In brief: ROAS is the ratio of conversion value attributed to advertising to the cost of that advertising. It is most often calculated as conversion value divided by advertising costs.
How I use ROAS in practice
I use ROAS as an operational view of a paid channel, but always ask which value enters the numerator. Revenue, margin and customer lifetime value lead to different decisions. I also check the attribution window, conversion delays, returns, new versus existing customers and costs outside the advertising account. For automated bidding, conversion values must be sufficiently accurate; otherwise, the algorithm optimises the error very efficiently.
What to watch out for
ROAS is not ROI and does not automatically include margin, agency, creative work or operations. Attributed ROAS is not incremental benefit either. Some people might have purchased without advertising.
Questions for decision-making
- Which value do we send into ROAS?
- Does the result include returns and cancellations?
- How much of the sales would arise even without the campaign?
- Is the target ROAS compatible with margin and capacity?