ROAS stands as a pivotal metric to define how your campaigns are performing. When running paid campaigns, you’ll have a ROAS target in mind, but what truly defines a “good” ROAS?
Defining ROAS
Return on ad spend (ROAS) represents the amount of revenue generated by the amount spent on advertising.
This measures the performance of your advertising campaigns in terms of revenue earned from the different campaigns you run.
How to Calculate ROAS:
Return on ad spend is easily calculated by: Campaign Revenue/Ad Spend
A higher percentage indicates a more profitable campaign.
What Is a “Good” ROAS?
Typically, a 2:1 ROAS is deemed “good” as you’re making more than what you’ve spent on advertising. For every £2 in revenue, you have spent £1 on advertising. However, on average, a 4:1 ROAS is considered more effective.
“Good” varies widely across industries as every business will have a different profit margin to base success on, and you may have products in different marketing stages. You may also have different versions of “good” depending on the channel on which you’re running the activity.
For example:
A start-up company might have a small margin and tighter budgets; therefore, running ads on a high ROAS target is key to remaining profitable.
A more established business looking to grow and scale will have more room to run ads on a lower ROAS, increasing sales volume at a higher spend.
To note: A lower ROAS target usually means you’ll see more volume come through in a Google Ads campaign, but you will be spending more, so it’s key to find your “sweet spot” in terms of profitability and volume.
Another factor for what a “good” ROAS means to your business would be the type of product and AOV.
For example:
A user will have a considered decision-making process for a £500 product compared to a £30 one.
The demand would be lower for the higher-priced product and potentially have a lower conversion rate yet drive a high return when a user does purchase.
The lower-priced product is likely to have higher competition due to being more of an impulse purchase, therefore impacting overall ROAS.
It’s crucial to consider these factors when reporting on your campaign ROAS. You can’t always compare like for like to other businesses or online benchmarks.
Want to find out what a profitable ROAS would be for your business? We’ve made it easy.
Use our calculator tool for free here.
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