Are your marketing campaigns actually bringing in money for your business?

Marketers have more data points and statistics at their fingertips than ever. With all the data swirling around these days, it’s easy to get caught up in analysis paralysis.

But fear not! Amidst the sea of numbers, there’s one shining star that helps you cut through the noise and see the true impact of your digital marketing efforts: return on advertising spend (ROAS).

ROAS isn’t exactly a new kid on the block, but let me tell you, it’s a lifesaver for marketers everywhere. It pulls all your marketing efforts into sharp focus, showing you exactly how much bang you’re getting for your advertising buck.

What Exactly Is ROAS?

Simply put, ROAS is the amount of revenue a specific advertisement gained compared to the amount of money you spent on it. 

For example, if you spent $100 on a campaign, and it generates $200 in revenue, your ROAS is $2 for every $1 spent.

$200 / $100 = $2 ROAS

ROAS can also be expressed as a multiple (2x), ratio (2:1), or percentage (200%).

What About ROI? Is It the Same Thing?

Most likely you have heard about return on investment (ROI), but what really is it? ROI focuses on the bigger picture (your overall investment) while ROAS zooms in on a specific campaign or platform. 

While ROI and ROAS are related in some ways, they don’t serve the same purpose. The textbook formula for ROI is actually quite different:

ROAS: Revenue from Ad / Ad Spend

ROI: (Revenue – Cost of Ad) / Cost of Ad

Let’s say you ran a Facebook ad campaign with a $200 budget for 1 month. This campaign led to $400 dollars in sales.

($400 – $200) / $200 = $1 ROI

So, the ROI of the same example is actually 100%.

Which is More Important?

So what’s the real difference between ROI and ROAS? Which one is more important?

ROI is great for giving a high-level view of your business’s profits, but ROAS focuses on how effective your ad campaign really was. That makes ROAS more useful for improving your marketing strategy.

For example, the ROI of a campaign includes overhead costs such as shipping, labor, taxes, and more. The ROAS of a campaign is much simpler for marketers to calculate and use to hone their craft on efforts like Facebook, Google, email, and other digital services.

Data: The Secret Piece to the ROAS Puzzle

Like all marketing metrics, ROAS depends on sound data.

In every marketing channel, it’s crucial to accurately calculate the value of each conversion or sale to consistently monitor ROAS over time.

Businesses with multiple campaigns also need to consider their attribution model.

In last touch attribution models, only the most recent marketing activity receives credit for ROAS. This approach often distorts ROAS by overlooking the impact of other touchpoints — other ads, organic searches, or emails, for example — the person encountered earlier in their journey.

Our team uses multi-touch attribution. That way we get a look at the whole buyer’s journey rather than just the end. 

For an example, retargeting ads often get all the glory for ROAS because they’re usually the last touchpoint before a customer makes a purchase. In reality, the customer might have seen a top-of-funnel campaign on Meta talking about the product. Then they received an email going further in depth about the product, which finally led to them being retargeted and making the purchase. 

Without the Meta ad, that buyer may never have known about our product. And without the email, they may not have known about the features that convinced them to buy. This multi-touch attribution model gives us a better idea of where to direct our efforts and which touchpoints to keep in our marketing strategy.

The Value of Multi-Touch Attribution for Auto Dealers

What’s an Ideal ROAS?

Technically, there is no “right answer” for a good ROAS. It depends on many factors that can change it. These factors could be:

• Your industry
• Your competition
• Your overhead costs
• The specific attributes of your product

The most common answer we’ve found for a good ROAS benchmark is a ratio of 4:1. 

What Are the Weaknesses of Using ROAS?

Focusing on ROAS is like hitting the bullseye for marketers across the board. It’s that crucial metric that tells you if your marketing efforts are really paying off. 

But here’s the kicker: ROAS often gets mistaken for ROI on advertising, which can muddy the waters when it comes to measuring success.

Here’s the lowdown: ROAS is all about marketing, not running the whole show. Sure, you might see some jaw-dropping numbers, like hitting the 400 – 500% mark for a campaign, but don’t let it blind you to the bigger picture. 

Your business has other moving parts too, like product development, production, and customer service, all playing their roles.

But hey, don’t discount ROAS just yet. Even though it’s laser-focused on marketing, it packs a punch in guiding your strategies to success.

As a golden rule, whatever data you’re using to calculate that return on ad spend, stick with it like glue. Consistency is key. We’d even suggest keeping a record of your calculations, so you can fine tune your approach and compare future campaigns like a pro.

Need Help Finding Your ROAS?

Ready to find out what’s really working in your marketing strategy and what’s just costing you money?

Our Marketing Reporting & ROAS package is tailor-made to give you the actual information you need to prove whether your marketing efforts are working and make sure your budget is being used to its potential.

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