Performance analysis in digital marketing plays a critical role in the success of businesses and brands. Performance analysis allows businesses and brands to measure the impact of their digital campaigns, understand what works and what doesn’t, and optimize their future strategies accordingly.
Key performance indicators (KPIs) are statistics that allow businesses to measure the performance of their goals and objectives. One such KPI is Return On Advertising Spend (ROAS), which we will cover in this article.
What is ROAS?
ROAS stands for Return On Advertising Spend. It is a key performance indicator in online and mobile marketing that measures the profitability of advertising expenditures. ROAS shows the profit generated for each unit of advertising spend and can be measured both at a high level and in more detail.
How is ROAS Calculated?
The formula for ROAS is as follows:
ROAS = Revenue Attributable to Ads / Cost of Ads (Ad Spend)
For example, let’s assume you spent 1,000 Turkish Lira on ads that generated 3,000 Turkish Lira in revenue.
Using the formula above, you can determine a ROAS of 3 Turkish Lira.
When expressing your ROAS, there are a few different options. The most common way to express it is as a ratio that shows what you earned relative to what you spent. In the example above, your ROAS would be written as 3:1 (3 Turkish Lira in revenue for every 1 Turkish Lira spent).
If you prefer to express your ROAS as a percentage, multiply your result by 100. In the example above, your ROAS would be 300%.
Calculating ROAS involves a slightly more complex process when it comes to determining advertising costs, and this process requires making some critical decisions. First, you need to decide whether you want to consider the direct advertising budget spent on a specific platform or include additional advertising expenses. For example:
Supplier Costs: The suppliers you work with are likely to charge a commission fee to run the ad campaign.
Team Costs: You will need to pay someone, whether in-house or through an agency, to set up and manage the campaigns.
How you define “advertising costs” in the ROAS calculation will depend on the type of campaign you are running. Sometimes, it may be most efficient to consider only direct advertising costs and then perform a separate ROAS calculation that includes additional expenses.
Using this method, you can use ROAS as a KPI to evaluate the overall performance and profitability of each campaign more clearly.
Should I Use ROI or ROAS?
When creating a campaign or marketing strategy, the best approach is to use both ROI and ROAS rather than choosing between them. While ROI is ideal for evaluating long-term profitability, ROAS is more effective for optimizing short-term goals or specific strategies.
When developing a top-tier mobile marketing campaign, using both ROI and ROAS calculations will help you achieve the best results. In mobile marketing, these two metrics are critical for marketers and advertisers. ROI focuses on measuring overall profitability, while ROAS helps you analyze how much a campaign contributes to that profitability.
How to Use ROAS?
Setting a minimum ROAS target before launching your advertising campaigns can help you understand early on whether the performance is acceptable. However, this minimum value may vary depending on the type of your application, your industry, and your growth stage.
Additionally, it is important to consider your profit margins, operating expenses, and the competitive landscape in your industry when setting your minimum ROAS target. This target allows your marketing strategy to remain flexible and enables quick optimization when necessary.
For example, you can quickly stop or reduce the budget for campaigns that perform below your minimum ROAS target. Conversely, you can allocate more resources to campaigns that exceed your minimum target, maximizing your return on investment.
