ROAS

The ROAS acronym stands for return on ad spend. The formula is revenue divided by advertising spend, expressed as a ratio or a percentage. Platform dashboards report it per campaign and per channel, and many plans are still compared on it.

Three things limit what platform-reported ROAS says. It is attributed: the revenue is what the platform’s tracking tied to a click or an impression, so several platforms can claim the same sale, and customers who would have bought anyway are counted. It is an average: revenue over all the spend, including the euros that were spent when the channel was fresh, so a saturated channel keeps reporting a healthy ROAS long after the next euro stopped earning it. And it is per platform: each one measures on its own and their attributed sales overlap, and ratios do not add up in any case: a total ROAS needs revenue counted once over total spend.

To increase ROAS is therefore not the same as to increase revenue: cutting a channel to its most efficient core raises its average return while the business loses the sales the cut euros were making. The number a plan moves budget on is a different one: marginal incremental ROAS, which restricts revenue to the sales the advertising caused and reads the return on the next euro rather than on the average. On any saturating response curve, the marginal return is below the average.

Platform ROAS still has a place, for optimising inside a channel, read as attributed rather than incremental. Cross-channel measurement comes from a media mix model calibrated with experiments. What that looks like for a brand is on the page for brands.