Enter the total amount of money spent on advertising and the total return on investment to calculate the ROAS of the entire project. To dig deeper, explore the more advanced calculator. Some related calculators are also shown below.
The formulas for calculating a ROAS is very straight forward as shown:
ROAS = Total Revenue / Total Cost of Ads (*100 if wanted in a percent)
This of course assumes you know the total revenue that was a direct result of the ads you promoted. We will get into that in a little bit later.
How to calculate ROAS
To calculate your return on ad spend you first need to calculate the total cost of your advertisements. Modern advertisement spending is typically done through large ad networks that display your website or product on search results or other web pages. Most often this is done through CPC ads, or cost-per-click ads. They are exactly how they sound, you pay each time a user clicks on your ad, hopefully because they want to buy your product.
To calculate the total cost of your ads, you must multiply the total number of clicks times the cost per click. For this example we will assume 1,000 clicks at a cost per click of $1.50 so,
1000 * $1.50 = $1,500.00 spent on ads
The next step is to calculate the total return of your ads. Sometimes you already have this information handy in which case you do not need to go further. Other times, you have a revenue per user and you need to calculate the total amount. Simply multiply the revenue per user times the total number of visitors. For this example we will assume a revenue of $2.50 per visitor so,
1000 * $2.50 = $2,500.00 total revnue.
Finally, divide the total revenue by the total cost.
$2,500.00 / $1,000.00 = ROAS = 2.5 *100 = 250%
What is a good ROAS?
So how does your ROAS fiar? That really depends on the industry. ROAS vary greatly depending on what field your business operates in. Below is a list of the return on ad spends of various industries.
- Insurance – 125%
- Medical – 234%
- Beauty Products – 269%
- Food – 232%
- Beverage – 220%
- Gaming – 178%
- Technology – 210%
In general. anything over 2, or 200% is considered excellent. That means you are earning twice what you put in. That doesn’t mean something under 2 is unacceptable though, some industries are just extremely competitive. The more competitive an industry is, the higher the cost per click of the ads in that sector.
Ad Spending Tactics
As more and more businesses become aware of CPC advertising and online advertising in general, the competition will only increase. To stay ahead of the competition, here are a few tricks you can utilize.
- Use “Geo-fencing”, geo-fencing is a term used to describe targeted ads that use geography as a requirement. This is best used for local business.
- Use “re-targetting” also known as re-marketing. This involves only sending ads to users that have previously visited your site or a competitors site. This could also include someone that had searched a term related to you business within a certain time frame. This is the most effective tactic as of 2019.
- Find the proper balance to maximize ROAS. In short, spending more on ads does not necessarily mean you will earn the same ROAS. ROAS decreases after a certain amount of money spent because you’ve already tapped as much of the market as possible.
- The last tactic is to view your competitors ads and make similar but better ads. You will pay the same amount, but should receive more clicks if it’s a superior ad.
What about CPV or CPM ads?
CPV and CPM ads are advertisements that cost money base on the number of views it receives regardless of the number of engagements or clicks. Sometimes these ads can be superior to CPC ads, especially if you’re trying to build more brand awareness as opposed to direct sales. Video Ads typically fall under this category.
CPM stands for cost per mille or cost per 1,000. When you set up advertising campaigns with this metric, it’s often hard to understand the return on investment or ROAS of the ads. This is because it doesn’t directly track the number of clicks the ads receive, only the number of views. So you may see a jump in revenue once you start a campaign, but you don’t know the total amount that that a direct result of your advertisements.
Why Use Online Advertising at all?
Online advertising has grown by over 1000% in the last 10 years. Can you guess why? That’s right, because it works, and it’s accessible to even small businesses, with small budgets. Using tools like adwords, you can set you budget to as much or as little as you want and you have full control over your campaign. Sign up for adwords and give it a try.