What Is ROAS? — Understanding Return On Ad Spend

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In the world of mobile advertising, there are so many metrics by which one measures success. Along with tracking active users, clicks, and views, ROAS is critical to understanding the effectiveness of marketing campaigns, especially as they relate to the overall success of a business. Is your head swimming with yet another acronym to memorize? Not to worry, we’re here to help!

What is ROAS?

In the marketing world, ROAS is an acronym that’s short for “return on advertising spend.” In other words, it’s a metric that lets you know how effective your advertising efforts are and how much revenue your ads are achieving. In the mobile world, this often refers specifically to the amount of revenue generated by in-app purchases, advertising impressions, and app subscriptions. This revenue is often measured across user segments, or specific groups of users known to have been acquired through advertising networks or campaigns. By grouping users according to their source, recording the cost associated with acquiring them, and subtracting it from the revenue they’ve generated, mobile marketers are given a clear look into how their choices impact the company’s bottom line.

Knowing your ROAS is an important part of any modern marketing campaign. If your return on ad spend is meeting or exceeding expectations, it’s a good indicator that your strategy is paying off. On the other hand, a low ROAS is a sign that something’s not working and needs to be retooled.

How to calculate ROAS

It’s a simple formula: revenue generated by customers resulting from ads divided by the cost of those same ads. For example, if a recent advertising campaign brought in $10,000 after spending $2,000 on ads, that’s an $8,000 or 500% return on that investment. It’s often written as a ratio, which in this case would be 5:1. For every dollar spent on advertising, five dollars were generated in revenue.

If this concept sounds familiar, it’s because ROAS shares similarities with return on investment (ROI). However, ROI is more of a “big picture” metric, typically used to measure effectiveness of an entire project. ROAS, on the other hand, is designed to evaluate specific advertising initiatives and is typically limited to the first day an ad started running, to the last day a resulting user churns out of the app. It’s also calculated differently than ROI, so it’s important not to confuse the two.

How is ROAS tracked?

Of course, to determine such a specific metric, you’ll need to know where users are coming from, how they’re engaging with your campaigns, and how much revenue each segment is generating. That’s where mobile attribution comes in! Mobile attribution is defined by Localytics as “the process of tracking where users learn of your app and connecting them to key actions in their journey towards becoming customers.” In other words, it lets you know what aspects of your advertising campaign are the most successful and which platforms are driving the biggest return on ad spend.

Using a variety of internal tools, such as user agents, IP addresses, and timestamps, marketers can take a deep dive into their engagement stats to determine what ad strategies are driving the most success. Over time, marketers can build up enough data across multiple networks and/or campaigns to make meaningful comparisons between them. By figuring out where your users are coming from, how they interact with various ads, and how they behave after install, you can figure out where and how your advertising budget is best spent.

What is a good ROAS?

Keep in mind that every business is different and marketing pros need to tailor their goals and expectations accordingly. However, there are some guidelines available for those interested in maximizing their ROAS.

According to Disruptive Advertising, a good rule of thumb for ROAS is:

  • If your ROAS is below 3:1, rethink your marketing. You’re probably losing money.
  • At a 4:1 ROAS, your marketing is turning a profit.
  • If your ROAS is 5:1 or higher, things are working pretty good.

Other sources echo the general rule of shooting for a 4:1 return on advertising spend.

Naturally, getting to a successful ratio is easier said than done. There’s no single foolproof way to max out ROAS, but once you’ve calculated this metric and figured out how effective your ad campaign is, you can start looking at other factors.

  • Is your messaging consistent across all platforms?
  • Are the ads optimized for mobile and desktop?
  • Is your timing on point or are you missing out because your advertisements are being broadcast during low traffic times like holidays?

In one case study, marketers tested A/B landing page variants to see which approach consumers responded to, eventually taking their conversion rates from 12% to 20%. Again, every company and every campaign is different, but good marketing pros will be able to work with your brand and raise that ROAS.

Measuring the success of advertising campaigns can be intimidating, but knowing what metrics to look for goes a long way towards turning a profit. Want to know more about ROAS and successful ad strategies? The marketing pros at Tapjoy are ready to help with all of your engagement and monetization needs.

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