Return on Advertising Spend (ROAS) is the amount of revenue a company receives for every dollar spent on an advertising source. This is a gauge of the effectiveness of online advertising campaigns. The higher your return, the more effective the ad source.
To calculate return on ad spend, use this formula:
ROAS = (Revenue derived from ad source)/(Cost of ad source)
If you spent $1,000 on Shopping Campaigns in one month, and during the same month these campaigns generated a revenue of $5,000, then your return would be:
$5000/$1000 = 5:1 or 500%
A return on advertising spend of 5:1 indicates that for every dollar spent on Shopping Campaigns, you get $5 in revenue.
Not exactly true. Because there is most of the time a cost to creating/buying and shipping a product.
If I spend £1 on ad words and my profit margin on my products is 50% then I need to see a ratio of 1:1.5 (for every £1 I spend I need to get £1.50 back) to break even. A lot of people forget this and none of these ROAS calculators seem to consider this.
Another thing for people to consider is that if someone is being paid to directly manage your ads (easier to work out if you outsource) then you need to ad that to the equation.
If you spend £1000 on AdWords a month and the company that manages them charges £300 a month then you’re already starting at 1:1.3 needed to break even. Add a product that has 50% profit margin to that and now you need to generate 1:1.8 to break even.
You can really go down the rabbit hole with this if you aren’t building in things like general overheads (very tricky to workout in most businesses yes)
But a lot more to consider than just a simple how much as money do you spend and do you get the ad money back ….
Simple calculations, but with your application now I can do it faster.