What is ROAS (meaning)
Senior SEO-specialist
Of course, you want your ad campaign to be as effective as possible. The ROAS is one of the methods by which this is possible. Curious about the meaning of ROAS and how it works? Here I discuss this concept in detail.
What is ROAS?
ROAS is a method for determining the effectiveness of a campaign. ROAS stands for Return On Advertising Spend. This method makes it easy for a company to determine which approach is effective and how it affects its online marketing strategy.
So with the ROAS, you indicate how much you earned for each euro of investment in the ads.
Heights of ROAS and is this healthy?
Return on ad spend (ROAS) is a marketing measure used to measure the effectiveness of an online ad campaign. ROAS helps online businesses determine which methods are effective and how to improve.
However, it is important to note that what is considered a “good” ROAS can vary greatly depending on the industry, business type, purpose of the campaign, type of product or service, and other factors. Below is a general classification that can help you assess how your ROAS is performing. (1)
| ROAS | Description |
|---|---|
| 1:1 or less | Low – you earn less or equal to what you spend on ads. This means your ad campaign is not profitable and there is room for improvement. |
| 2:1 to 5:1 | Average – this is often seen as a “break-even” point for many companies, especially in high-cost and/or highly competitive industries. Although it shows that you earn more than you spend, you should still strive to improve. |
| 5:1 and above | High – this is generally considered an excellent ROAS. It means that you earn significantly more than you spend on ads, indicating a very effective ad campaign. |
Please note that these figures are only general guidelines. Depending on your company’s margins and operating costs, a “good” ROAS may look different to you.
Calculating the ROAS is how you do it
ROAS gives you a ratio of revenue to cost of an Internet marketing campaign. With ROAS, you calculate how much ad money generates revenue for the business. The higher the ROAS, the better. You calculate the ROAS as follows:
ROAS = (Total conversion value – Total ad cost)/ Total ad cost
Suppose: with 30 orders through the webshop, the revenue (the conversion value) totals €2000. You’ve invested €100 in a Google Ads Campaign. You then calculate the ROAS like this:
ROAS = (2000 – 100)/100 = €19
Thus, every euro invested in your campaigns yields €19. If the ROAS is lower than 1, then you spend more on ads than it brings you.(2)
The impact of ROAS on SEO
The ROAS helps to set up your campaigns in a profitable way. This does mean that your campaign must be in order and, in addition, your website must be running well. A good ROAS certainly impacts the SEO of your website, but vice versa, a good SEO is also indispensable for a successful ad campaign.
What is a good ROAS for an SEO campaign
Determining a good ROAS for an SEO campaign is a little trickier than for other campaigns. Some characteristics of an SEO campaign are namely:
- Growth is more difficult to predict.
- Growth is often not linear with SEO.
- You don’t lose existing positions the day you stop investing in SEO.
- SEO increases the intrinsic value of a business (passive income).
- You cannot measure only your direct sales, in such kind of calculations I always calculate with the lifetime value of an average customer (from SEO).
Suppose, as an organization, you embark on a €2,000-a-month trajectory and do so for 24 months. You may not get over that €2,000 with revenue from organic traffic for 6-8 months.
The TVT of such a trajectory will then be somewhere around 12 months if growth continues, but the real impact you have made is much greater, as the existing positions you have achieved often remain (if you do it right).
Important in these calculations is to make sure that all Google Analytics data is correct.
And what is a good ROAS for an SEA campaign?
Calculating a good ROAS for an SEA campaign is a little easier than calculating a good ROAS for an SEO campaign. For a good ROAS for an SEA campaign, I use the following.
- What is actually the profit per product (and not revenue, revenue is nice, but not a reflection of the bottom line).
- What is your exact CPA (cost per acquisition)?
- When you stop paying Google, you also lose your positions. Here you can’t include additional intrinsic value like SEO.
- The existing customers you get provide a higher average lifetime value than just the initial purchase.
With an SEA campaign, you as an organization can better predict what you put in and what you get out. Here it is often in theory that your marketing spend per new customer should be about 1/3rd of lifetime value (profit). So if you want to frame a ROAS a little more “aggressively,” it is possible to go above this.
This will provide growth/acceleration in obtaining customers. If, as an organization, you are below this, it will cause growth to slow down (then, in theory, you can go faster or increase cost per acquisition).
My advice
There are several ways to optimize your website’s e-commerce, and ROAS is one of them. While ROAS is not all-important, it is certainly smart to look into this. We recommend using ROAS as a starting point for your campaign. This allows you to drive profits directly, get clarity quickly and have the ability to optimize conversions. ROAS allows you to calculate the costs and revenues of a campaign as part of your online strategy.
- Create a Performance Max Campaign. (s.d.). Google For Developers. https://developers.google.com/google-ads/api/performance-max/create-campaign
- Elem, O., & Loo, W. B. (2024, Jan 18). ROAS calculator. https://www.omnicalculator.com/finance/roas
Frequently Asked Questions
What is ROAS?
ROAS, Return On Advertising Spend, is a particular method by which you can measure the effectiveness of a marketing campaign. Using the ROAS method, you can easily determine which marketing activities are having an effect and their impact on the marketing strategy.
What is the impact of ROAS on SEO?
The ROAS method supports you to create effective marketing campaigns. For this with you do have an optimized website. So we can say that ROAS does have some impact on SEO.
