What is Return on Ad Spend (ROAS)?
A metric that measures the revenue generated for every dollar spent on advertising, indicating campaign profitability.
Return on Ad Spend (ROAS) is a marketing metric that measures the revenue generated for every dollar spent on advertising. ROAS helps advertisers understand the effectiveness of their advertising campaigns by comparing the revenue earned against the advertising costs. It's a key performance indicator for determining campaign profitability and budget allocation decisions.
Why It Matters
ROAS is essential for measuring campaign profitability and making informed budget decisions. It helps identify which campaigns, channels, or audience segments generate the highest returns. ROAS enables advertisers to optimize spending allocation, scale profitable campaigns, and eliminate underperforming ones. It's crucial for sustainable business growth and marketing efficiency.
How to Calculate
ROAS = Revenue Generated from Ads ÷ Amount Spent on Ads. For example, if you spent $1,000 on ads and generated $4,000 in revenue, your ROAS would be $4,000 ÷ $1,000 = 4:1 or 400%. This means you earned $4 for every $1 spent.
Industry Benchmarks
| Category | Average | Good Performance |
|---|---|---|
| E-commerce | 4:1 - 6:1 | 8:1+ |
| Mobile Gaming | 3:1 - 5:1 | 6:1+ |
| SaaS/Subscription | 5:1 - 8:1 | 10:1+ |
| Lead Generation | 2:1 - 4:1 | 5:1+ |
Best Practices
Set ROAS targets based on profit margins and business goals. Track ROAS over different time periods (7-day, 30-day, 90-day) to account for delayed conversions. Use attribution models that capture the full customer journey. Consider lifetime value in ROAS calculations for subscription businesses. Monitor ROAS by campaign, audience, and creative to optimize performance.
Examples
An e-commerce app discovers that video ads have 6:1 ROAS while banner ads have 2:1 ROAS, leading to budget reallocation. A subscription app calculates 90-day ROAS including recurring revenue, showing 12:1 returns that justify higher initial acquisition costs.
Notes
ROAS should be considered alongside profit margins - high ROAS doesn't guarantee profitability if margins are low. Attribution windows significantly impact ROAS calculations. For subscription or repeat purchase businesses, lifetime value-based ROAS provides more accurate long-term insights than immediate transaction ROAS.