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Return On Advertising Spend (ROAS) measures the revenue earned for every dollar spent on advertising.
This metric spotlights the direct impact of ad expenditure on sales generation. It provides insights into the profitability of ad campaigns and helps to optimise marketing budgets by understanding how ad spend translates into sales. It's important for assessing campaign performance, especially when experimenting with different channels and messaging. It aids in allocating budgets towards the highest-yielding ads.
Revenue Attributed to Ad Spend / Cost of Ads
To calculate ROAS, divide the revenue attributed to your ad spend by the cost of your ads.
Make sure to consider indirect costs associated with ad campaigns, including creative, software, and management expenses. Effective advertising (high ROAS) can lead to a lower CAC, as more customers are gained per dollar spent.
ROAS is not necessarily immediate. Some campaigns, especially those aimed at brand building, might have a long-term impact that is not immediately reflected in ROAS. Also, ROAS doesn't inherently consider LTV, which can lead to undervaluation of campaigns with high-value, long-term customers.
