El ROAS (Return on Advertising Spend) is calculated by dividing the revenue from sales by the advertising investment and multiplying the result by 100. For example, a ROAS of 400% means that for every euro invested, 4 dollars are generated in sales.
In reality, ROAS is a ratio that does not measure profitability.
Therefore, this metric is somewhat misleading since it does not discount costs and we can easily be selling at a loss.
So how can you know if your ROAS is good or bad?
An acceptable ROAS for your business will be conditioned by your profit margins.
Some companies need an ROAS of 11:1 to be profitable and others with only 3:1 can keep their margins intact.
The bottom line in this regard is that the overall advertising and marketing campaigns must be profitable.
So, there is no right answer to this question. It all depends on the margins.
Generally speaking, the following scales are generally accepted for eCommerce companies:
This is why:
We recommend setting a ROAS that covers with some margin your costs.
For most companies, especially e-commerce companies, this implies that the ROAS should be close to or above 8.
That is, getting 8 euros per euro invested in PPC.
In our experience, a ROAS lower than 4 means that you should reevaluate your advertising strategy.
If you are in the 4-7.9 range then focus on optimizing your campaigns and there may be significant operational cost reductions for your business.
A PPC audit can reveal key aspects to optimize your campaigns.
Just be sure to keep tracking metrics with the ROAS calculator and optimize opportunities.
ROAS gives us an indication of how effective an online advertising campaign is by allowing comparisons between different advertising channels, making it easier for us to make quick decisions.
However, this metric presents an incomplete picture of the situation as it does not provide information on the profitability of our campaigns.
That means that you must establish a certain margin of safety if you want to protect your net profit margin.
Therefore, a good ROAS is always accompanied in the medium term by profitability.
Important: ROAS is not a final metric but it is very useful for detecting problems in the paid acquisition channels and that is why we recommend you to use it.
Enlaces y lecturas recomendadas:
ROAS is a very widespread advertising performance metric used to detect problems in our campaigns. To learn how to interpret and calculate it, we recommend you to read our article in-depth.
That depends on the niche in question and your profitability margin. A good ROAS will be one where we are making more money than our competition and it is profit for the business.