What is Return on Ad Spend (ROAS)?
A marketing metric that measures the amount of revenue earned for every dollar spent on advertising.
Deep Dive
ROAS is the definitive metric for performance marketing. Unlike ROI, which considers overall profitability, ROAS specifically assesses the effectiveness of your ad campaigns.
It is calculated as: Revenue from Ads / Cost of Ads. For example, if you spend ₹10,000 and generate ₹50,000 in sales, your ROAS is 5:1 or 500%.
Key Takeaways
- Higher ROAS indicates more efficient ad spend.
- Essential for e-commerce and direct-response campaigns.
- Should be analyzed alongside profit margin, not just revenue.
- Can vary significantly by platform (Google Ads vs. Facebook Ads).
Why This Matters Now
ROAS is the pulse of any e-commerce business. It answers the simple question: 'Is this ad machine printing money?'
However, blindly chasing high ROAS can kill growth. A campaign with 10x ROAS might only spend ₹1,000/day. A campaign with 3x ROAS might spend ₹1,00,000/day. Sometimes, lower efficiency at higher scale yields more total profit.
Common Myths & Misconceptions
Higher ROAS is always better.
Reality:Not if it limits your scale. A 1000% ROAS on ₹10 spend is useless. You want the maximum *profit*, which often means accepting a lower ROAS to get more volume.
ROAS is the same as ROI.
Reality:No. ROAS only looks at ad spend. ROI accounts for COGS, shipping, agency fees, and overhead. You can have positive ROAS and negative ROI.
Real-World Use Cases
Budget Allocation: Shifting budget from a 2x ROAS campaign on Facebook to a 5x ROAS campaign on Google.
Break-Even Analysis: Calculating exactly what ROAS you need to cover your product costs (e.g., 'I need a 3.5 ROAS to make zero profit').
Frequently Asked Questions
What is a good ROAS?
The benchmark is usually 4:1 (400%). However, if you have high margins (like SaaS), 2:1 might be great. If you have low margins (dropshipping), you might need 6:1.
Why is my ROAS dropping?
Ad fatigue (people are tired of seeing the same ad), increased competition (Q4 is expensive), or tracking issues (iOS14 data loss).
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