By Ada Barlatt
Return on Ad Spend (ROAS) can be a positive or negative value (and becomes a percentage when multiplied by 100).
This metric has been “borrowed” from the advertising industry. ROAS has a slightly different meaning when it comes to email marketing (for the advertising industry, the “marketing cost” above would be “advertising cost”).
In general, the HIGHER the ROAS, the better. However, a high ROAS doesn’t mean profits. ROAS only considers marketing costs and doesn’t consider other costs associated with delivering a product or service. Return on Investment (ROI) measures the profits on the entire process (from marketing through to fulfillment); however, it is much easier to calculate ROAS compared to ROI.
Tips for interpreting ROAS:
Calculating the ROAS can help you understand how your marketing efforts are driving sales. When using ROAS, it is vital that you only consider the revenue generated (attributed) to the marketing costs considered. For example, you could look at the total marketing spend across an entire channel (and the total attributed revenue to that channel). Alternatively, you can look at the ROAS for a specific campaign (and the attributed revenue to that campaign). When you use ROAS, you must be able to track (1) the marketing costs and (2) the campaign that receives credit (“attribution”) for driving each sale.
In summary, you use ROAS to help:
- evaluate the effectiveness of a single email marketing campaign
- evaluate the effectiveness of the email marketing channel
- compare email marketing campaigns
- Note: ROAS does not consider the duration of a campaign, so it is important to use the metric in conjunction with the others to get a full picture.
Attribution is a key part of calculating ROAS. Learn more about how attribution works in Email Marketing here: Attribution and ROI, Attribution Attribution Attribution: Calculating the effect of Email on other channels and The Challenges of Attribution in Email Marketing.