Basics · also called ROAS, return on ad spend
ROAS (return on ad spend)
ROAS (return on ad spend) is the revenue generated by advertising divided by the money spent on that advertising, usually shown as a ratio like 4:1 or 400%.
ROAS measures how many units of revenue each unit of ad spend brought back. If you spend US$1,000 and attribute US$5,000 of sales to it, your ROAS is 5, often written 5:1 or 500%.
ROAS is the favourite metric of e-commerce and retail media buyers, and platforms offer "target ROAS" bidding that pushes spend toward auctions likely to bring higher-value orders. It differs from ROI (return on investment), which subtracts all costs, including product costs and margins. A campaign can show a healthy ROAS and still lose money if margins are thin.
The biggest caveat is attribution. ROAS usually counts every sale the tracking credits to the ad, including people who would have bought anyway. Incrementality tests and lift studies often reveal that true incremental ROAS is much lower than the platform-reported figure. Fraud such as attribution fraud and cookie stuffing can also inflate ROAS by stealing credit for organic sales.
Think of it like this
ROAS is like counting how many rupees come back into the till for every rupee you spent printing flyers, without yet subtracting what the goods themselves cost you.
An example
A fashion retailer in the UK spends £20,000 on shopping ads and attributes £90,000 of revenue to them. ROAS = 90,000 ÷ 20,000 = 4.5 (450%).
Related terms
CPA (cost per acquisition)
CPA (cost per acquisition) is the average advertising cost of getting one desired action, such as a sale, sign-up or app install, and also a model paying only for those actions.
Attribution
Attribution is the process of assigning credit for a conversion, such as a sale, sign-up or install, to the ads, channels or touchpoints that a customer encountered beforehand.
Incrementality
Incrementality is the extra result, such as sales, installs or visits, caused by advertising that would not have happened without it, usually measured by comparing exposed and unexposed groups.
Conversion
A conversion is a valuable action that an advertiser wants people to take after seeing or clicking an ad, such as a purchase, sign-up, app install, call or form submission.
KPI
A KPI (key performance indicator) is the specific, measurable metric an advertiser or publisher chooses in advance to judge whether a campaign or business is succeeding.