To make your ROAS calculation even more convenient for you, we’ve included a simple ROAS calculator below. This tool will help you quickly determine your Return on Ad Spend without having to do the math manually.
How to use the ROAS Calculator
- Enter your Total Revenue: In the first field, input the total revenue you’ve earned from your ad campaign.
- Input your Ad Spend: In the second field, type in the total amount you’ve spent on the ad campaign.
- Enter your Profit Margin: In the third field, input your profit margin as a percentage. This represents the percentage of your revenue that is profit after accounting for all costs.
- Click “calculate”: Once you’ve entered these details, hit the “Calculate” button.
- View your results: The calculator will display your ROAS in ratio format, as well as your ROI in percentage format based on the profit margin you entered. For example, a ROAS of “5:1” means that for every euro spent on advertising, you gained 5 euros in return. This is also equivalent to a 500% return on your ad spend.
In the world of e-commerce, where every penny you spend on advertising counts, understanding the return on those investments becomes paramount. ROAS offers a clear picture of how effectively your advertising budget is being utilised, ensuring that every euro spent is leading to a profitable return. For e-commerce businesses like yours, understanding the ROAS calculation is key to mastering your marketing budget.
What is ROAS?
ROAS stands for Return on Ad Spend. It’s a metric that measures the revenue generated for every euro spent on advertising. To put your ROAS calculation simply, if you spent €100 on an ad campaign and earned €500 in sales from that campaign, your ROAS calculation would result in a 5:1 ratio.
For example, let’s say you run an online shoe store in Galway, Ireland. You decide to spend €1,000 on a Facebook ad campaign targeting local residents. If this campaign results in €5,000 worth of shoe sales, your ROAS calculation shows a 5:1 ratio.
Around Finance teamed up with StoreHero.ai to provide some valuable insights following our guide on how to run a successful ecommerce business where they also covered the topic of ROAS for ecommerce.
Why is ROAS a crucial metric for your e-commerce business?
ROAS provides a clear insight into which campaigns are working and which might need re-evaluation. It’s not just about spending money on ads; it’s about ensuring that money is spent wisely.
What is the difference between ROAS and ROI?
While both ROAS and ROI (Return on Investment) measure the effectiveness of investments, they serve different purposes. ROI looks at the overall return on an investment, considering all costs, while ROAS specifically focuses on the return from ad spend. For e-commerce businesses like yours, understanding both metrics is essential to grasp the broader financial aspects and the specific effectiveness of advertising campaigns.
For Example, Let’s consider your shoe store again. You spent €1,000 on ads and made €5,000 in sales. However, the shoes cost €3,000 to produce. ROI takes into account the €3,000 production cost, while your ROAS calculation only considers the €1,000 ad spend.
Step-by-step guide ROAS calculation
The ROAS calculation is straightforward. Use the formula:
ROAS = Revenue from Ad Campaign / Cost of Ad Campaign
For example, if you generated €2,000 in sales from a €400 ad campaign, your ROAS calculation would be:
ROAS = €2,000 / €400 = 5
This means for every euro spent on advertising, you earned 5 euros in return.
Practical Tip: Always consider external factors that might affect sales, such as seasonal trends or market shifts. A high ROAS during the holiday season might not be sustainable year-round.
Understanding break-even ROAS
Break-even ROAS is the point where the revenue from an ad campaign equals the cost of the campaign. Knowing this point is crucial as it helps you understand the minimum performance needed from an ad campaign to not lose money.
How to calculate break-even ROAS: If you spend €1,000 on ads and only make €1,000 in sales, your break-even ROAS calculation results in a 1:1 ratio. Anything above this means profit, while anything below indicates a loss.
Importance of tracking ROAS
Consistently monitoring your ROAS ensures that your advertising budget is always optimised. By tracking ROAS, you can make informed decisions about scaling successful campaigns or tweaking underperforming ones. It’s not just about tracking numbers but understanding the story they tell about your business..
Tips to improve ROAS
Here are a few ways you can boost your ROAS.
Optimise Ad campaigns: Regularly review and adjust your ad campaigns based on performance data. A/B testing different ad creatives or targeting options can lead to significant improvements in your ROAS calculation.
Target the right audience: Ensure your ads are reaching the audience most likely to convert. If you find that women aged 25-34 are your primary customers, tailor your ads to this demographic.
Use high-quality creatives: Invest in high-quality images, videos and copy to make your ads stand out. A well-crafted ad can significantly improve click-through and conversion rates, leading to a better ROAS calculation.
ROAS in Financial Analysis
In your broader financial analysis, ROAS plays a pivotal role in evaluating the effectiveness of advertising campaigns. A consistently high ROAS indicates strong ad performance, while a declining ROAS might signal the need for campaign adjustments. For businesses, especially in the e-commerce sector, this metric is a clear indicator of where their advertising budget is best spent.
Benefits of using a ROAS calculator
While the ROAS formula is simple, using a ROAS calculator can simplify the process further, especially when dealing with multiple campaigns. It ensures accuracy and can provide deeper insights into campaign performance. For instance, a ROAS calculator might break down performance by platform, showing how Facebook ads compare to Google ads in terms of return.
Understanding and optimizing ROAS is essential for e-commerce success. By keeping a close eye on this metric, you can ensure that your advertising budget is always delivering the best possible return. If you’re looking to further understand the financial metrics that drive your business, consider exploring the services offered by Around Finance, an online accounting firm based in Galway, Ireland, specializing in supporting e-commerce businesses.