Glossary
Mobile App Terminology simply explained

What Is ROAS?

ROAS stands for “return on ad spend.” This metric helps marketers to measure exactly how much advertising is contributing to the bottom line. Tracking return on ad spend across campaigns and ad platforms thus allows marketers to measure, evaluate, and compare the effectiveness of their advertising efforts.

To calculate ROAS, you must look at the revenue a marketing activity generates in relation to its costs.
Key Takeaways
  • Establish a target ROAS before launching a campaign
  • Improve your ROAS by maximizing your revenue or reducing your advertising costs
  • Use ROAS to support campaign budget changes and invest in the right advertising channel

Why Is Return On Ad Spend Important?

If you are an app developer or mobile marketer, you have probably heard of the term “ROAS.” 

ROAS is the leading KPI that shows how much money your advertising is generating. It also helps you forecast whether your efforts are on the right track. Your return on ad spend should help you 

  • support ad spend increases and campaign budget changes
  • invest in the right ad channel
  • determine the best-performing ad campaigns
  • generate a benchmark average for your ads to use for future calculations

If you don’t monitor your return on ad spend, you won’t know whether your advertising investment is paying off or if you need to make changes to sustain growth.

How Is ROAS Calculated?

It’s critical that you know how to calculate ROAS. Luckily, this is a simple formula.

Take the revenue generated by your advertising activity and divide it by the cost of that advertising activity. 

Return on ad spend = Revenue generated by channel or campaign ÷  the spend of the channel or campaign (advertising cost)

How Should You Track Your Return on Ad Spend?

Once you know how to calculate ROAS, you – as a user acquisition manager can use the ROAS formula to ensure that they’re on track after Day 3, 7, 14, and 30 – for example.

By evaluating how the performance appears on each cohorted day, marketers can then make calculated decisions about which channels to invest more in, continue investing in, or reduce their investment. For example, if, after a certain number of days, app advertisers realize that their return on ad spend is not improving, they might pause a campaign or reduce the CPI. If they are getting good results from a certain campaign, however, they may increase the bids for the campaign to acquire more users.

What Is a Good ROAS?

A ROAS can be considered reasonable by putting it in perspective of 3 criteria:

  • The generated margin
  • Operating or marketing campaign expenses
  • The general health of the company

Although there isn’t a one-size-fits-all answer, there is a standard criterion for estimating a good ROAS, as mentioned before. It must approach or exceed a ratio of 4:1 ($4 in revenue for $1 in advertising expenditure). If your return on ad spend is 5:1 or higher, things are working pretty well.

It also varies depending on the size of the business: cash-strapped indie gaming studios may need higher margins, while public mobile gaming companies committed to growing may afford higher advertising costs.

How Can I Improve My ROAS?

Let’s keep things simple: Here are three ways to improve your return on ad spend.

1. Increase the CPI

To maximize your revenue, advertisers may consider increasing their CPI to reach more engaged users.

One way to quickly increase the visibility of a campaign is to increase the CPI to help improve its campaign ranking. This often results in advertisers engaging with higher-quality users, as they are connecting with users first – before their competitors.  

2. Optimize Your Advertising Costs

You can do this by segmenting campaigns by user demographics and thereby optimizing your spend. By observing which users perform better than others, you can create more targeted campaigns, increasing the bids for quality users and decreasing the bids for lower-quality users or excluding them from the campaign. 

Alternatively, you could also reduce the cost of all of your campaigns in order to get quality installs at a lower price. Just as increasing the CPI might help you maximize your revenue and visibility, decreasing your CPI can help you increase your overall ROAS.

3. Use Post-Install Events

Post-install events help account managers better optimize an advertiser’s campaign strategy to maximize their return on ad spend.

Conclusion

ROAS is undoubtedly one of the best metrics for determining whether your online marketing is working to increase your income. It is relatively easy to calculate. The results obtained, especially when used in tandem with adjoe strategies,  can help you transform a business barely reaching the break-even point into one with extremely profitable digital marketing campaigns. To sum up, ROAS helps mobile marketing companies evaluate which methods work and how they can improve future advertising efforts.

FAQs


How to Calculate ROAS?

Knowing how to calculate ROAS is important. All you need to do is to divide your total revenue by the costs associated with your marketing activity.

What Is ROAS?

“ROAS” is an acronym that stands for “return on ad spend.”

What Is a Good ROAS?

A good ROAS ratio varies depending on the size and needs of your business, but most marketing analysts agree that 1:4 or 1:5 is the ideal ROAS.

What Is the Difference between ROI and ROAS?

Return on ad spend looks at revenue – not profit – and takes into account only direct spend, not other costs associated with a marketing campaign. ROAS is the best metric to determine if your ads are effectively generating impressions, clicks, and revenue. However, unlike ROI, it says nothing about whether your paid advertising is actually profitable for the business.

Return on investment looks at the total investment, including staff, tools, and other expenses.



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