When it comes to running paid ads, everyone wants to make sure they’re getting a solid return on their investment (ROI). That’s where ROAS (Return on Ad Spend) comes in. It allows you to work out what’s driving profitable revenue so you know where to focus your efforts.
ROAS is a simple ratio that measures how much revenue you earn for every pound spent on advertising. It’s calculated like this:
ROAS = Revenue from Ads / Cost of Ads
For example, if you spend £1,000 on ads and make £5,000 in sales, your ROAS is 5:1 (or simply 5). This means that for every £1 you spend, you earn £5 back.
ROAS targets help you:
ROAS Target = (Product Price – Costs) / Ad Spend
For instance, let’s say:
Your ROAS target would be:
(£50 - £20) / £10 = 3
In this case, your target is 3:1, meaning you need to earn £3 for every £1 spent on ads to hit your profit goals.
Calculating ROAS targets doesn’t have to be rocket science. By understanding your costs, defining your profit margin, and setting realistic goals, you’ll have a clear roadmap for ad success. And remember, marketing is all about testing and learning so don’t stress if you don’t nail it right away.
If you need help weighing up the costs and benefits of your social ads then get in touch.