What, exactly, is ROAS?

Return on ad spend (ROAS) is a measure of the profitability of an advertising campaign. It is calculated by dividing the revenue generated from the campaign by the total cost of the campaign. For example, if a company spends $1000 on an advertising campaign and generates $5000 in revenue as a result, the ROAS would be 5. This means that for every $1 the company spent on advertising, it received $5 in return.

Why is it so hard to measure?

While ROAS is an important metric for businesses to track, it can be challenging to accurately measure due to the various factors that can impact the success of an advertising campaign.

1. Attribution: It can be challenging to attribute sales or conversions directly to a specific advertising campaign, especially if a customer has been exposed to multiple marketing channels or touchpoints.

2. Long sales cycle: For products or services with a long sales cycle, it may take a significant amount of time for the revenue generated by an advertising campaign to be realized. This can make it difficult to accurately measure the ROAS of the campaign.

3. Dynamic pricing: If a business uses dynamic pricing, the price of a product or service may fluctuate based on demand, which can impact the ROAS calculation.

So, what can you do?

There are a few steps that businesses can take to overcome difficulties in measuring return on ad spend:

1. Use tracking and measurement tools: There are a variety of tools and technologies available that can help businesses track the performance of their advertising campaigns and measure the ROAS. These might include website tracking software, foot traffic reports, customer relationship management systems, and marketing analytics platforms.

2. Implement a consistent attribution model: An attribution model is a framework for assigning credit to the various marketing channels and touchpoints that contribute to a sale. By implementing a consistent attribution model, businesses can better understand the role that each advertising campaign plays in driving revenue.

3. Use a combination of short-term and long-term metrics: To get a more complete picture of the ROAS, businesses should consider using a combination of short-term and long-term metrics. This might include metrics like cost per acquisition (CPA) and lifetime value (LTV) to calculate ROAS.

4. Test and optimize campaigns: By continually testing and optimizing their advertising campaigns, businesses can improve the ROAS and identify the factors that are most impactful on campaign performance.

5. Collaborate with teams: In order to accurately measure the ROAS of an advertising campaign, it is important to have a strong level of collaboration between the marketing, sales, and finance teams. By working closely together, these teams can ensure that they have the necessary data and insights to accurately measure the ROAS.

Overall, by implementing tracking and measurement tools, adopting a consistent attribution model, using a combination of short-term and long-term metrics, testing and optimizing campaigns, and collaborating with teams, businesses can overcome difficulties in measuring return on ad spend and make more informed decisions about their advertising efforts.