ROAS, the Return on Advertising Spend

The term ROAS stands for “Return on Advertising Spend”. It is a marketing KPI that measures the effectiveness of a company's advertising investments. The ROAS is calculated by dividing the revenue generated from advertising by the total cost of advertising. The formula is:

ROAS = (Revenue generated from campaign) / (Cost of campaign)

ROAS as KPI provides a clear picture of the return generated from each #advertising monetary spent, making it a useful tool for measuring the success of a company's advertising campaigns and for determining the efficiency of different advertising channels. A high ROAS generally indicates that a company is effectively using its advertising budget to generate revenue, while a low ROAS indicates that improvements may be needed in the advertising strategy.

ROAS is particularly relevant to #digitalmarketing, as it provides a way to measure the effectiveness of digital advertising campaigns in terms of the revenue generated relative to the cost of the campaign. With the vast array of digital advertising platforms and channels available, it can be challenging for businesses to determine which channels are delivering the highest ROI. ROAS provides a way to quickly compare the performance of different campaigns and channels, enabling marketers to make informed decisions on where to allocate their advertising budget.

In digital marketing, ROAS is often used to evaluate the performance of campaigns across different #marketingchannels such as search advertising, social media advertising and display advertising. For example, a business might compare the ROAS of its search advertising campaign to that of its social media advertising campaign to determine which channel is delivering a higher return on investment. Based on this information, the business could then adjust its advertising budget to allocate more spend to the higher-performing channel.

Another common usage is to investigate target audience effectiveness, which audience segments are most responsive to their advertising efforts. Moreover, it can also help determine the effectiveness of different ad formats, such as display ads, video ads, or search ads, making it easy to compare.

The origin of the term "Return on Advertising Spend" (ROAS) and its usage as a key performance indicator (#KPI) in marketing is not clear as it is not attributed to a single author. The concept of ROAS is likely to have emerged from general business and financial practices and has likely evolved over time as a way for companies to measure the effectiveness of their advertising investments.

Even if this KPI is extremely relevant and used in digital marketing advertising strategies, it’s difficult to find theoretical papers that have this topic as subject. Nonetheless, a lot of research cites it indirectly. This allows a reflection: the theoretical aspect for this metric is less relevant than its practical use. Compared to other metrics used in digital marketing as website traffic, conversion rate or Pay Per Click, it is less cited and studied.

One reason for the limited focus in literature might be that ROAS provide a general picture of campaign performance and makes it difficult to trace more in depth reasons, it might give an overall status of a campaign, but does not provide hints of which direction to follow to link cause-effect relationships. To get a more comprehensive understanding of how well marketing campaigns are performing over a certain period of time, it is often helpful to combine ROAS with other KPIs that provide complementary information.

Here are a few KPIs that can be used in combination with ROAS to provide a more complete view of campaign performance:

1-????Conversion rate: this measures the percentage of visitors to a website who take a specific desired action, such as making a purchase or filling out a form.

2-???Traffic to lead conversion rate: this measures the number of leads generated from a specific advertising campaign relative to the total number of visitors to the website.

3-???Engagement rate: this measures the level of interaction and engagement with an advertising campaign, such as likes, shares, and comments on social media.

4-???Customer lifetime value (CLV): this measures the total value a customer is expected to bring to a business over the course of their lifetime.

By combining ROAS with these additional KPIs, businesses can get a more comprehensive understanding of the effectiveness of their advertising campaigns, including not only the return on investment but also the level of engagement, conversion, and lifetime value generated from advertising efforts.