Return on Advertising Spend, commonly referred to as ROAS, is a key performance metric used in marketing to determine how effective an ad campaign was.
In the most basic terms, ROAS measures the revenue generated for every dollar spent on advertising.
The math isn’t advanced. By dividing the total revenue attributed to the ad campaign by the total advertising spend, marketers get a snapshot of the financial return on their marketing investments.
For instance, a ROAS of 3:1 means that for every dollar spent on advertising, you generate three dollars in revenue.
While it’s great when an ad campaign wins awards, or becomes part of the cultural discourse, ROAS is looking at the dollars & cents angle: Was the money spent on that campaign actually worth it in terms of conversions?
In marketing, ROAS concretely shows how well your advertising dollars are working for you—and that ladders up to the C-suite, when the marketing team is trying to explain and quantify their value to the broader team.
This makes it a powerful tool for justifying marketing budgets and making data-driven decisions (rather than laboring under a CMO who just “trusts their gut” above all else).
ROAS can be calculated at various levels, from overall campaign performance to the granular level of individual ad performance. This flexibility makes it a valuable tool for marketers who aim to optimize their budgets and zoom in on the most profitable channels.
Also, understanding ROAS helps marketers identify which campaigns or channels deliver the highest return, enabling them to divvy up limited resources more efficiently.
It’s complicated. Many marketers aim for a ROAS of 4:1, meaning that for every dollar spent on advertising, four dollars in revenue are generated.
That said, the ROAS you’re aiming for may be affected by other things. You may want to factor in considerations like customer lifetime value, or longer-term growth objectives that might skew what a “good” ROAS looks like to your brand.
Also, what’s seen as a “good” ROAS might vary depending on the specific platform you’re launching your ads on.
While ROAS is a valuable metric, accurately determining it can be challenging due to several factors.
One of the primary difficulties lies in attributing revenue to specific ads or campaigns, especially in multi-channel marketing environments.
For example, a customer might interact with multiple touchpoints—such as social media spots, email campaigns, and Google ads—before making a purchase. This can complicate the process of assigning “credit” to a particular ad or channel.
And if your campaign includes out-of-home (OOH) ads, it may be even tougher to isolate how those placements—seen on subways, at bus stops, or at gas stations—are driving revenue.
(That said, tools like The People Platform can help marketing teams track consumers’ real-world behavior and engagement with OOH campaigns.)
Another challenge is accounting for the full scope of costs associated with advertising.
While ad spend is a straightforward figure, that doesn’t account for things like creative production costs, agency fees, and platform-specific costs (like click or impression charges).
Failing to include these additional costs in your ROAS calculation would mean you’re slightly overestimating the profitability of your ad spend.
Also, factors like seasonality, market competition, and the state of the broader economy can influence the outcomes of ad campaigns, making it tough to isolate the true impact of your ad spend.
To accurately calculate ROAS and navigate its complexities, marketers have a few tools.
Clearly, one way to improve your ROAS would be to generate more effective ads that convert swiftly and efficiently. Easy breezy.
Of course, it’s difficult to predict the future, and to know which ads will actually lead to an impressive ROAS. A/B testing might give you some insights, but it’s time consuming, and leads to a lot of creative waste.
AI-powered tools like SmartAssets, however, can help you get even more granular with your ROAS analysis.
SmartAssets can shed light on why your current ads aren’t delivering. And the tool is designed to optimize and sharpen your creative assets preflight, before you’ve spent ad dollars getting them out into the world.
The platform’s GenAI-powered components help with creative ideation, allowing for easy editing to improve assets according to SmartAsset’s suggestions.
The TL;DR: You’ll reduce media wastage by generating more effective campaigns that people actually want to see (and convert on). All of which bodes well for your brand’s future ROAS.
We’d love to show you how SmartAssets works—and be sure to check out other ways the Stagwell Marketing Cloud can change how you work.
