What is ROAS?
Return On Advertising Spend (ROAS) is a revenue-based metric used to calculate the efficiency and performance of digital advertising spend. In the mobile world, this often refers specifically to the amount of revenue generated by in-app purchases, advertising impressions, and app subscriptions. This revenue is often measured across user segments, or specific groups of users known to have been acquired through advertising networks or campaigns. By grouping users according to their source, recording the cost associated with acquiring them, and subtracting it from the revenue they’ve generated, mobile marketers are given a clear look into how their choices impact the company’s bottom line.
Knowing your ROAS is an important part of any modern marketing campaign. If your return on ad spend is meeting or exceeding expectations, it’s a good indicator that your strategy is paying off. On the other hand, a low ROAS is a sign that something’s not working and needs to be retooled.
How to Calculate ROAS
ROAS is calculated by dividing the amount of revenue generated by an ad campaign with the amount spent on that ad campaign. For example, if a recent advertising campaign brought in $10,000 after spending $2,000 on ads, that’s an $8,000 or 500% return on that investment. It’s often written as a ratio, which in this case would be 5:1. For every dollar spent on advertising, five dollars were generated in revenue.
Typically, for mobile user acquisition campaigns, that revenue is calculated by looking at either the in-app purchases made or ad revenue generated by a user acquired through an ad campaign. Positive ROAS that is in line with other app metrics like user retention and ad revenue indicates a healthy ad performance.
Engaging ad units such as playable ads and rewarded video ads can sometimes lead to better ROAS, since the users acquired through these ads have had a chance to test drive the app before installing, and therefore are more likely to stick around for the long-term, making in-app purchases and watching ads.