ROAS
ROAS, return on ad spend, is the revenue an ad campaign brings in divided by what was spent on it, for example 3 means 3 in sales per 1 spent.
Return on ad spend, or ROAS, measures how much revenue advertising brings in for every unit of money spent. The formula is revenue from ads divided by ad spend. If a store spends 1,000 on ads and the ad platform attributes 3,000 in sales to them, ROAS is 3.
ROAS is not profit. To know whether a campaign makes money, you need the break-even ROAS, which depends on margin. If a product earns a 40% gross margin, the break-even ROAS is 1 divided by 0.4, which is 2.5. Below that, every sale loses money once ad costs are paid.
Things that move ROAS:
- conversion rate on the store
- average order value, which upsells and bundles raise
- ad costs such as CPM and CTR
- how well the store measures sales, since weaker tracking under-reports results
You cannot see a competitor's ROAS. What you can see is behaviour that suggests it is healthy, mainly ads that run for a long time and reach that keeps growing. Advertisers rarely keep paying for ads that lose money.
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