork, but rather anchored in solid data that point out the most appropriate paths.
O ROAS It’s important because it indicates where your business might be losing money, which ads don’t bring a return, or, at worst, bring you losses.
On the other hand, if a campaign or action brings satisfactory results, the company has an indication that it may be worth investing more in it. Among some benefits of calculate ROAS they are:
- Average performance evaluation and the financial return of your advertising campaigns;
- Gain more accurate data to support ad spend increases, campaign budget changes, and more.
- Definition of advertising campaigns, most valuable and best performing ads;
- Obtaining a benchmark average for your ads to compare with future calculations.
>> Read more: Social Media Ads: The Guide to Getting Started with Advertising
How to calculate ROAS?
THE formula for calculating ROAS It’s simple, as you can see below:
Imagine that your company invested BRL 1,000 in an advertising campaign and earned BRL 3,000 from these ads. In the end, by dividing the amount of revenue (R$3 thousand) by the cost of ads (R$1 thousand), we concluded that your company obtained a return of R$ 3.00 for every R$1.00 invested, which represents a ROAS 3.
To obtain the percentage of return, the value must be multiplied by 100, which, in our hypothetical example, results in a 300% return. It is considered a very good result, but we will talk about this later and what can be considered a good result. ROAS.
However, before making the sum, you must first define what the costs of the ads are and what will enter the account. In addition to the specific platform used for the campaign, will you include expenses with partners, employees, suppliers?
If you choose not to include all of these ad-generated costs, this will generate a ROAS artificially high, which can offer false perspectives and derail your strategy.
What can we consider a good ROAS?
We’d love to have a magic number to say here and leave it to you to “just” chase it, but unfortunately that’s not possible. A good ROAS it is variable and depends on a few things, like the objective of your campaign. The bigger the ROASbetter for your company, that’s for sure.
In general terms, what we can say is that, normally, companies look for a ROAS 4, which means that for every BRL 1,000 invested, there is a return of BRL 4,000.
But, as in practice the theory is often different, the general average reached is a ROAS 2. Therefore, a ROAS from 2 it is considered good, and if it reaches 1, you have to be careful.
What to consider to define the ideal ROAS?
As we mentioned, it is necessary to analyze some factors to define what would be a good ROAS for your business. It should be taken into account, among other factors:
And, of course, the campaign objectives must be well defined. If your company is new to the market and is looking for brand recognition through advertising, you shouldn’t expect a ROAS high, since at that time brand recognition does not tend to generate immediate conversions.
In addition to having an ideal number for each company, there is also a distinction between the expected score by sector.
Some segments require a ROAS higher to make advertising spend worthwhile. For example, a company that has a low Customer Lifetime Value (CLV) needs to have a ROAS higher, to compensate for having low revenue generated over the lifetime of your customers.
Pay attention to metrics
As you can see, the ROAS is an extremely important metric for companies that use ads and advertising in general. One ROAS high means that the efforts are paying off, and indicates that the strategy should be maintained, or perhaps even expanded.
On the other hand, a ROAS low, depending on the goals of the campaign, it can be a sign that you are investing the wrong way and need to review your strategies.
But, it is good to remember that this is a complementary metric and that others must be analyzed together, to guarantee a more comprehensive view and guarantee better results and less unnecessary expenses.