ROAS (return on ad spend) shows how much revenue each unit of ad spend brings back. For e-commerce and online ordering businesses it is the most practical way to measure ad profitability.
ROAS is based on revenue, not profit. To know whether you are profitable you also need to account for product cost, shipping and commissions; businesses with thin margins need a higher ROAS.
Measuring ROAS correctly requires sales to be matched to ads, meaning conversion tracking and purchase values must be passed correctly.
FORMULA
ROAS = Revenue from ads ÷ Ad spend
EXAMPLE
If 5,000 TRY of ad spend generated 20,000 TRY in sales, ROAS = 20,000 ÷ 5,000 = 4 (4x).
PRACTICAL TIPS
- 01Work out your break-even ROAS from your profit margin.
- 02Pass purchase value into conversion tracking.
- 03Shift budget to the products and audiences with the highest ROAS.