“Nobody counts the number of ads you run; they just remember the return they earned from the ad”
– William Bernbach
This quote tells everything we are going to discuss further and get to know each of them separately. Without wasting any more time, let us straight away get into the topic.
What is ROAS?
ROAS stands for Return on Ad Spend. It helps you determine the amount of revenue generated by a specific ad or ad campaign v/s the amount spent on that ad or campaign.
How to calculate ROAS
ROAS is calculated using the following equation:
Ways to express ROAS: a ratio, percentage, or a comparative dollar amount. Let’s understand this with the help of an example
If your company spends $5000 on Google ads in a single month which generates $30000 in revenue. Using the formula noted above, ROAS is calculated to be 6x, 6:1, 600%, or $6 for every $1 spent.
What is ROI?
ROI stands for return on investment. ROI measures the profit generated by ads relative to the cost of those ads. ROI in its simplest form is used to understand what you get back in comparison to what you’ve put in.
How to calculate ROI
ROI is calculated using the following equation:
As an example, take a person who invested $180 into a business venture and spent an additional $20 researching the venture. The investor’s total cost would be $200. If that venture generated $600 in revenue but had $200 in personnel and regulatory costs, then the net profits would be $400.
ROI VS ROAS
Many marketers get confused between ROI and ROAS because your ad spend is still part of your investment but when it comes to differentiating between the two, there are a few major differences. Firstly, ROAS looks at revenue, rather than profit Secondly, ROAS only considers direct spend, rather than other costs associated with your online campaign.
Let’s take a look at an example of ROAS vs. ROI to see how this works in practice. Imagine Company A makes £100,000 in revenue and spends £25,000 on ads. In addition, the cost of software, personnel, and so on comes out to around £80,000. In this scenario, you can use the ROI and ROAS formula to work out exactly how effective Company A’s campaign is:
- ROI = (-£5,000 / £105,000) x 100 = -4.76%
- ROAS = (£100,000 / £25,000) x 100 = 400%
Achieving great ROAS is not rocket science, it just requires google skills and experience. Sharing below a case study of one of our clients, check out how we helped them achieve astonishing results –
About the Company –
Helped a US-based e-commerce store that sells a wide range of high-quality skincare products and made them believe in Google Ads and its miracles if done right. They realized that we could show their adverts to people within the area they were looking for as they started experiencing massive growth.
Results –
Achieved the goal of 1000% ROAS (return on ad spend) along with the revenue of $2,22,614 in the span of 1 month
