Return on Advertising Spend (ROAS) is a marketing metric that measures the revenue generated for every dollar spent on advertising campaigns. It's calculated by dividing the revenue attributed to advertising by the advertising spend, providing marketers with a ratio that indicates the efficiency of their advertising investments.
ROAS Formula
Return On Ad Spend (ROAS) = Revenue Attributed to Advertising / Advertising Spend.
Advertising Spend: The total amount invested in advertising campaigns, including media costs, platform fees, and creative production costs.
Attributed Revenue: Revenue that is linked to advertising touchpoints through attribution modeling, such as first-click, last-click, or multi-touch attribution.
Example Calculation for ROAS
If $10,000 revenue can be attributed to a campaign and $2,000 was spent on the campaign, ROAS is 5.0
| Revenue attributed to a campaign | $10,000 |
| Spend on the campaign | $2,000 |
| Return On Ad Spend (ROAS) | 5.00 |
The Attribution Foundation of ROAS
Critical Understanding: ROAS is fundamentally based on attribution, not incrementality. This distinction is crucial for marketers who want to understand the true effectiveness of their advertising efforts.
Attribution-based ROAS uses attribution rules to connect conversions to campaigns. Conversion tracking requires that the advertisers has implement advertising platform's tracking method on their website, often called "tracking pixel". Tracking pixel enables sending users' conversion events to the advertising platform, making it possible for the advertising platform to connect conversion events with campaigns.
For attributing conversions to a campaign, ad platforms use attribution rules. For example, Google Ads often has a default setting for attributing a conversion to a campaign, if a person clicked an ad within the last 30 days. Attribution settings, including the attribution window, are typically open for advertisers' adjustment.
Why Attribution-Based ROAS Can Be Misleading
1. Capturing organic demand: Attribution has a high risk of capturing conversions that would have occurred organically, making advertising appear more effective than it actually is
2. Cross-Channel Interactions: Traditional ROAS measurement struggles to account for how different marketing channels influence each other, leading to double-counting of conversions.
ROAS vs. Incrementality: The Key Difference
While ROAS tells you what revenue can be attributed to your advertising spend, incrementality tells you what additional revenue was generated because of your advertising spend.
Incremental ROAS (iROAS) or ROI measures the true causal impact of advertising by comparing performance with and without advertising exposure, typically through:
- Marketing mix modeling
- Controlled experiments (A/B testing)
- Geo-lift studies
As an example, here are articles comparing Last-Click attribution to incrementality-based measurement:
- How to measure Meta correctly? GA4 vs. MTA vs. MMM
- How to measure Meta correctly? Part 2: Add offline sales impact
- How to Measure the True Effectiveness of TikTok Ads?
How can Digital Marketers Track ROAS?
The easiest way to track ROAS across all platforms, is to use a modern media measurement tool, which automatically consolidates all digital data into one platform and processes it for easy analysis. These platforms also enable comparing true incremental ROI to attributed ROAS.
Below is an example of advertising channel -level tracking view from the Sellforte demo.
ROAS in the Media Metric funnel
ROAS is a metrics that is part of the Media Metric funnel. Media Metric funnel is an abstraction of consumers' buying journey:
- Impressions measure how many people saw the ad
- Clicks measure how many people clicked the ad
- Conversions measure the number of purchases made by people clicking the ad (within a certain attribution window)
- Conversion value measures the total value of purchases made by people clicking the ad (within a certain attribution window)
Cost-efficiency metrics in the funnel include: Cost Per Mille (CPM), Cost Per Click (CPC), Cost Per Conversion, Return On Ad Spend (ROAS).
Performance ratios in the funnel include: Click-Through Rate (CTR), Conversion Rate, and Average Order Value.