Reviewing Ad Profitability: ROAS – Metrics Part One

ROI also known as ROAS (Return on Ad Spend) is just one important metric to monitor to make sure your AdWords advertising plan is working for you. The formula for ROAS is shown below:

((Sales less AdWords Spend) divided by AdWords Spend) times 100

This yields a percentage that is an important figure to keep in mind when you evaluate if a Google AdWords budget is working properly to yield a return for your business.

If your ROAS is above 1% you are creating more sales than your expense to advertise. Here’s and example. A typical sale generates $4,800 of income. You spent $400 on AdWords to generate the sale, your ROAS is 11%. If your typical sale generates $4,800 of income but you spent $1,400 on AdWords to generate the sale your ROAS is 2.42%.

The subjective part comes when you try to analyze what is a satisfactory number for your ROAS figure. This varies for each business. For most businesses you really should be at a number higher than 1%.

For businesses selling products online, the ROAS is fairly straight forward, but how about when you sell a service or are looking to add a new patient to your practice. In this case, a review of Cost Per Acquisition may be more valuable tempered with a review of ROAS as well. The key is to generate more sales than it costs to advertise to get them. This takes much more analysis than just running reports in Google AdWords,;you really need to measure your AdWords ad spend against reports on your company’s overall profitability to determine if AdWords is really working for you.

Share