{"id":115257,"date":"2023-02-09T22:37:05","date_gmt":"2023-02-09T22:37:05","guid":{"rendered":"https:\/\/www-dev.channeladvisor.com\/blog\/uncategorized-au-2\/what-is-a-good-roas\/"},"modified":"2024-11-08T04:50:57","modified_gmt":"2024-11-08T09:50:57","slug":"what-is-a-good-roas","status":"publish","type":"post","link":"https:\/\/old.rithum.com\/au\/blog\/what-is-a-good-roas\/","title":{"rendered":"What Is a Good ROAS?"},"content":{"rendered":"

You don\u2019t have to be a marketer to know that the success of any campaign hinges on whether or not you see a return. Everyone, whether consumer or businessperson, wants to know their investments are well spent.\u00a0\u00a0\u00a0<\/span><\/p>\n

One surefire way to gauge campaign and advertising success? ROAS.<\/span><\/p>\n

Return on advertising spend (ROAS) is the gold standard for winning across e-commerce advertising platforms.\u00a0<\/span><\/p>\n

What Is ROAS?<\/b><\/h2>\n

ROAS is the amount of money you make on an <\/span>advertising campaign<\/span><\/a> for every dollar you spend. The higher the ROAS, the more successful the campaign.\u00a0<\/span><\/p>\n

Average ROAS can change depending on the channel type (e.g., social media or web search), platform (e.g., Google or Facebook) or retail media network (RMN) (e.g., Amazon Advertising or Walmart Connect).\u00a0<\/span><\/p>\n

What Formula Is Used to Calculate ROAS?<\/b><\/h2>\n

You can calculate ROAS with a simple formula:<\/span><\/p>\n

ROAS = Total ad sales \/ total ad spend\u00a0<\/b><\/p>\n

Total ad sales is everything you generated from a campaign. Total ad spend includes the cost to create the ad, the bid amount, vendor fees, affiliate commissions and related expenses.\u00a0<\/span><\/p>\n

For example, if you spent $500 to advertise a product, and you made $1,000 on that campaign, your ROAS would be 2:<\/span><\/p>\n

$1,000 ad sales \/ $500 ad spend = 2<\/span><\/p>\n

You can also express ROAS as a ratio (2:1) or multiple (2x). ROAS above 1 represents a profitable campaign, whereas figures below 1 signify the campaign did not recover the cost spent.\u00a0<\/span><\/p>\n

How Is ROAS Different From ROI or Conversion Rate?<\/b><\/h2>\n

ROAS differs from return on investment (ROI) because it\u2019s calculated based on each individual campaign, not your overall investment. This means ROAS is a more granular metric, whereas ROI provides the bigger picture. It is also the inverse of advertising cost of sales (ACoS), which is a percentage used to determine ad cost efficiency.\u00a0<\/span><\/p>\n

Conversion rate is a valuable metric for calculating traffic to your ads as opposed to spend. Conversion rate is calculated by dividing the total number of clicks on your ad by the total number of conversions. A high conversion rate signifies you\u2019re targeting the right audience. But without tracking if the visitors made a purchase, it can\u2019t tell the full story of your ad\u2019s performance.\u00a0\u00a0<\/span><\/p>\n

What Is an Ideal ROAS?<\/b><\/h2>\n

Your ideal ROAS will depend on your advertising goals. You can calculate the minimum ROAS you need to achieve for a campaign to be successful. Start by calculating your campaign\u2019s break-even point \u2014 <\/span>before<\/span><\/i> factoring in advertising costs:<\/span><\/p>\n

Break-even point = Sale price – (cost of goods sold + any non-advertising fees)<\/b><\/p>\n

Then, divide the sale price by the break-even point to determine the minimum ROAS. The result is what you must achieve in ROAS to run a profitable campaign.\u00a0<\/span><\/p>\n

Minimum ROAS = Sale price\/break-even point<\/b><\/p>\n

Your ROAS may also differ depending on your industry\u2019s average profit margin. For example, high-dollar items like jewellery may naturally garner a much higher ROAS than toys.\u00a0<\/span><\/p>\n

Target ROAS also depends on your objectives, ranging from brand awareness to revenue generation.<\/span><\/p>\n

See how: AJ Tack increases sales 236%, boosting Amazon ROAS 28% with Rithum.<\/span><\/a><\/em><\/p>\n

How Can You Increase ROAS?<\/b><\/h2>\n

Math is math. You can only improve ROAS by increasing ad sales or lowering ad costs. But there are many ways to achieve both:<\/span><\/b><\/p>\n