When we carry out a digital marketing campaign we have different metrics and KPIs that help us know if we are achieving the objectives that we had set for ourselves. Being able to analyze the data that we are obtaining is one of the great advantages of online campaigns and that we must take advantage of to extract all the information that helps us improve.
Within the large number of metrics that we have at our disposal, ROAS or Return on Advertising Investment is a variable that Google offers us and that aims to measure the effectiveness of digital marketing campaigns according to the objectives that have been set. Specifically, ROAS is the percentage of income obtained in relation to the investment made and answers a fundamental question in marketing: if I invest X amount of money in this channel, how much will I get back for each euro spent?
How to calculate ROAS
The formula to calculate the Return on Advertising Investment is dividing the income between the investment and multiplying said result by 100.
ROAS = SALES REVENUE / EXPENSES
Let's give an example with an Adwords campaign. Let's imagine that in a campaign for the sale of shoes we have obtained a total sales income of 8,000 euros per month and the Adwords account costs us about 2,500 euros per month.
ROAS = 8,000 / 2,500
This means that for each euro spent our ROAS is 3.20 euros.
Difference with ROI
This metric is very similar to another marketing metric, ROI or return on investment.
ROI is a metric that offers us the percentage of return on the investment made, that is, it allows us to know if an action carried out has been profitable or not. The formula to calculate ROI is as follows:
ROI= (INCOME – EXPENSES)/EXPENSES X 100
The main difference is that ROAS gives us a ratio that is calculated by comparing the amount earned and the amount spent, while ROI takes into account the amount earned after expenses have been subtracted. ROI measures earnings while ROAS measures the gross revenue generated from each dollar spent on advertising.
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The importance of understanding ROAS
ROAS is an essential metric in e-commerce to quantitatively assess the performance of advertising campaigns and how they contribute to the bottom line. The eCommerce that control the ROAS will be able to make more accurate decisions about where to invest their money and how they can be more efficient .
A good understanding of the return on advertising investment of our campaigns will help us:
- Better set the budget in future campaigns.
- Develop more effective strategies that provoke a response in our clients.
- Know where to invest the budget for advertising.
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