SEO glossary: ROAS (Return on Advertising Spend)

 

Definition of ROAS: A key figure for determining the success and failure of ads

 

The ROAS (Return on Advertising Spend) provides information about which of your advertisements are worthwhile and which are less successful. This provides you with valuable information about whether an ads campaign is worthwhile or not.

 

With the help of ROAS, you can control advertising expenditure in a targeted manner, as advertising that is not worthwhile can be easily identified.

 

ROAS is used for Google Ads campaigns as well as for advertising measures on social networks and other platforms.

 

Basically everyone who does online marketing benefits from this key figure. However, its use is particularly popular in e-commerce.

 

Knowledge of ROAS is now one of the SEO basics that you should familiarize yourself with sooner or later.

 

What do I need the ROAS (Return on Ad Spend) for?

 

As a key figure in online marketing, ROAS provides you with valuable information. As a first step, you can use it to determine whether your advertisements achieve any conversions at all.

 

These conversion values are an initial indication of whether an ad is worthwhile or not.

 

It is particularly important to know which of your advertising measures are successful and which are not. And, of course, the ratio of sales to advertising expenditure. This is the only way to determine whether an ad is worthwhile.

 

If you know the ROAS of an ad, you can better decide whether to increase or decrease advertising spend.

 

The key figure is also a practical form of keyword analysis. You can simply discard keywords that are not relevant.

 

ROAS is therefore an excellent key figure for optimizing your advertising. This provides the basis for increasing efficiency.

 

How the key figure works: How the ROAS is calculated

 

For the ROAS to be as meaningful as possible, you need these two values:

 

• the revenue generated by the ad (conversion value)
• the advertising costs (Adspend)

 

They are set in relation to each other. To calculate the ROAS, divide the turnover by the advertising costs and multiply the result by 100. You have already calculated the ROAS for an advertising campaign as a percentage.

 

An example: You achieve a turnover of 25,000 euros through a campaign. The advertising costs for this amount to 5,000 euros. Your ROAS is therefore 500 %. You therefore generate 5 euros in sales for every euro spent on advertising.

 

This allows successful campaigns to be differentiated from less successful measures.

 

The ROAS is usually always calculated for a fixed period of time. For example, you measure the ROAS value for a month or a quarter. Accordingly, only the figures for this period are used to calculate the ROAS.

 

ROAS vs. ROI: What are the differences between the two key figures?

 

In online marketing, the terms ROAS and ROI (return on investment) are often used together. While the ROAS value only takes turnover into account, the total capital and therefore also the profit margin are included in the ROI calculation.

 

The ROI value can therefore be negative despite a positive ROAS. It is therefore always worth calculating both key figures in order to obtain meaningful results. ROAS is only a subset of ROI.

 

Why is the return on advertising spend so important?

 

Der ROAS ist essenziell dafür, zu ermitteln, ob sich eine Werbemaßnahme auf Google oder in Social Media tatsächlich lohnt. Du bist dadurch in der Lage, den Erfolg von Kampagnen zu messen und entsprechende Maßnahmen einzuleiten.

 

This in turn allows you to use your budget wisely.

 

Facebook and Google do offer their own metrics that you can use to evaluate and categorize your ads. However, the clicks are usually used as the starting value, which says nothing about the actual sales . Not every click becomes a conversion.

 

And even if you rely on conversion tracking for your ads, these values are not always meaningful. To really create a basis for optimization, you should calculate your ROAS.

 

Another advantage of this SEO metric is that you can monitor the performance of advertising campaigns over aperiod of time. If you notice a negative trend, you can take quick and targeted action.

 

 

What is a good ROAS value?

 

For your ad to be profitable, its ROAS must be above 1 or 100% . Anything below this means that your expenses outweigh your income.

 

In general, the higher the ROAS value, the better.

 

In general, it is not possible to say which value is desirable. In some sectors, 400% is considered a benchmark, while others only speak of a profitable ad from 600%.

 

The ROAS can also be somewhat lower for digital products and services because no production costs are incurred. Physical products, on the other hand, require a higher value to make the ad worthwhile.

 

Your target ROAS should therefore be correspondingly high - with the option to keep improving it. After all, it provides you with precisely the information that will help you use your advertising budget more wisely and optimize your profits.

 

That's how meaningful the ROAS really is

 

Even if you should not do without calculating the return on advertising spend, there are a few factors to consider. First of all, you should always keep in mind that you calculate ROAS exclusively on the basis of your gross revenue.

 

A slightly positive value is therefore not enough to cover all expenses. Finally, VAT and other variable costs are deducted. These can be production costs, fulfillment costs, transaction costs, commissions or license fees.

 

In addition, the ROAS does not take into account all those customers who become aware of an item in your product range for the first time via an ad and generate repeated sales in the following years. In such a case, the ROAS would be somewhat underestimated.

 

The following therefore applies: ROAS does not allow a complete assessment of the efficiency of your advertising budget, but only focuses on a sub-area. For a holistic picture, an additional consideration of the return on investment is necessary.

 

Distortion of the ROAS

 

Missing data can contribute to the ROAS not being as meaningful as it should be. This can happen due to cookie policies, for example.

 

The constant tightening of data protection guidelines means that the performance of advertisements cannot always be tracked properly.

 

Another distortion can occur in the high-price segment . If customers only buy one product that represents a very high turnover for your company, this can lead to missing data. After all, not many individual purchases are made.

 

Although the advertising expenditure is fully covered, the ROAS may be negative.

 

This means that the more data available, the more meaningful the ROAS is.