Why ROAS is the King of Ad Spend Metrics
The Essential Data Point for Measuring Ad Effectiveness
For businesses that are investing in advertising, understanding how to measure success is critical. This is where the concept of Return on Ad Spend (ROAS) comes into play. ROAS is a metric that allows businesses to measure the effectiveness of their advertising campaigns and determine the revenue generated for each dollar spent on ads. So how does ROAS work and how it can be utilized to achieve success?
What is ROAS?
ROAS is a metric that calculates the revenue generated for every dollar spent on advertising. The formula for calculating ROAS is deceptively simple: revenue/ad spend. For example, if a business spends $1,000 on an advertising campaign and generates $3,000 in revenue, the ROAS would be 3.
ROAS vs. ROI
While ROAS and Return on Investment (ROI) may seem similar, they are different metrics that measure different things. ROI measures the profitability of an investment by comparing the profit earned to the cost of the investment. On the other hand, ROAS measures the success of an advertising campaign by comparing the revenue generated to the cost of the advertising spend. ROAS is focused on ad campaign success, while ROI is focused on profitability.
Why should ROAS be so Important to Media Buyers?
For media buyers especially, ROAS can play a large part in understanding real-time ad effectiveness by allowing them to quickly and easily see if their advertising efforts are worthwhile. It doesn’t matter how good their metrics are if they are not profitable. ROAS gives media buyers a quick and easy way to determine which advertising campaigns are performing well and which ones are not. This allows them to optimize and scale effectively.
Using Hyros for Optimizing ROAS
Hyros is a tool that we talk about a lot here at AdClass. It essentially allows media buyers to effectively see which campaigns are performing best. By analyzing data from different campaigns, media buyers can identify which creative, interests, landing pages, etc. are producing leads that are converting to sales. This information can then be used to optimize and scale campaigns for maximum success.
The Importance of Fresh Creative and Testing
To optimize ROAS, it is important to constantly push out fresh creative and test new ideas. Many ads that are created and tested will not work, but all it takes is one successful ad to make a difference. After finding a successful ad, media buyers can create multiple variations or create ads with a similar theme or style. Ad exhaustion can also be avoided by constantly testing and finding new interests, demographics, split-tests landing pages, etc.
What ROAS should I be aiming for?
The answer to this question will vary for each business. It is important to aim for whatever makes the business profitable and then optimize and scale from there. A ROAS of 1.5x may be amazing for one business while another may not be pleased with 3x ROAS. A ROAS of 3x is generally considered a safe space where ads are generating enough revenue to scale without worrying about costs.
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