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ROAS (Return on Ad Spend)

ROAS (Return On Ad Spend)

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*A conversion is when a user performs a desired action (being tracked) on your website. This could be buying a product, downloading a file, clicking a link or any other desired action. Typically conversions are linked either directly or indirectly to revenue.

ROAS (Return On Ad Spend)

Quick Description = ROAS is the relationship between AdWords revenue and AdWords costs to establish profitability

Calculation: Revenue / Ad Spend (Cost)

Referred to as = Conv. Value / Cost

Very similar to ROI, ROAS looks exclusively at revenue and costs associated with ad spend and ad revenue. Thus agency fees / account management fees, and all other costs are not included in this formula.

Calculating ROAS

If you have campaign revenue of $1,000 and an ad spend in the same campaign of $500 dollars we would calculate the ROAS like this:

$1,000 / $500 = 2

ROAS is often referred to as a percentage so in the example above we would have a ROAS of 200%. This means that for every $1 spent on ads, you generated $2 in revenue.

Thus a ROAS of 1 or 100% would be break even ROAS, where no money was made or lost. Anything less than 1 (100%) would equate to a loss and anything above 1 (100%) would equate to a profit. As such, this metric can give a good idea of profitability at whatever the component you are analysing.

This is a purist view of the account and considers only account performance and account costs, this is very commonly used.

ROAS Bidding (Flexible Bid Strategies)

ROAS is one of several flexible bid strategies that you can customise and apply to campaigns and ad groups throughout your account. This tool / bidding mechanism allows Google to automate bids to achieve a specified ROAS.

Every campaign using this bid strategy will be bundled into the same bucket, for example if you have 3 campaigns using the same ROAS bidding strategy each campaign may have a ROAS higher or lower than the target. However, the average ROAS across all campaigns should be approximately on target.

You can read more about flexible bid strategies in our guide to flexible bid strategies.

ROI Vs. ROAS

ROAS is the return on investment when only considering ad spend… ROI considers wider costs such as agency / account management fees. People outside of Search will often refer to ad spend as ROI and in some circumstances ROI and ROAS can be the same thing.

More Information

If you liked this guide on ROAS (Return on Ad Spend), you may also be interested in the following guides related to this subject:

  • ROI (Return on Investment)
  • Converted Clicks
  • All Conversions
  • Converted Click Rate
  • Conversion Tracking
  • Conversion Rate
  • Cross Device Conversions
  • Cost Per Converted Click
  • Avg. CPC (Cost Per Click)
  • Revenue Per Conversion
  • Conversion Optimiser

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