An in-depth look at the digital marketing metric "Return On Ad Spend"

There are a lot of ways to measure the success of a digital marketing campaign.  You can look at web traffic numbers, conversion rates, email list subscribers, and that is just to name a few.  Among the many different measures of success, one popular metric to look at is "Return On Ad Spend" (ROAS).  Return On Ad Spend is exactly as it sounds - it is a calculation of the revenue generated on the dollar spend against it.  ROAS can be shown as a comprehensive metric for the entire digital campaign, or broken out by the different digital channels that were executed against (social, email, etc.).

The Return On Ad Spend Formula

The ROAS calculation is incredibly simple.  The ROAS equation is:

ROAS = Campaign Revenue / Campaign Spend

As simple as the ROAS equation is, the metric by itself can sometimes be misleading.  In the brief video below, I explain that sometimes ROAS can be decreasing and why that is not always a bad thing.

Another possible calculation for Return On Ad Spend

There are some in the digital industry that have offered up an alternative equation for ROAS. The formula looks like this:

ROAS = (Channel Revenue - Channel Spend) / Channel Spend

The best way I can describe the above equation is to think of the spend as a "bank loan".  You borrowed the funds to execute the campaign, and you have to pay it back before you can take credit for the return.  This is not the equation I would recommend using for ROAS, but I just wanted to throw it out there as something you might see.

Final Thoughts on ROAS

Return On Ad Spend is an important metric to calculate, but I believe it should only be viewed as a moment-in-time-metric.  It can tell a story about one particular time in a campaign, and should not be over analyzed as a trend metric.