What is ROAS? How to Calculate and Increase?

ROAS is used as a short term of “Return On Advertising Spend”. Measuring the return on your advertising costs shows how effectively you spend on advertising. In the simplest definition, if you provide a return of 50 TL for an advertising spend of 100 TL, you can say that your advertising work does not earn you enough income.

ROAS, one of the most popular calculations followed in the digital advertising world, refers to the ratio of your total advertising expenditures to your total revenue. For example, if you earn 10 TL for every 1 TL you cost for your advertising spend, your ROAS will be 10. In other words, if you spend only 10 TL on advertising for every 100 TL of revenue, your ROAS is 10.

Also it is called conversion value-to-cost ratio, this term tells you how your earnings compare to your ad spend. The most important point to note at this point is that not every business can achieve the same profitability with the same ROAS value. Regardless of this value, your gross margin and other variable costs will also affect the return on your ad spend.

How to Calculate ROAS?

There is no single figure to measure the return on ad spend. While some businesses can make profits at very low ROAS values ​​relative to their gross profit margins, some businesses may earn higher profits because their costs are high and their profit margins are lower. The following methods can be used to calculate this value.

• Profit Margin

The most important factor affecting your ROAS is your profit margin. For example, if you are operating with a 50% margin, you should have at least 2 ROAS. This value should increase inversely as your profit margin decreases. In the simplest terms, for a service/product you sell with a higher profit, you can make a profit with a lower return rate, but in cases where you make a lower profit, you will need higher return rates.

• Average Order Amount

Your average order amount is another metric you can use to calculate ROAS. For example, if your average order amount is 100 TL and you pay a fee of 50 cents per ad, a return rate of 0.5% will allow you to easily reach 1 ROAS.

How to Increase ROAS?

You want your advertising cost to be much lower than your ad revenue. There are quite a few things you can optimize to achieve this. Regardless of how high your ROAS value is, improving the points we will talk about can lead to higher advertising returns.

- Make sure your site works fast and in a mobile-optimized way.

- Improve your ad text and choose an eye-catching image.

- Make a call-to-action, called CTA, an incentive for people who see your ad.

- Extract keywords with very low conversion rate from your ads.

- Improve quality by optimizing ad relevance and expected click-through rate.

- Take advantage of automatic bidding options.