What is ROAS?
“ROAS” is an acronym that stands for “return on ad spend.” This is a metric that advertisers use to judge the effectiveness of their advertising dollars. You can calculate ROAS by dividing the revenue generated from ads by the cost of those ads.
Why is ROAS an important KPI?
Calculating return on ad spend is important because it gives you a quick look into profitability. Whether you’re looking into entire campaigns or individual keywords, ROAS can give you quick insight into which keywords, campaigns, or ad groups are the most efficient.
Taking a look into conversions, conversion value, and conversion rate can start to give you an idea of how well your keywords are working. However, if you have multiple conversion types or products that generate different amounts of revenue, analyzing one level deeper is crucial to running a profitable and efficient campaign.
Using ROAS, Target CPAs and Other Acronyms
No one metric is the end-all, be-all for digital marketers. Depending on a flurry of factors, it can be more valuable to focus on one KPI over another. For example, a SaaS (software as a service) company is going to be generating revenue far differently than an eCommerce business and subsequently their KPIs are going to be valued differently.
While both may use all the acronyms, some will be a better measure of effectiveness than others based on business models. Target CPAs (target cost-per-acquisition) are more common for businesses selling one large ticket item, when we know that lifetime customer value is higher. ROAS can be more important for eCommerce so that you know profitability on specific items and keywords.