The role of ROAS in your B2B marketing strategy

What is ROAS?

ROAS stands for Return On Ad Spend. It answers the question: if I invest one euro, how much do I get back? ROAS is expressed as a number and shows the ratio between conversion value and advertising costs. 

Example: a ROAS of 3 means that every euro invested generates 3 euros. Sometimes you'll see this expressed as a percentage - in this case 300%. 

Why is ROAS important?

ROAS shows how profitable your ads are. When you manage campaigns on ROAS, you can better judge which efforts are profitable. You can optimise campaigns on this metric, so every euro is spent as efficiently as possible. 

Conversion value

Conversion value indicates what a conversion is worth. The marketer sets it for each conversion. If the conversion 'buy product' has a selling price of 100 euros, the conversion value is 100 euros. Note: this is revenue, not profit. 

Sometimes the conversion value is easy to determine - think of product prices. But often it is harder, for example with lead generation. What is a quote request or a completed contact form worth? Think this through carefully, because it determines whether your ROAS calculation is correct. 

How do you calculate ROAS?

Once you've determined the conversion value, calculating ROAS is simple: you divide the conversion value by the advertising costs. 

Example: you spend €10,000 on a Google Ads campaign and it generates €40,000 in conversion value. ROAS = 40,000 / 10,000 = 4. Every euro generates four euros. 

What is a good ROAS?

A good ROAS differs per product and depends on your profit margin. Small profit margin? Then you need a high ROAS to break even. Large profit margin? Then you can make do with a lower ROAS. 

Example: you sell a €100 product with a 10% profit margin (€10 profit). With a ROAS of 2, you spend €50 on advertising for €100 in revenue. Your profit is €10, but your advertising costs are €50. You lose €40 on every sale. 

With a 50% profit margin (€50 profit) on the same product, you break even exactly at a ROAS of 2: €50 profit against €50 in advertising costs. 

Map out your profit margin. Only then can you set a meaningful target ROAS. 

The outcome of ROAS

ROAS tells you something about the short-term results of your investment. It doesn't take customer lifetime value into account. Don't let everything hinge on ROAS, but do use it to manage campaigns. The most important outcome: determining whether your ads are profitable. 

Managing campaigns on ROAS

If you want to manage a campaign on ROAS, pay attention to these points. Make sure conversion tracking is set up correctly through Google Tag Manager or Google Analytics. Determine the right conversion value and pass it along with every conversion. Pay close attention to your cookie consent settings in line with the GDPR. 

Ready to start managing on ROAS too?

We hope that after reading this blog you know a little more about ROAS and how to use it for your campaigns. Need extra support using ROAS for your business? We can help! We support you from strategy to execution.