When a business spends money on advertising, it expects a return. That return is not always easy to measure. Different ads, channels, and platforms can produce different results.

This is where ROAS comes in. It provides a way to calculate how much revenue is generated from advertising. ROAS can be used to compare the performance of one campaign against another.

This guide explains how ROAS works, how to calculate it, and how to use it across different marketing channels. The goal is to offer a clear and factual overview of the concept and its applications.

What Is ROAS

ROAS stands for Return on Ad Spend. It's a marketing metric that shows how much money you earn for every dollar you spend on advertising.

ROAS is expressed as a ratio or a percentage. For example, a ROAS of 4:1 means four dollars were earned for every one dollar spent. A ROAS of 400% means the same thing, just in percentage format.

The formula for ROAS is simple:
ROAS = Revenue from Ads ÷ Cost of Ads

ROAS focuses only on the money spent directly on advertising and the revenue generated from that spend. It doesn't include other business costs like overhead or product development.

Key components of ROAS include:

• Revenue Attribution: Linking revenue to specific ad campaigns

• Ad Spend Tracking: Identifying all costs of running ads

• Performance Measurement: Using ROAS to evaluate campaign effectiveness

Unlike broader financial metrics like ROI (Return on Investment), ROAS doesn't measure profit. It only compares ad revenue to ad cost.

ROAS Calculation Formula

The basic formula for calculating ROAS is:

ROAS = Revenue Generated from Ads ÷ Cost of Ads

This formula shows how much money comes back for every dollar spent on ads. The result can be shown as a ratio or percentage.

Here's a simple example:
If you spend $500 on ads and generate $2,000 in revenue:
ROAS = $2,000 ÷ $500 = 4

This means your ROAS is 4:1 (as a ratio) or 400% (as a percentage).

To convert ROAS to a percentage, multiply the result by 100:
ROAS (%) = (Revenue ÷ Ad Spend) × 100

How To Calculate Return On Ad Spend

Calculating ROAS accurately involves four main steps:

1. Gather Exact Revenue Data

Start by collecting accurate revenue data from your advertising campaigns. Use tools like Google Analytics or Facebook Ads Manager to track conversions.

Make sure your tracking is set up correctly. Missing data or counting the same conversion twice will give you wrong results.

Revenue data should be directly tied to specific ad campaigns. This means using tracking pixels, UTM parameters, or other methods to connect sales to ads.

2. Determine All Advertising Costs

Add up all the money spent on your advertising campaign. This includes:

• Media costs (what you pay to run the ads)

• Platform fees (charges from Google, Facebook, etc.)

• Creative costs (design, copywriting, video production)

• Management fees (agency costs or staff time)

For accurate ROAS, include all costs directly related to running the campaign.

3. Divide Revenue By Ad Spend

Now use the ROAS formula:
ROAS = Revenue ÷ Ad Spend

For example, if your campaign generated $3,000 and cost $1,000:
ROAS = $3,000 ÷ $1,000 = 3

This means you earned $3 for every $1 spent on advertising.

4. Multiply By 100 For Percentage

To express ROAS as a percentage:
ROAS (%) = (Revenue ÷ Ad Spend) × 100

Using our example:
ROAS (%) = ($3,000 ÷ $1,000) × 100 = 300%

This percentage format is often used in marketing reports and dashboards.

What Does ROAS Mean In Marketing

ROAS is a key metric that helps marketers understand if their ads are working. It answers a simple question: "How much money did we make from our ad spending?"

• Efficiency measure: ROAS shows how efficiently ad dollars generate revenue

• Campaign comparison: It helps compare performance across different channels

• Budget justification: It provides evidence that ad spending is worthwhile

Marketers use ROAS to make decisions about where to put their ad budget. Higher ROAS means better performance, so campaigns with higher ROAS often get more funding.

Different ROAS values have different meanings:

• A 1:1 ROAS means breaking even ($1 earned for $1 spent)

• A 2:1 ROAS means earning $2 for every $1 spent

• A 5:1 ROAS is considered excellent in many industries

ROAS meaning in marketing extends beyond just numbers. It helps marketers understand which messages, audiences, and platforms work best for their business.

How Is ROAS Calculated For Different Channels

ROAS calculation can vary depending on which marketing channels you're using. Each channel has its own tracking methods and attribution challenges.

In digital marketing, ROAS tracking relies on platform-specific tools. For example, Google Ads has its own conversion tracking, while Facebook has the Facebook Pixel. These tools help connect ad clicks to purchases.

One challenge is that customers often interact with multiple channels before buying. They might see an ad on Instagram, click an ad on Google, and then make a purchase later. This makes it harder to know which channel deserves credit.

1. Track Mobile Conversion Patterns

Mobile conversions include app installs, in-app purchases, and mobile website purchases. These can be tricky to track because users switch between apps and browsers.

Mobile attribution tools help connect these dots. They use techniques like device IDs and deep linking to follow users from ad click to purchase.

For accurate mobile ROAS, it's important to set up proper tracking in both your ads platform and your app or website analytics.

2. Attribute Desktop And Social Revenues

Desktop tracking typically uses cookies to follow users from ad click to conversion. Social media platforms have their own tracking systems.

Multi-touch attribution models help understand the full customer journey. These models give credit to multiple touchpoints instead of just the first or last click.

For example, if someone clicks a Facebook ad, then later searches for your brand on Google before buying, both channels contributed to the sale.

3. Integrate Offline Campaign Data

Not all conversions happen online. Phone calls, store visits, and mail-in orders are all offline conversions that can result from online ads.

To calculate ROAS for campaigns that drive offline actions:

• Use unique phone numbers for each campaign

• Create special coupon codes for tracking

• Ask customers "how did you hear about us?"

Importing this offline data into your analytics platform gives a more complete picture of your true ROAS.

What Is A Good ROAS Percentage

There's no one-size-fits-all answer to what makes a "good" ROAS. It depends on your industry, business model, and campaign goals.

In general, a ROAS of 4:1 (400%) is considered good for many businesses. This means earning $4 for every $1 spent on ads. However, some industries need higher or can accept lower ROAS values.

ROAS benchmarks vary by industry:

Factors that affect what's considered a good ROAS include:

• Profit margins: Businesses with high margins can accept lower ROAS

• Campaign goals: Brand awareness campaigns may have lower ROAS than direct response

• Customer lifetime value: If customers make repeat purchases, initial ROAS can be lower

The break-even ROAS (sometimes called "be ROAS") is the minimum ROAS needed to avoid losing money. This depends on your profit margin and other costs.

Comparing ROAS And ROI

ROAS and ROI are related metrics, but they measure different things. Understanding the difference helps you use each metric correctly.

ROAS focuses specifically on advertising efficiency. It only looks at ad costs and the revenue they generate. ROI takes a broader view, considering all costs involved in doing business.

ROAS is most useful for marketers who want to optimize specific campaigns. If Campaign A has a ROAS of 3:1 and Campaign B has a ROAS of 5:1, Campaign B is performing better.

ROI helps business leaders understand if the entire marketing effort is profitable. It includes all costs like product costs, shipping, and overhead.

Both metrics are valuable, but they answer different questions. ROAS tells you if your ads are efficient, while ROI tells you if your business is profitable.

Ways To Improve Ad Return

Improving your ROAS means getting more revenue from the same ad spend. Here are four effective strategies:

1. Optimize Your Targeting

Better targeting means showing your ads to people who are more likely to buy. This reduces wasted spend on uninterested audiences.

• Audience segmentation: Divide your audience into groups based on behavior, interests, or demographics

• Lookalike audiences: Find new customers who resemble your existing customers

• Retargeting: Show ads to people who have already visited your website

Refining your targeting can significantly improve ROAS by focusing your budget on the most promising potential customers.

2. Reduce Wasted Spend

Cutting out ineffective ad spending frees up budget for better-performing campaigns.

• Use negative keywords to prevent your ads from showing for irrelevant searches

• Adjust ad scheduling to run ads only during high-converting times

• Set geographic targeting to focus on locations that perform well

For example, if your data shows that ads perform poorly on weekends, you might pause campaigns during those times and reallocate that budget to weekdays.

3. Increase Average Order Value

Getting customers to spend more per purchase directly improves ROAS without increasing ad costs.

Methods to increase order value include:

• Product bundles that offer related items together

• Upselling to premium versions of products

• Cross-selling complementary products

• Free shipping thresholds that encourage larger purchases

If your average order increases from $50 to $75 while ad costs stay the same, your ROAS will improve by 50%.

4. Enhance Website Conversion Rate

Improving your website's ability to convert visitors into customers means getting more value from the same traffic.

Focus on:

• Clear, compelling calls to action

• Simplified checkout process

• Mobile-friendly design

• Fast page loading speed

• Trust signals like reviews and security badges

Even small improvements in conversion rate can have a big impact on ROAS. Increasing conversion from 2% to 3% represents a 50% improvement in revenue from the same ad spend.

Next Steps With Darkroom

Darkroom helps businesses calculate and improve their ROAS through data-driven strategies. Our team analyzes your current advertising performance and identifies opportunities for improvement.

We work across the entire customer journey, from initial ad impressions to final conversion. This holistic approach ensures that all touchpoints are optimized for maximum return.

Our expertise spans multiple marketing channels, allowing us to track and improve ROAS across platforms. Whether you're running campaigns on social media, search engines, or traditional media, we can help you measure and enhance performance.

Schedule an introductory call with Darkroom to discuss how we can help improve your advertising return.

Frequently Asked Questions About ROAS

How do I factor lifetime value into my ROAS calculation?

Multiply your initial conversion value by your average customer lifetime value multiplier. For example, if a customer's first purchase is $100 and they typically spend 3x that amount over their lifetime, use $300 as the revenue figure in your ROAS calculation.

What is a break-even ROAS target?

Break-even ROAS is calculated as 1 divided by your profit margin. If your profit margin is 25%, your break-even ROAS is 4:1 (or 400%). This means you need to earn $4 for every $1 spent on ads to cover your costs.

How often should I measure and analyze ROAS?

Monitor ROAS regularly but make decisions based on statistically significant data periods. For high-spend campaigns, daily monitoring may be appropriate, while smaller campaigns might be reviewed weekly or monthly.