What is Return On Advertising Spend (ROAS)?

Return on advertising spend, frequently referred to by the advertising community by the acronym of ROAS, is a term that describes the profit made by advertising. This represents the dollars earned versus the dollars spent on an advertising campaign, and is figured by dividing advertisement-driven profit by the dollar amount spent on advertising. An analysis of expenditures for advertisement is measured with the profit from ROAS, instead of just revenue, as the price of the advertising must be subtracted first. Most advertisers are concerned with having as high a return on advertising spending as possible, so that they are certainly making money. Tracking a company’s return on advertising spending is also very important, because it covers whether certain types of paid inclusion are working or not.

Knowing whether a form of paid inclusion is working to bring in conversions is extremely important to companies that are paying for advertising. ROAS allows these businesses to discover whether the marketing efforts and money that have gone into an advertising campaign have been worth it or not. The success of a company can balance on whether the return on advertising spending is profitable or not, and many want to know immediately whether a certain type of paid inclusion is working or not. Webpages that use banners for advertisement may have a lower return on advertisement spending than they desire, and could attempt pay per click, or cost per action advertising instead to get a larger margin of profit from ROAS. ROAS is also capable of tracking conversion rates as well, so that when conversion rates are higher, so is the return on advertisement spend.

There are many paid and free services on the Internet that help companies track return on advertisement spending. These free services are important because they allow businesses to set goals and numbers, and by using Google AdWords or some of these other services, the businesses can determine whether a paid inclusion campaign is working or not. Unfortunately, there are also ways that return on advertising spending can be misleading. It all depends on the goal of the advertising campaign, how much is being spent, and the conversion factors. There are advertising campaigns out there that have a high ROAS, but are still losing money simply because the products they are selling cost more to produce and ship, and that combines with the cost of advertising. Other arguments against return on advertising spend are based on the fact that return on advertising spend is only calculated with the cost of advertising in mind. It does not take into account any other factors that can eat into profits.

Return on advertising spend, or ROAS as it is frequently called, is a common tool that is used frequently to determine the value of an advertising campaign. While there is plenty to advise people to keep tract of ROAS in its simplest form, there are also many professionals who are avoiding ROAS because it seems to be unnecessary. The value of the return on advertising spend all depends upon the campaign that is being run, and the company that is running it.


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