Return on Ad Spend

Optimizing your Return on Ad Spend is one of the best ways to improve your marketing strategy and overall profitability. By definition, Return on Ad Spend (ROAS) is “a marketing metric that measures the efficacy of a digital advertising campaign” (thanks, BigCommerce!). In other words, we like to look at it as the bang for your buck with online ads. While ROAS seems simple on the surface, it gives valuable insights into areas of future growth and improvement. We'll take you through how to calculate this metric, how to understand it in the context of your industry, and how to apply it to the platforms you're using now.

How to Calculate Return on Ad Spend

You can calculate ROAS by dividing total revenue from ads by total ad spend. ROAS can be assessed for various time-periods (i.e. day, week, month, year) and, if your advertising efforts are tied to certain platforms or campaigns, you can assign a specific ROAS for each. 

If you’re confused about how to define total revenue from ads and total ad spend, we’ve included some nifty definitions and examples below:

• Total revenue from ads is how much money you’ve gained from advertising. For instance, if someone clicked an ad and then bought a $100 product from your website, that would create $100 in revenue from ads. 
• Total ad spend is, inversely, how much money you’ve spent on advertising. For a pay-per-click (PPC) model, your total ad spend is your average cost-per-action (CPA) times total number of actions. We’ll discuss this model more when talking about Google Ads, Facebook Ads, and Linkedin Ads below!

When choosing what to include in your calculations, remember: consistency is key! That means, if you decide to include XYZ in your ROAS for the month, you should include it in the next month’s ROAS as well. Having consistent metrics will allow you to better identify the causes of good or bad performance. For instance, if, over the past few months, you’ve tweaked your ad’s headline and ROAS has increased, then you’ll know that action helped improve the ad’s effectiveness!

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Connecting Return on Ad Spend to Your Business

Again, as you begin (consistently) monitoring ROAS, you’ll be able to find insights specific to your strategy. Of course, it’s also important to understand your ROAS in relation to your broader industry. To help you know what to expect, we’ve included a list of average ROAS per industry (shoutout to Nielson for the stats):

• Baby Products - $3.71
• Pet Products - $3.06
• Healthy & Beauty - $2.82
• General Merchandise - $2.78
• Food - $2.67
• Beverages - $2.60
  

Further, while you can find revenue and ad spend from many channels, we’ve identified popular platforms that are particularly relevant to ROAS. These may be good places to begin if you’re getting started with this metric:

• Facebook Ads: Facebook Ads provides comprehensive reporting tools to show how your ads are performing. If you’d like to see your ROAS, you’ll need to 1) connect Facebook Pixel to your website (so it can track conversions) and 2) assign a monetary value to each conversion. Once connected, visit your Ads Manager and customize your performance columns to include Purchase ROAS! Click here for a step-by-step tutorial. 
• Google Ads: Google Ads will also report this profitability metric for your campaigns.
• Linkedin Ads: Similar to the platforms above, Linkedin Ads requires you to install a tracking code and assign values to conversions to automatically calculate your ROAS.‍
• Twitter Ads, Quora Ads, Pinterest Ads: By now, you’ve probably noticed that ROAS is easily accessible on certain ad platforms. Unfortunately, the ones listed here (Twitter, etc) don’t have an option to enter conversion values and, therefore, do not automatically calculate your ROAS. For this, you’ll have to keep track of your own conversion values and find your total spend on each platform. If this sounds complicated (or just like a lot of work), consider trying Lido which will automatically pull and calculate your metrics for you, as explained below!

Tracking Return on Ad Spend with Lido

While ROAS is easy to calculate, it’s important to keep in mind that this is one of many valuable metrics to track your performance. If you don’t want to spend hours at the end of the month juggling numbers from Google Ads, Facebook Ads, and other accounts, consider trying Lido. Lido can help you build a dashboard to monitor your data and give a look into how your key metrics (such as ROAS) change over time.

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