Understanding Google Ads could be overwhelming when it comes to calculating revenue. Advertisers need to know their earned revenue at particular stages while running campaigns. Predicting revenue manually can bring various errors that could disturb your budget for further spending.
Return On Ad Spending (ROAS) refers to the calculation of your revenue for every $1 you spend on an ad campaign.
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If you’re a beginner and don’t know what ROAS does in Google Ads, then you’re at the right place. This blog post will walk you through everything you need to know about ROAS and when to use it. So without any further delay, let’s get straight into it.
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Get my plan →What Is ROAS?
Return On Ad Spend (ROAS) is a marketing metric that quantifies how much money your company makes for every dollar it spends on advertising. ROAS is, for all intents and purposes, the same as another statistic you’re surely aware of: return on investment, or ROI.
The money you spend on digital advertising is the investment on which you’re keeping track of returns in this situation.
ROAS assesses the success of your advertising efforts at the most basic level; the more effective your advertising messages connect with your prospects, the more income you’ll make from each dollar spent on advertising. Hence, the more your return on investment (ROI) is, the better.
If you’re so motivated, you can track ROAS at several levels inside your Google Ads account, including the account, campaign, ad group, etc. You can compute ROAS as long as you know how much you’re spending and making at that given level.
How Does It Work?
ROAS is all about calculating the gross revenue after excluding every expense incurred during the campaign. From ad charges to operational costs, and freelancers’ charges, total revenue is calculated on every $1 spent on the ad.
You can use the metric when determining where to spend your advertising money. For instance, if you spend $1,500 per month on display advertisements and the audience that clicks through buy $7,000 per month from your web store, your Display Ads ROAS is $7,000 / $1,500 = 4.67.
Contrary to this, if you spend $4000 on a PPC campaign, the client’s click-through rate by $12,000 per month, and the average ROAS comes to 3.
Similarly, if you invest $4000 on your PPC campaign, it will increase the click-through rate by $12,000 per month. So now to calculate the average ROAS here simply divide the click-through rate by your investment, i.e.
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$12,000/$4000= 3 (Average ROAS)
The examples mentioned above also prove that the ROAS of Display Ads is more than a PPC campaign. So please don’t waste your time and energy on a PPC campaign as it has less ROAS than Display Ads.
Difference Between ROAS And ROI
Return on Assets Sold (ROAS) appears to be similar to Return on Investment. ROI, on the other hand, considers profit rather than revenue.
Whereas,
To return to our example, if we wanted to compute the ROI from our Display Ads, the profit formula would be something along these lines:
Profit = Ad revenue – Goods Cost – Goods Cost Sold – Allocated Operating Cost
The issue here is that many of these words need to involve the accounting department. As an example, consider the cost of goods sold. We might be able to compute the Cost of Goods Sold if we maintain a note of which things were sold due to the advertisements and what the cost of these items is on our books.
On the other hand, the Allocated Operating Costs are likely to be more difficult. The accounting procedures of the company determine the cost. Furthermore, many organizations lack a clear methodology for assigning operational costs to certain sales.
Many businesses find it difficult to assign a profit to sales generated by a specific advertising campaign or type of advertising. Even if your company already has this information, getting it and processing it promptly when you need to optimise your ad spend can be difficult.
Calculating ROAS is a lot easier than calculating ROI. As a result, many marketers use it as their primary criterion for determining how much to spend on advertising.
Wrap Up
The Return On Assets Sold (ROAS) is a useful indicator for assessing the relative efficacy of advertising campaigns. However, before you use it, make sure you understand the aspects of your company that define what your goal ROAS should be.
With a low ROAS, high-margin enterprises may generate money. Businesses with weaker operating margins, on the other hand, may require a reasonably high ROAS to avoid losing money on digital advertising.
Also, if you utilise a program to compute ROAS (such as Google Analytics), make sure you understand how the technology calculates it. The ROAS estimate might be spot on or way off, depending on your business model and how you set up your tool.
Written by Uzair Kharawala
Partner at SF Digital Studios, a Google Premier Partner agency. Uzair has been helping businesses grow with Google Ads since 2002 and teaches it every week on YouTube.
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