What is a ROAS Calculator?
A ROAS calculator is a simple formula (built in a calculator like the one below that calculates your ROAS or “Return on Ad Spend”.
ROAS is calculated by dividing the revenue generated from your advertising campaign by the amount of money you spent on that campaign, then multiplying the result by 100 to get the percentage.
A ROAS calculator helps you understand the profitability of your ad campaigns and allows you to make data-driven decisions on how to allocate your marketing budgets.
By using a ROAS calculator to calculate the efficiency of your paid ad campaigns, you can remove the ambiguity of digital marketing and know exactly what you are getting for what you are spending.
At the bottom, we’d developed a handy ROAS calculator for your to calculate your ROAS!
What Is "ROAS" or "Return on Ad Spend"?
ROAS stands for “Return on Ad Spend” and is a performance metric used in digital marketing to evaluate and understand how efficient your company’s advertising campaigns are.
ROAS can be used to calculate campaign efficiency across any ad campaign including Facebook Ads, Google Ads, and more.
Think of it as a score that tells you how much money you’re making for every dollar you spend on ads. The higher the ROAS, the more money you are generating per dollar of ad spend.
On the other hand, if your ROAS is low, it means that you are not as effectively spending your ad dollars and may want to evaluate and reconsider your ad strategy to improve your Return on Ad Spend (ROAS).
How do you calculate ROAS?
To calculate your ROAS, you divide the revenue gained from advertising by the amount you spent.
In a simple formula, it looks like this:
ROAS = (Revenue generated from advertising) / (Cost of advertising)
For example, if you spend $100 on advertising and generated $500 in revenue, your ROAS would be 5. This means that for every $1 you spent on advertising, you made $5 in return.
ROAS is usually expressed as a ratio or a percentage. To convert the ratio to a percentage, simply multiply it by 100. So, in the example above, the ROAS would be 500% because 5 x 100 = 500.
Why does ROAS matter to a business?
Understanding your ROAS throughout the life of your marketing campaigns is important for a number of reasons, including:
1. Performance Measurement
ROAS provides a simple and straight-forward way to measure the performance of an ad campaign by giving you a clear picture of how much money you are making for every dollar you spend. This foundationally answers the question “how effective is the marketing I am doing through advertising?”
By tracking ROAS, you can gain a deeper understanding of the performance of your advertising campaigns, which can, in turn, inform important marketing decisions such as how much you want to allocate to ad spend, how long you should run campaigns for, the effectiveness of your ads and copy, and where you should be allocating resources.
2. Budget Optimization
Expanding on point one, tracking ROAS let you understand which marketing campaigns are effective and which are not, allowing you to increase spend toward what’s working and drop what’s not.
For example, if you have two marketing campaigns running and one has a ROAS of 3 while the other has a ROAS of 5, it would intuitively make sense to allocate more of your ad budget to the campaign with the higher ROAS, as it is generating a higher return. This type of budget optimization can help you get the most out of your campaign budget and do more with less.
That said, it is also important to note whether there are differences in the purpose of the campaigns. If, for example, the campaign that is performing less well is targeting a new group of customers that you haven’t marketed to in the past, you may accept a lower ROAS as you build brand awareness.
3. Goal Setting
Finally, ROAS can be used to help set realistic advertising goals and target metrics because, let’s be honest, nothing feels worse than setting big goals and realizing that they aren’t realistic!
By understanding what a comparable benchmark ROAS is and tracking your own ROAS over time, you can establish a baseline for your advertising performance and use that to both set achievable campaign goals (yay motivation) as well as refine your campaign’s effectiveness as you go.
Setting ROAS goals can also help guide your overall advertising strategy and ensure that your efforts are aligned with your bigger business goals. For most small businesses, cash flow is the lifeblood of the business and having realistic spend goals and achieving them is an important part of cash flow planning.
What is a good ROAS?
There is no one-size-fits-all answer to this question, as a “good” ROAS depends on the platform you are marketing on, your industry, the products and services you are offering, and a number of other factors that a solid marketing agency can walk you through.
However, as a general guideline, a ROAS of 2-3x is considered good for most businesses and campaigns, meaning that for every dollar you spend on ads, your business is generating two to three dollars in return revenue. Anything below that would be a cause for concern and you would want to diagnose what is causing the decreased ROAS and then adjust your campaign.
It’s important to remember that ROAS is a relative metric, and what may be considered a good ROAS for one business may not be the same for another. Your marketing agency should walk you through your campaign, and the comparable industry standards.
The most important thing when running your ads is to continually monitor your ROAS and compare it to your advertising goals and target metrics.
If your ROAS is lower than desired, you may need to adjust your advertising strategy to improve your return on investment.
What is a bad ROAS?
Similar to the above, there is no one-size-fits-all answer to this question, but there are some simple rules we can follow.
A bad ROAS is typically considered to be less than the cost of acquiring the customer,. This means that the revenue generated from the advertising campaign is not even enough to cover the costs. This would be calculated as a ROAS below 1 and it means that for every dollar spent on advertising, less than one dollar was returned. This is considered an unprofitable ad campaign and is not sustainable in the long term.
Your ROAS calculator
Remember, the formula for ROAS is:
ROAS = (Revenue generated from advertising) / (Cost of advertising)
