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ROAS is a method with which you can determine the effectiveness of an advertisement. It stands for Return On Advertising Spend.
What is ROAS?
ROAS, or Return On Advertising Spend, gives you a good insight into your online marketing strategies. You want your strategy to have the desired effect and you want to know how to improve it. With ROAS you can easily calculate the yield of your marketing campaign. You divide the revenue by the costs to see what you have earned per euro invested.
Suppose you have a revenue of $2,750 and your costs are $1,050. Then you have earned the following:
Revenue / Costs = Earned amount per euro invested
€2,750 / €1,050 = €2.62
This means that for every euro you bet in the campaign, you will earn €2.62.
What is a good ROAS?
But when is it a good one? It is stated that an average ratio of 4:1 is taken as a guideline. This means that your revenue should be four times greater than your costs. Still, it is difficult to set a general ratio, because it is different for every organization. Some organizations can manage with the average ratio of 4:1, but others need a ratio of 10:1 to survive.
You can calculate the minimum Return On Advertising Spend for any organization by looking at the profit margin. The formula is then as follows: 1 / profit margin = minimum ROAS
ROAS and SEA
SEA marketing is aimed at advertising products or services in order to increase the findability in search engines. To ensure good campaigns, an SEA specialist uses ROAS to determine whether the ad has the desired effect. With this insight, the campaign is optimized to always get the best out of it.
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