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What is ROAS in Digital Marketing?
The first thing to discuss is the definition of special database ROAS itself. ROAS stands for Return on Ad Spend , which is a calculation metric to measure how effective your digital ads or campaigns are. ROAS shows the ratio of revenue to costs spent on advertising.
By calculating ROAS, you can find out whether the ads or campaigns that are displayed are efficient or not. The ROAS metric is calculated by looking at how much advertising costs you spend compared to the revenue generated from the ads.
ROAS can help you find out the performance of digital campaigns run by the company. That way, digital campaign strategies can be made more effective and efficient.
In short, ROAS can help you understand:
Whether your digital advertising strategy is profitable or detrimental.
Which ad is the most efficient. Aka, the ad that generates the most profit for the least cost.
Make wiser and more effective advertising budget allocations.
The Importance of ROAS in Online Advertising
So, how exactly does ROAS play a role in digital marketing practices, especially for online advertising calculations ? Let's review it further in this section.
1. Measuring Advertising Profits
The main thing that is important for ROAS to be applied in advertising is to measure the profit obtained from the results of the advertisement. According to its definition, ROAS is a matrix that can show the amount of expenditure and income when advertising. That way, you can find out how much difference or profit is generated.
2. Measuring Advertising Effectiveness
Another reason why ROAS is important to implement is to measure the effectiveness of advertising. If you advertise by calculating ROAS, you will get an idea of whether the advertisement issued is effective or not.
3. Provide a More Efficient Budget
In addition to measuring the effectiveness of ads, calculating ROAS in each ad can optimize the budget to be more efficient. That way you can be wiser by allocating the budget to ads or campaigns with higher ROAS. And conversely, you can stop allocating the budget to ineffective ads.
4. Helps the Decision Making Process
The implementation of ROAS gives you accurate information about the effectiveness of your ads. This can be an evaluation material and help you make strategic marketing decisions in the future.
5. Become a Long-Term Measuring Tool
The last and no less important reason why you should implement ROAS is for long-term measurement. The long-term impact of your ads can be seen by monitoring ROAS over time.
How to Calculate ROAS and Examples
The ROAS calculation method is generally quite simple. The method is to compare the income from the digital campaign with the cost of expenses.
ROAS = Revenue / Cost
In this case, revenue is the total gross income earned from purchases generated directly by ad impressions. While cost is the cost you pay for the ad.
But even though it is easy to understand in theory, the practice may be more complicated than expected. You need to understand the concept of income itself well, and calculate what is included in it. Some aspects that can be included in income or revenue are leads obtained and product purchases.
