Return on Ad Spend = Gross Sales/Marketing Spend
Return on Ad Spend (ROAS), in the context of e-commerce, is a marketing metric that measures the gross revenue generated for every dollar spent on advertising. It is calculated by dividing the revenue generated from ads by the ad spend cost. Most e-commerce businesses use this metric as it provides insights into the effectiveness of their advertising campaigns.
However, ROAS has its limitations when used in isolation. For instance, it does not consider the profitability of the products sold. A high ROAS does not necessarily translate to high profits if the products sold have a low profit margin. Moreover, ROAS does not account for other costs of shipping an order, such as fulfilment, and returns. Therefore, focusing solely on ROAS without considering net profit can overestimate the actual return from advertising spend. It's crucial for businesses to balance maintaining a strong ROAS with managing their overall profitability.
To help with all this, Dema connects all your data and can offer better alternatives, such as epROAS, an accurate version of Profit ROAS.