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The digital marketing glossary > R > What is ROAS definition?

What is ROAS definition ?

ROAS stands for Return On Ad Spend. ROAS is not specific to digital marketing as it has been used for a long time in traditional offline marketing.

However, ROAS is often encountered in digital advertising due to tracking capabilities up to conversions and sales.

ROAS is the most often estimated by comparing ad spend with incremental sales due to the campaign. If a $10 000 advertising campaign generates $20 000 in sales the ROAS is 200% (or 100 % according to an other point of view based on the direct net "benefit" of the campaign which is $10 000).

It can be a shortsighted calculation as it is commonly not profitable to spend $10 000 for a $10 000 lift in sales. In fact, it can be only profitable if the sales come from new customers with a good life time value (LTV) or if it is a digital product.

Therefore, ROAS should be most often estimated by comparing ad spend with overall margin due to incremental sales.

An other limit related to ROAS is that the lift in sales is not always real incremental sales (it is possible that somes of the sales would have occurred without the campaign).

Of course, digital marketing vendors almost always prefer to use ROAS based on new sales for sales pitches and case studies.

Published on Sunday 13 January 2013 (Authors)