What is ROAS
If you are familiar with Google Ads or you are advertising on the Google network, you probably know what ROAS means. Every PPC specialist must know this term. If you want to learn more about ROAS, then you are in the right place. In this article, we will look into what ROAS is, how to calculate it, and how to calculate your target ROAS. Also, we will tell you the difference between ROAS and ROI.
So what’s the ROAS definition?
ROAS stands for Return on Advertising Spend or what comes to be the Return on Advertising Investment. It tells us about our profits from campaigns. It is a really important metric with which to set KPIs based on whether it is equal or greater than, which can tell you if you are making money with your campaigns.
How ROAS is calculated
If you want to calculate ROAS, you must know the value generated by the target conversions of the campaign so you can analyze it. In the case of Google Ads, the value will be equal to the price of the products or services being sold.
If your ads and campaigns are focusing on capturing leads, you can set an average value to that lead. Consider the average ticket you are offering to leads that enter your web. Assume that you are offering a service or product worth 500€. Then you can calculate what percentage of leads will buy your product or service. For example, let’s say it is 10%. The value you would assign to each lead obtained would be 50€.
How to calculate your ROAS
We must divide the income from the campaigns by the investment made.
(Income / Investment) x 100
Let’s look at an example:
Imagine that you invested 8,000€ in Google Ads and you managed to sell 1000 products that have generated a total of 88,000€. ROAS would be (88,000 / 8000) x100 = 1100%
Thanks to this calculation we can tell that you would obtain 11€ for every 1€ invested.
Calculate your target ROAS in the Google Ads
In your Google Ads account, you can use a type of automatic bid based on your target ROAS. You can set what ROAS you want to get in campaigns, and Google automatically adjusts your CPC (cost-per-click) bids to get to that target ROAS. One condition is to have a history with a minimum of conversions so that the Google algorithm can optimize the bids for you.
What are the differences between ROAS and ROI
As we said before, ROAS stands for Return on Ads Investment (how much money you get for each euro you invested) and ROI stands for Return on Investment. In ROI you must consider all the attributable expenses, not just the campaign investment.
ROI is calculated (Income – Costs) / Costs.
These costs should contain not only the investment in the campaign but also the costs of shipping the product, the cost of managing the campaigns, etc.
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