One of the most important metrics to understand is Return on Ad Spend (ROAS). Use this calculator to figure out how much return you will have based on your spend in ads.
To correctly calculate the number, you need to first have a solid understanding on how much you are spending and how much you are making from your ads. If you haven’t created an advertising campaign yet, you can use the calculator as a way to set expectations and goals.
Spend:
Add your monthly spend on ads or the total budget you are planning to spend.
Current spend: $100Revenue:
Add the total revenue you project to get from this advertising campaign. You can also calculate the ROI based on the profit instead of revenue, by adding the expected profit instead.
Current revenue: $10
How to Use the ROAS Calculator?
To use the ROAS calculator, simply input your total ad spend and the revenue generated from your ad campaigns. The calculator will then provide you with your ROAS, which is the ratio of your ad revenue to your ad spend.
This metric will help you assess the effectiveness of your advertising efforts and guide your future marketing strategy.
You will also get the Return of Investment (ROI) in dollars ($), which is calculated as your Revenue – Spend of your marketing campaign.
What is ROAS?
ROAS, or Return on Ad Spend, is a critical metric that measures the revenue generated from advertising efforts relative to the cost of those efforts. In simple terms, it helps you understand how much money you make for every dollar you spend on advertising.
This metric is essential for businesses as it allows them to gauge the effectiveness of their advertising campaigns, optimize their ad spend, and ultimately maximize their profits.
How to calculate ROAS?
To calculate ROAS, you’ll need to use the following ROAS formula:
ROAS = (Ad Revenue / Ad Spend) * 100
Here, “Ad Revenue” refers to the total amount of revenue generated from your advertising efforts, and “Ad Spend” represents the total cost of running those ads.
For example, if you spent $1,000 on an advertising campaign and generated $5,000 in revenue, your ROAS would be:
ROAS = ($5,000 / $1,000) * 100
ROAS = 500%
This means that for every dollar spent on advertising, you generated $5 in revenue.
What is a good ROAS?
A “good” ROAS can vary depending on your industry, business model, and marketing objectives. Generally speaking, a ROAS of 4:1 ($4 in revenue for every $1 spent on advertising) is considered a good benchmark.
However, it’s essential to consider factors such as profit margins, customer lifetime value, and the overall business landscape when determining an ideal ROAS for your specific situation.
Keep in mind that achieving a higher ROAS is always desirable as it indicates better advertising cost efficiency and profitability.
How to Calculate Break-Even ROAS
Break-even ROAS is the minimum ROAS needed to recoup the advertising costs and achieve a breakeven point. In simpler terms, it is the point where you are earning back as much money as you are spending in advertising.
Once the break-even ROAS has been achieved, any ROAS above that point will result in a profit.
Have in mind that break-even ROAS takes into account the profit margins of a product by considering all costs associated with it, including the cost of goods sold (COGS) and advertising spend.
And example could be selling a product at a $30 price which costs $20, this includes associated costs, production, and delivery, may even take into account salaries.
Profit before advertising = Selling Price – COGS
Profit before advertising = $30 – $20 = $10
This means that for every product sold, there is a profit of $10 before any advertising costs are considered.
To determine the break-even point, you need to calculate the advertising cost that will result in a $0 profit.
If the advertising cost to sell one piece is $10, we can calculate the break-even point as follows:
Break-even point = Selling Price – COGS – Advertising Cost
Break-even point = $30 – $20 – $10 = $0
This means that the break-even point is achieved when the revenue generated from selling the product is equal to the sum of the product cost and advertising cost, which in this case is $30 = $20 + $10.
Conclusion
While ROAS is an incredibly useful metric for evaluating the effectiveness of your advertising campaigns, it’s essential to recognize that other expenses must be taken into account for a more comprehensive understanding of your digital marketing ROI.
These expenses may include personnel, services, delivery costs, and other costs associated with running your business. More advanced ROAS models may also incorporate these additional costs to provide a clearer picture of your overall marketing performance.
By understanding ROAS and utilizing the ROAS calculator, you can make more informed decisions about your advertising strategy and optimize your marketing efforts for the best possible return on investment.
Frequently Asked Questions (FAQs)
How do you calculate ROAS?
Use this formula to calculate ROAS as a percentage of your spend:
ROAS = (Ad Revenue / Ad Spend) * 100
How to calculate break even ROAS?
Break-even ROAS (Return on Ad Spend) is the point at which your advertising costs are equal to the revenue generated from those ads. A ROAS of 100% means that you have broken even.
Anything lower than 100% of ROAS is loss-making.
What is a good ROAS?
A good ROAS varies by industry and business, but generally, a ROAS of 4:1 ($4 in revenue for every $1 spent on advertising) is considered a solid benchmark. However, individual goals, profit margins, and customer lifetime value should be taken into account when determining an ideal ROAS for your specific situation.