What Is a Good ROAS? Lets See How to Calculate ROAS

Spending money on advertising campaigns, it is natural to ask questions about the profitability.

That is when a ROAS comes handy.

It enables you to analyze revenue generated by the ads versus the cost spent on them in a simple manner.

The value itself is easy to calculate.

The more important question is what is a good ROAS?

A ROAS calculator can be helpful, but only the application of the final value in the cost context proves to be more valuable.

For day to day analysis a ROAS calculator proves to be a timesaver.

What Is ROAS

ROAS stands for Return on Ad Spend and, as the name implies, a ROAS is an indicator of revenue per currency unit spent on advertising.

ROAS example: If your spend on advertising is $10000 and the revenue from the advertising is $40000 then your ROAS will equal 4.

You can use a ROAS calculator to get the value fast, but having an understanding of how the result is generated is a must and can often help assess the campaign without a calculator.

ROAS Formula

ROAS formula is a simple division of revenue from advertising by the spend on advertising:

ROAS = Revenue from advertising ÷ Advertising spend

Let us suppose ₹60,000 in revenue was earned via advertising and ₹15,000 was spent on advertising.

Using the ROAS formula:

So, $60000 ÷ $15000 = 4

You will find the ROAS to equal 4.

In short, you have earned $4 in revenue for every $1 that you have spent on advertising.

How to Calculate ROAS

How do you calculate ROAS?

If you need to calculate ROAS, take the total revenue with your advertising efforts and divide it by your advertising spend.

Lets take an example, suppose $25000 was spent and $100000 of attributable revenue was earned.

Then the calculation would be:

$100,000 ÷ $25000 = 4

Hence, this is yet another ROAS calculation example.

It is so simple as that.

That is the reason why it often helps having a ROAS calculator nearby when we are analyzing multiple campaigns, rather than calculating the value several times manually.

How Do You Calculate ROAS for Multiple Campaigns?

The easiest way is to take the revenue from all the campaigns and advertising spend of each campaign and apply the ROAS formula once.

Suppose one campaign 1 delivers $30000 from $6000 of advertising spend and campaign 2 delivers $45000 from $9000.

The combined revenue of two campaigns are equal to $75000 and the combined Ad spend is $15000.

So, $75000 ÷ $15000 = 5

The value is then equal to 5.

Which means that for every $1 spent on advertising, $5 of revenue has been earned.

You can also use a ROAS calculator when performing such evaluations.

They are especially valuable when the ROAS values become large.

What Is a Good ROAS?

As a rule of thumb, different campaigns require different ROAS levels.

It is entirely normal to have an advertising campaign with a ROAS as low as 2 or as high as 4 or 5.

The important point is, in ROAS analysis, to relate the value to the costs in order to understand the importance to the business.

If you operate a business that only has a couple percent of margin across sales, a ROAS of 5 is great.

Whereas in a high margin industry, a ROAS of 2 might still be considered as a positive contribution to the business bottom line without having an adverse impact on the profits.

Which is why what is a good ROAS is contextual and varies from business to business.

What Is a Good ROAS Percentage

What is a good ROAS percentage?

When a ROAS is expressed as a percentage it is simply the ROAS value multiplied by 100%.

There is a ROAS percentage calculator for that as well.

But in this ROAS guide, the question posed is about what is a good ROAS percentage and the answer largely depends upon your breakeven ROAS – not an absolute standard across the industries.

ROAS Calculation Formula and Break-Even ROAS

Your ROAS calculation formula is simple and shows the value of revenue from advertising divided by advertising spend.

Yet, in addition to evaluating your ROAS, especially if you have to compare values across different months or years, it is critical also to consider your breakeven ROAS.

A breakeven ROAS calculator is a useful tool and a helpful ROAS guide component that is crucial in understanding how much you can afford to spend on advertising in order for it to pay off.

A breakeven ROAS calculator is invaluable when it comes to experimenting around with the breakeven concept and your specific needs.

The breakeven ROAS depends upon your individual business and should be based around actual figures and not generic guidance.

ROAS Example

For ROAS example, let us assume that $20000 was spent on advertising and $80000 in revenue was earned.

ROAS example using ROAS equation:

Even though the ROAS example calculation is simple, context is of utmost importance.

$80000 ÷ $20000 = 4

Your ROAS is 4 or 400%.

But now the ROAS analysis has to take into account the remainder after your product costs and other expenses.

Final Thoughts

ROAS is valuable in understanding the advertising campaign performance in a very simplistic fashion.

A ROAS calculator can be helpful, while the understanding of how the ROAS formula works can be even more important.

A ROAS example calculation has demonstrated that simply having a high value may not necessarily be a good sign if the business only breaks even at a much higher level.

Once a person understands how is ROAS calculated and how is ROAS calculated with respect to their own business, they can take advantage of a Return on Ad Spend Calculator.

The Return on Ad Spend Formula is identical and can be compared simply through a manual calculation.

Having a firm grasp of how to calculate ROAS opens the door to much more confident ROAS analysis.

Ultimately, a ROAS calculation should support a business decision, rather than dictate it.

The bottomline of ROAS analysis is that you want to spend money in a manner that is optimal for your business and leaves sufficient room for profits.