Return on Ad Spend Calculator
Answers the Question
Is our advertising generating significant revenue?
Calculator for Return on Ad Spend
What Is the Return on Ad Spend?
Return on advertising spend (ROAS) is the ratio of revenue increase to spending.
Why Is it Important?
- Being able to measure the effects of advertising is critical to ensure that money is spent wisely. Poor returns on spending likely indicate that either the messaging isn't connecting with the intended audience, or that the advertising medium is simply saturated.
Formula(s) to Calculate Return on Ad Spend
- RETURN ON AD SPEND = REVENUE INCREASE / ADVERTISING SPEND
- Confusing revenue with profits. It's possible that advertising will cause increased interest in the items with the lowest (or negative) profit margins.
- Not including long term affects of advertising. While advertising can generate immediate sales, it can also improve brand awareness and increase the ease with which future sales are made.
- Not considering seasonality. A company that makes wool hats will likely enjoy increased revenue as the weather cools, so increased advertising spend in the fall probably won't be responsible for the entire increase in revenue in that time period.
- Not taking market niche into account. Some fields will naturally see a better return on ad spend than others.
- Assuming that because one marketing campaign did poorly that all will do poorly for a given product.
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