Return on ad spend (ROAS) measures the effectiveness of advertising spend in generating revenue, helping businesses make informed decisions about their advertising strategies.
But understanding average ROAS by industry is no simple feat. Measuring it accurately requires companies to share sensitive data—specifically, how much they spent on Google Ads and how much revenue it generated, which isn’t always publicly available.
Because of these data limitations, industry-specific ROAS benchmarks can be elusive. However, a general benchmark of 200% (2:1 ratio) has proven to be a reliable indicator of success in Google Ads. This blog explores these benchmarks and the elements that influence ROAS calculations and offers insight into setting your own ROAS goals.
What is ROAS and How to Calculate It
ROAS Formula
The ROAS formula is straightforward:
ROAS=Total Ad RevenueTotal Ad Spend\text{ROAS} = \frac{\text{Total Ad Revenue}}{\text{Total Ad Spend}}
If you want to calculate ROAS as a percentage, simply multiply the result by 100:
ROAS=(Total Ad RevenueTotal Ad Spend)×100\text{ROAS} = \left(\frac{\text{Total Ad Revenue}}{\text{Total Ad Spend}}\right) \times 100
For instance, if a campaign brings in $10,000 in revenue from $5,000 in ad spend, your ROAS would be:
ROAS=10,0005,000=2 or 200%\text{ROAS} = \frac{10,000}{5,000} = 2 \text{ or } 200\%
Interpreting ROAS Percentage
To make a profit, your ROAS must exceed 100% (or a ratio of 1:1). If your ROAS is 100%, your revenue matches your ad spend, meaning you’re breaking even. If your ROAS is below 100%, you’re essentially losing money on advertising. For most industries, a ROAS of at least 200% is considered good, as it means you’re generating $2 for every $1 spent on ads.
3 Key Considerations for Calculating ROAS in Google Ads
When using ROAS (Return on Ad Spend) calculators, it’s easy to get quick results, but there are some critical factors to consider for accurate calculations. Here’s what you need to know:
1. Include All Advertising Costs in Your ROAS Calculation
When calculating ROAS, many businesses only include their monthly ad spend—the amount paid directly to advertising platforms like Google Ads. While this number is essential, it doesn’t account for additional advertising-related expenses that impact the true cost of running campaigns.
For example, costs can include:
Bid Management Tools: Software used for optimizing your ad bidding strategy.
Landing Page Design Services: The cost of designing and optimizing pages to drive conversions.
Employee Salaries: Time and resources spent managing campaigns by in-house staff or external agencies.
Whether to include these expenses depends on your specific situation. For instance, bid management tools solely serve your ad campaigns, so including them in ROAS calculations makes sense. Employee salaries, however, may cover a broader range of responsibilities beyond PPC, so they could be excluded if not directly tied to ad management.
By accounting for all relevant costs, you’ll gain a clearer picture of your ad performance and profitability.
2. ROAS Focuses Only on Revenue Generated from Advertising
ROAS specifically measures the revenue driven by advertising campaigns, such as Google Ads. For ecommerce businesses, this works well since transactions directly link to ad campaigns. However, for lead-generation businesses, this approach can sometimes result in misleading metrics.
To address this, Google Ads offers conversion actions, which allow businesses to define and track non-monetary events such as quote requests or form submissions. These conversions can be assigned a monetary value, such as $250 for a qualified lead, giving you a better way to quantify ad campaign results.
By leveraging conversion actions, you can measure and optimize ad performance more accurately, especially if your business model isn’t centered on direct online sales.
3. ROAS and ROI Are Not the Same
While ROAS and ROI (Return on Investment) sound similar, they measure different aspects of your business performance:
ROAS focuses on your advertising performance by showing the return generated directly from ad campaigns.
ROI evaluates your overall business profitability, taking into account all expenses and revenues.
ROAS provides a closer look at the success of specific campaigns, ad groups, or ads, helping you optimize advertising strategies. On the other hand, ROI offers a broader perspective on how your advertising efforts impact your overall business success.
If your primary goal is to assess the efficiency of your advertising efforts, ROAS is the metric to use.
Industry Benchmark for Google Ads ROAS
General ROAS Benchmark
The 200% benchmark for Google Ads means a business earns $2 for every $1 spent. This figure is based on the overall performance of businesses that use Google Ads, reflecting what most businesses consider a “profitable” return. For companies aiming for more ambitious ROAS targets, understanding industry benchmarks can be helpful, even though they can vary.
Example Calculation
Suppose your company spends around $9,000 to $10,000 monthly on Google Ads and generates approximately $18,000 to $20,000 in revenue from those ads. Applying the ROAS formula:
ROAS=18,0009,000×100=200%\text{ROAS} = \frac{18,000}{9,000} \times 100 = 200\%
This outcome aligns with the general Google Ads benchmark, suggesting your campaigns are meeting the industry standard.
The Challenge of Measuring ROAS by Industry
Data Limitations
One of the primary reasons it’s difficult to provide an average ROAS by industry is that most companies don’t disclose specific ad spending or revenue data. Without a diverse sample size from various businesses, particularly large and small, industry-specific ROAS benchmarks can lack accuracy.
Impact of Inaccurate Benchmarks
Publishing inaccurate ROAS data can lead businesses to make flawed decisions. For example, if a benchmark is set unrealistically high, companies might overspend or make inefficient campaign changes, ultimately hurting their performance. As a best practice, businesses should aim for a baseline benchmark like 200% until they have data that justifies a higher target.
Recommendation
Since specific industry averages may be hard to determine, sticking to the general Google Ads benchmark of 200% is a reliable starting point. Use it to gauge campaign effectiveness until you gather more precise data to set realistic targets for your business.
What is a Good ROAS for Google Ads?
General Goal for ROAS
Achieving a 200% ROAS is great, but going beyond the average is even better. Many companies set a “good” ROAS target at 400%, or a 4:1 return on ad spend. This higher target indicates more profitability and gives you more budget flexibility for further advertising investments.
Ambitious Goals
In some cases, businesses aim to generate even higher returns. For instance, Google has noted that companies focusing on the Google Search Network can see returns as high as $8 for every $1 spent, especially in high-intent markets.
Google Search Network Emphasis
The Google Search Network displays ads directly within search results, making it ideal for businesses wanting to capture search intent. This makes it a valuable platform for businesses targeting ambitious ROAS goals, such as 400% or more.
Key Factors in Calculating ROAS Accurately
1. Include All Advertising Costs
When calculating ROAS, businesses should consider not only direct ad spend but also related costs like:
- Bid management tools (software that automates ad bidding processes).
- Landing page design services (optimizing landing pages to increase conversions).
- Employee salaries (especially for team members focused solely on ad management).
2. ROAS Only Measures Ad-Generated Revenue
ROAS focuses exclusively on the revenue generated from advertising, which can be challenging for lead-based businesses to measure accurately. For example, if a business tracks leads instead of purchases, using ROAS alone may not provide a comprehensive view of its advertising effectiveness.
Using Google Ads’ conversion actions allows businesses to assign monetary values to non-purchase actions, such as quote requests or appointment bookings, making ROAS more accurate for service-based industries.
3. ROAS vs. ROI
Although they’re related, ROAS and ROI differ:
- ROAS measures the revenue generated specifically from advertising efforts.
- ROI considers the total return on an investment, factoring in all associated costs.
ROAS helps companies identify the most effective ad campaigns, while ROI offers a more comprehensive view of the marketing budget’s impact on overall profits.
Using a ROAS Calculator
Purpose of a ROAS Calculator
A ROAS calculator simplifies the calculation process, allowing businesses to instantly see if their ad campaigns are profitable. Many online calculators only require inputs for ad spend and revenue, making it easy to use for marketers and business owners alike.
How to Use
Simply input your ad spend and ad revenue for the desired period (e.g., monthly) into a ROAS calculator, and the tool will compute your ROAS percentage, showing your campaign’s effectiveness.
Next Steps
If your ROAS results are lower than desired, you may need to reevaluate your Google Ads strategy. Consider adjustments in keyword targeting, ad copy, and audience segmentation to help maximize return. And if you’re uncertain about how to proceed, consulting a Google Ads agency could provide the expertise needed to optimize your campaigns.
FAQs
1. What is ROAS?
ROAS, or Return on Ad Spend, is a metric that measures the revenue generated for every dollar spent on advertising. It’s calculated by dividing total ad revenue by total ad spend, often represented as a percentage.
2. How is ROAS different from ROI?
ROAS specifically measures the return from advertising spend, focusing solely on ad campaign revenue, while ROI (Return on Investment) measures the total return after considering all business expenses, including production costs, marketing, and more.
3. What’s a good ROAS for Google Ads?
A common benchmark for Google Ads is a ROAS of 200% or 2:1, meaning a business earns $2 in revenue for every $1 spent. However, an ambitious goal is often set higher at 400% or more, depending on industry and campaign objectives.
4. Why is it hard to find an average ROAS by industry?
It’s challenging because most businesses are reluctant to publicly share sensitive data like ad spend and revenue. Additionally, without a broad sample size of businesses from various sectors, industry-specific benchmarks could be misleading.
5. How can I calculate my ROAS?
The basic ROAS formula is: ROAS=Total Ad RevenueTotal Ad Spend\text{ROAS} = \frac{\text{Total Ad Revenue}}{\text{Total Ad Spend}}
If you want a percentage format, multiply by 100. For instance, if you earn $10,000 from a $5,000 ad spend, your ROAS is: 10,0005,000×100=200%\frac{10,000}{5,000} \times 100 = 200\%
6. What should be included in the “Total Ad Spend” when calculating ROAS?
Beyond direct ad spend, “Total Ad Spend” can include costs for bid management tools, landing page design services, and any other related expenses. However, adding employee salaries or general overhead costs can depend on your business structure.
Conclusion
Calculating and optimizing ROAS is essential for businesses that want to understand the effectiveness of their ad spend and make data-driven decisions. While industry-specific ROAS benchmarks are hard to come by, a general target of 200% serves as a solid starting point. By aiming for higher goals and understanding the factors influencing ROAS, businesses can improve their ad campaigns and maximize returns.
Whether you’re a small business or an enterprise, knowing your ROAS gives you control over your advertising budget and helps ensure that every dollar spent is working to bring in revenue. Try using a ROAS calculator to assess your campaigns, and don’t hesitate to reach out for expert assistance if you’re ready to elevate your ad strategy.
An avid blogger, dedicated to boosting brand presence, optimizing SEO, and delivering results in digital marketing. With a keen eye for trends, he’s committed to driving engagement and ROI in the ever-evolving digital landscape. Let’s connect and explore digital possibilities together.
