How to Project Your Return on Ad Spend (ROAS)
Calculating your ROAS is simple. ROAS is revenue generated by ad spend divided by ad spend. Example #1: $4000 in revenue generated from $1000 in ad spend is $4000 / $1000 = 4 or 400% ROAS. Example #2. $40,000 in revenue generated from $50,000 in ad spend is $40,000 / $50,000 = .8 or 80% ROAS.
Projecting your ROAS is a bit more difficult than simply calculating your ROAS. Projecting your ROAS requires an understanding of a few business and advertising metrics.
Projecting Your ROAS requires the following:
- Advertising Budget
- Average Cost Per Click
- Average Conversion Rate
- Average Conversion Rate from Lead to Customer (for non-ecommerce businesses)
- Average Conversion Value
- Average Lifetime Value
Projected ROAS for ecommerce = Advertising budget divided by average cost per click times average conversion rate times average conversion value divided by project advertising budget. Example #1. ((($10,000 / $5) * .03))*$250) / $10,000 = 1.5 or 150% ROAS. Example #2 ((($5,000 / $2) * .05))*$55) / $5,000 = 1.375 or 137.5% ROAS
Projected ROAS for non-ecommerce = Advertising budget divided by average cost per click times average conversion rate times average conversion rate from lead to customer times average lifetime value divided by project advertising budget. Example #1. (((($15,000 / $20) * .09)*.12)*$12,500) / $15,000 = 6.75 or 675% ROAS. Example #2. (((($25,000 / $25) * .08)*.20)*$6000) / $25,000 = 3.84 or 384% ROAS.
How to Project Your ROAS
Example Data: Dentist. Advertising budget is $5000 a month. Average cost per click $12. Average conversion rate is 7%. Average conversion from lead to customers is 33%. Average lifetime value is $3200. Projected ROAS = 616%
ROAS Calculator Breakdown
Ad Spend – Ad spend is simply how much you spent on advertising. When projecting ROAS ad spend is simply your advertising budget or how much you plan on spending.
Revenue from Ad Spend – This is simply the total amount of revenue generated from your ad spend.
Average Cost Per Click – This is the average amount you spend per click. This can be found in your analytics if you are already running ads. If you are projecting ROAS Google, Facebook and LinkedIn provide average cost per click projections. In Google’s keyword planner we recommend averaging the top of the page bid high and low to get an average cost per click (CPC).
Average Conversion Rate – This is the average conversion rate of your ad traffic into sales. For ecommerce a conversion is anytime someone completes a checkout. For non-ecommerce a conversion is anytime someone completes a form or phone call. This varies by industry and business from <1% to >20%
Average Conversion Rate of Lead to Customer – For non-ecommerce businesses, this is how well your sales team converts a lead into a paying customer. This also varies widely by industry, business and sales team ability.
Average Conversion Value – This is the average amount of revenue generate from the sales of a single product or service. For business with multiple products and services and widely varying prices, you still need to take the average or median value of a single sale.
Average Lifetime Value – For non-ecommerce businesses with recurring products or services, this is the average conversion value times the average length of time a customer stays with you or repeats purchases. If a dentist makes on average $700 a year from each patient, but patients stay for an average of six years. Then the average lifetime value of a patient is $4200.
ROAS – Revenue generated from ad spend divided by ad spend.
Projected ROAS of eCommerce – Advertising budget divided by average cost per click times average conversion rate times average conversion value divided by advertising budget.
Projected ROAS of Non-eCommerce – Advertising budget divided by average cost per click times average conversion rate times average conversion rate from lead to customer times average lifetime value divided by advertising budget.
