Paying for advertising is almost always necessary for a successful online marketing strategy. Understanding the results of your paid advertising campaign with the help of a ROAS calculator is a needed basic skill. Developing and mastering this skill helps to see your business through its growing pains.
“Organic” is the holy grail in digital marketing regarding engagement and sales. But any business worth its salt has to work hard. We’d go so far as to include making mistakes and learning from these mistakes to earn this holy grail.
Wondering how to calculate ROAS and what should you do with the answers you get? Let’s tackle the subject.
What Is ROAS and Why Does It Matter?
ROAS stands for Return On Advertising Spend. Or the amount of revenue you generate for every dollar spent on an advertising campaign. A ROAS calculator is also referred to as an ad spend calculator.
It gives you a quantitative and actionable measure of your digital advertising campaign’s performance. ROAS helps you evaluate which strategies work best, which don’t, and how to improve your methods to get desired results.
ROAS also shows you how an ad campaign contributes to your bottom line. Does it improve audience engagement on social media? Does it increase visits to your online store?
The insights you get from calculating the return on your ad spend help fine-tune your ad budget spending and strategy. Your ROAS calculation should guide your overall marketing direction. With the results, you can make informed decisions on how to get maximum returns from your ad dollars.
Note that ROAS is not the same as ROI or return on investment. ROI refers to the overall business investment, whereas ROAS is specific to advertising spend.
How To Calculate ROAS
Are you wondering how to Calculate ROAS? We’re thinking most likely if you’re using paid advertising. Here are the ROAS calculator basics you need to know.
ROAS Calculation Formula
The ROAS calculation formula is as follows:
ROAS = (Revenue from advertising / Cost of advertising) * 100
For example, you spend $2,000 to run a Facebook ad campaign for a month. The revenue you get from said campaign by the end of the campaign period is $7,000. Using the ROAS calculator, you’ll get the following:
ROAS = ($7,000 / $2,000) * 100 ROAS = $3.5 * 100 ROAS = 350%
This means that for every dollar of ad spend, you generate $3.5 worth of revenue.
However, if your revenue at the end of the campaign period is $1,800, then the ROAS calculator will give you:
ROAS = ($1,800 / $2,000) * 100 ROAS = $0.9 * 100 ROAS = 90%
So for every dollar of ad spend, you only generate 90 cents, which means you’re losing money. Anything less than 100% ROAS indicates that you’re spending more on advertising than what you earn.
Calculate ROAS Using Excel
Embedding the ROAS calculation formula into Excel is just as easy. Plus, it will instantly calculate ROAS as you enter your data. Here’s how to do it:
- Open Excel.
- Input the campaign name/description in A1.
- Type “Revenue” in B1, “Cost” in C1, “Revenue/dollar of ad spend” in D1, and “ROAS” in E1.
- In D2, type the formula: =B2/C2 (This will give you the actual revenue amount per dollar ad spend.)
- In E2, type the formula: =D2*100 (This will provide you with the ROAS percentage.)
You can use the rest of the rows in Column A to input the dates for every campaign period. Enter your revenue values in B2 and ad costs per campaign period in C2. The values for D2 and E2 are automatically calculated.
Keep adding revenues and expenses to the cells under columns B and C. But don’t forget to apply the D2 and E2 formulas to the succeeding cells by doing the following:
- Drag the arrow pointer from D2 to E2. This will highlight both cells.
- Place the pointer on the tiny blue square at the bottom right corner of E2. A cross sign should replace the pointer.
- Drag the cross down to highlight the other cells below D2 and E2. This will automatically copy the D2 and E2 formulas.
Break-Even ROAS Calculator
Your break-even ROAS refers to a return on ad spend that delivers neither profit nor loss. Simply put, a 100% ROAS is a break-even ROAS. A break-even ROAS calculator will give you a target revenue value to get 100% ROAS or higher. You’ll need to reach this value in order to remain profitable.
Use this formula to calculate your break-even ROAS:
Break-even ROAS = 1 / Average net profit margin
So first things first, you have to figure out your average net profit margin using this formula:
- Average order value (AOV) / Cost of goods sold (COG) = Net profit
- Net profit / AOV * 1 = Net profit margin
It’s important to input the correct numbers for your AOV and COG to get the right average net profit margin. This will give you the correct break-even ROAS value. You’ll defeat the purpose of knowing how to derive your ROAS if you calculate a break-even ROAS that’s incorrect.
With the correct break-even ROAS, you’ll be able to identify where you’d be operating at a loss. It considers your ad spend budget and cost of goods, fulfillment, and business overhead costs.
For example, if your ROAS is 300%, you earned 200% from your ad spend. Despite the positive ROAS, the 200% margin is further reduced. It’s diminished by or may not be enough to cover delivery fees, online transaction fees, employee costs, and other costs.
Factors That Affect the ROAS Calculator Formula in Digital Marketing
When using the ROAS formula in digital marketing, there are other things to consider. Especially since additional costs are typically needed to run a digital ad campaign. You may opt to run a straightforward Facebook ad campaign.
In this example, you only utilize and spend on a specific Facebook ad plan. However, if you’re outsourcing your digital marketing to an individual or an agency, there are outsourcing costs. You must apply these costs to your ROAS calculation.
Here are other factors to consider to get the most accurate values from the ROAS calculator.
- In-house advertising costs. Include advertising personnel’s salary and other related costs when calculating ROAS. Remember that these costs must be directly associated with the particular ad campaign for which you’re calculating ROAS.
- Partner/Vendor costs. These include fees and commissions you pay to partners and vendors. Think influencers or resellers who may also participate in an ad campaign.
- Affiliate commissions. Be sure to add affiliate promotion to the total of your ad spend. This includes the percent commission paid to them for every sale they generate, as well as network transaction fees.
- Cost per click, impressions, etc. It all depends on how you set up a digital ad campaign. The budget you set for a campaign period may not be the actual total cost spent at the end. Other metrics may determine your total ad spend. This includes average cost per click, total clicks, average cost per thousand impressions, and the number of impressions purchased.
ROAS Calculation: What Is a Good Return on Ad Spend?
You must look at a few things to determine whether your ROAS calculation value is good or bad. Be sure to go over your profit margins, operating expenses, and overall business performance. Most digital marketing professionals consider a ROAS benchmark of 4:1, or $4 revenue per $1 of ad spend, acceptable.
Based on an analysis of various e-commerce ad accounts, Contrast Digital has concluded that:
- A ROAS below 3:1 and above the break-even ROAS threshold means you must reevaluate. Look at your advertising strategy and look for other growth opportunities.
- A ROAS of 4:1 may mean you’re making a profit if you don’t consider business operational costs.
- A ROAS of 5:1 or higher indicates that you should funnel more money into your ad campaign. It is working effectively as a money machine.
Classy Llama reports that e-commerce businesses may require an 800% ROAS or higher to achieve profitability.
Generally speaking, start-ups may require higher profit margins to sustain accelerated growth. Businesses with an established online presence, a massive audience, and consistently high engagement can afford higher advertising costs. They can do so without worrying about bad ROAS calculator numbers.
You need a defined budget and a firm handle on your profit margins to set a good ROAS goal. If you have high margins, you may be able to survive or grow substantially with a ROAS of 3:1. Do you have low margins? You must maintain low advertising costs or get a ROAS of 10:1 to remain profitable.
Maximizing Your ROAS Through Optimized WiFi Marketing
Now you can focus on ways to maximize your earnings from paid advertising. Especially since you know how to use the ROAS calculator and how to determine the ideal ROAS for profitability.
Minimizing business operational costs is one way to increase the return on your ad spend. With an all-in-one WiFi marketing platform like Beambox, you can do just that.
Beambox allows you to use your guest WiFi network beyond simply providing connectivity to your customers. With Beambox’s all-in-one WiFi marketing solution, you can enhance guest WiFi experience, increase the visibility of your digital ads, and boost sales from these ads to get higher return on ad spend.
You can connect, capture, and keep more customers. Especially with a WiFi platform that lets you extract robust marketing data from the guests who connect to your network. Beambox gives you all the tools you need to map out your daily traffic. All while understanding the who, why, and when of your business.
You can opt for the Beambox Plug & Play to connect to your existing router. Or, add Beambox to your existing network via cloud integration, such as UniFi, Omada, Meraki, and more. Accelerate your business growth — start your Beambox free trial today!
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