Return on Advertising Spend (RoAS) is a time-series metric and a Key Performance Indicator used to understand the gross-revenue derived from an advertising investment before related delivery costs and organizational expenses are subtracted. Though a Return on Advertising Spend is highly sensitive to the period from which it is derived, Return on Advertising Spend is often incorrectly believed to be a post-analysis campaign metric, a metric to be calculated only once, and only after the end of an advertising campaign. This common error is to the detriment of both the organization that is investing in advertising and the advertiser, advertising service provider or advertising agency, as both parties fail to give full credit for the true benefit of an advertising investment made.
Return on Advertising Spend compares the increased or decreased monetary value as a result of an advertising investment relative to the cost of the original investment. It is the ratio between the expense of the investment and the revenue gained due to the investment. This contrasts with an investment’s Return on Investment, which compares profit, not revenue.
Although Return on Advertising Spend is a ratio, it is often expressed as a percentage.
A 100% Return on Advertising Spend represents neither an increase nor decrease, with the same amount of revenue as was money invested originally.
Calculate RoAS
To Calculate RoAS, you must know the overall revenue that an advertising investment has returned on the date of calculation and the total value of the investment you’ve made towards your advertising, including agency management fees specific to the advertising in question.
To calculate RoAS on a given day, simply divide the revenue up to the date in question by the investment expense of that campaign up to the same date.
To calculate RoAS for a given day, you must be a period into the future, commonly a month later. At that point, simply divide the revenue from transactions that originated on the date in question by the total of the advertising spend and proportional management fees, if applicable, for the same date.
Alternatively, simply use our Return on Advertising Spend Calculator.
Upkeep RoAS
While Return on Advertising Spend can be calculated with great accuracy due to its relatively simplistic nature once revenue data has been attributed to advertising.
It should be recalculated frequently, as a historically accurate Return on Advertising Spend will become inaccurate as customers acquired from an advertising investment continue to increase in total value throughout their relationship with your organization.
Future transactions with past customers should continue to be attributed to the advertising from which the customer was acquired. This is inclusive of both additional spending as well as returns, refunds, discounts, and early cancellation fees, if applicable. Similarly, client referrals are an important factor in an organization’s likelihood of achieving its growth goals and may also be considered when calculating Return on Advertising Spend.
To properly upkeep your RoAS over time you need to start by ensuring your Conversions are traceable and kept clean. You will need to be sure that each Conversion is stored in a single place for future review and management. As poor quality Conversion events are measured, you’ll want to be sure that they are not sent to advertising networks, or else your advertising optimization could begin to target these poor conversions. Similarly, if you ever have a cancellation or request for a refund, you should remove conversions from your reporting and your advertising accounts since they never resulted in revenue. Lastly, as time progresses and the value of your previous conversions changes, you should to ensure that the value is also updated in your reporting and advertising accounts.
The process of upkeep can be difficult and time-consuming to do manually. It requires a deep understanding of multiple domains of expertise, and even with the proper skills and background, it is a process which simply scales in time requirement exponentially as the quantity of Conversion events increases or as the regularity of Conversion value changes increases. For these reasons, we recommend the use of a Conversion Management Platform like Converifai. By using a Conversion Management Platform, you streamline the process of centralizing Conversion events to a single centralized management dashboard and gain access to the tools required to upkeep your RoAS and upkeep your Conversions while also gaining access to integrations that can automate the process of revising Conversion values based on sales and transaction data from tools like Quickbooks Online or CRM solutions!
If you want to fully understand your RoAS, and simplify the process of targeting revenue instead of impressions, then get started today!
