Return On Advertising Spend (ROAS) is a metric similar to return on investment (ROI) but specific to advertising spend in particular. ROAS measures the amount of revenue earned for every dollar spent on a specific ad campaign or across an entire advertising budget. Even if a campaign delivered users with high lifetime value (LTV), if a brand spent more than it gained from those users, the campaign could be considered a success. This is why ROAS is considered the golden metric for performance-focused marketing.
Often expressed as a percentage, ROAS can be used by marketers to measure the efficacy of their acquisition efforts, especially when they are scaling their ad spend.
ROAS can be calculated based on an entire marketing budget, on individual campaigns, or on specific marketing programs. Calculation for ROAS is based on the revenue attributable to advertising compared to the cost of advertising.
To calculate ROAS, simply divide the ad revenue by the cost of the related advertising.
The breakeven point for ROAS is 100%. This is when the amount you acquired in revenue is equal to the amount you spent on advertising to acquire that revenue. So, the ROAS for any ad program would be over 100% if ad revenue is greater than its cost.
For example, imagine you spend $1,000 on a user acquisition campaign. After it ends, you see that the campaign has generated $5,000 of revenue from new users acquired. To calculate ROAS, you would divide $5,000 of generated revenue by $1,000 of advertising cost:
Your campaign’s ROAS is 500%. For every $1 spent, you generated $5 in revenue.
What is a good ROAS? Generally, a positive ROAS — anything over 100% — is good.