Calculate and understand Return on Advertising Spend (ROAS)

Online Return on Ad Spend Calculator

What is ROAS (Return on Ad Spend)?

Return on Advertising Spend, or ROAS for short, is an online marketing metric that calculates the profitability of advertising spend.

It is used to determine a break-even point as well as the profitability of a campaign. Thus, different campaigns, advertising channels, and formats can be compared with each other.

ROAS is one of the lagging marketing indicators and takes into account the revenue generated or influenced by ad campaigns.

Formula for ROAS calculation

ROAS = (revenue from advertising activities / advertising spend) x 100

The revenue generated from advertising activities is compared with the advertising spend. This results in a key metric that calculates profitability.

ROAS Formula

Example calculation ROAS

Google Ads advertising expenses were $1000. The gained revenue attributed to the advertising spend is $2000.

ROAS = ($2000 / $1000) x 100 = 200%.

The ROAS is 200% and means that each dollar spent on ads generated $2 of revenue in return.

What is a good ROAS?

By comparing revenue and ad costs, a ROAS value greater than 100% results in higher sales than costs. Therefore, the higher the ROAS, the more profitable the advertising campaign was.

Any ROAS value greater than 100% is a positive value and the campaign generated more revenue than it cost.

The goal of ROAS is to determine and compare the effectiveness of different advertisements and campaigns. Thus, advertising strategies and tactics can be planned and managed more profitably.

How to calculate the break-even ROAS

An advertising campaign reaches a break-even point when the revenue covers the advertising costs. Thus, a break-even ROAS is reached at a value of 1 or 100%.

The Break-Even ROAS is used to plan campaigns. At what revenue level would we generate a positive Return on Ad Spend. This sounds very banal – 100€ advertising budget should generate 100€ revenue.

However, a break-even ROAS at the campaign or even ad level can be used for planning and control.

For example, a PPC click may only cost $X if we assume constant conversion rates of Y%. Therefore, you should calculate each ad budget in detail.

Does ROAS compare revenue or profit to ad spend?

Although in some formulas for ROAS calculation the profit is compared to the cost instead of the revenue, for the Return on Ad Spend the revenue should be used.

Of course, using profit is a more accurate business metric than revenue, but profit distorts the calculation. Fixed costs remain constant as revenue increases. Variable costs, on the other hand, increase with higher sales. However, considering business costs does not affect the profitability of advertising campaigns, only the profitability of all investments. ROI or ROMI should be used to consider the profit.

Difference between ROAS and ROI/ROMI

ROAS stands for Return on Ad Spend and therefore only considers advertising spend. ROAS pursues the goal of measuring profitability and comparing different advertising strategies and campaigns.

ROAS is a subsection of ROI. ROI means Return on Investment. While ROI is a corporate key metric, ROAS is a marketing figure.

Another important metric is ROMI (Return on Marketing Investment). The ROMI takes into account all marketing investments and marketing-generated profits. It is therefore positioned between ROAS and ROI.

Another key difference between ROAS and ROI/ROMI is the consideration of profit vs sales. ROAS uses revenue, while ROI/ROMI considers profit.