Software and internet platforms
ROAS (return on ad spend)
Revenue earned for each unit spent on advertising.
Facts checked against sources onWhat does ROAS (return on ad spend) mean?
Return on ad spend is the revenue that can be traced to an ad campaign divided by what the campaign cost. Example: spending 10,000 on ads that lead to 45,000 of sales gives a ROAS of 4.5, often written 4.5x or 450 percent. ROAS uses revenue, not profit. With a 30 percent gross margin, those sales bring 13,500 of gross profit, so the campaign earns more than it cost; with a 20 percent margin they bring only 9,000, and the campaign loses money. Break-even ROAS is 1 divided by the gross margin. Retail media networks, where retailers sell ads to brands, report ROAS to their advertisers.
Where does it come up in case interview prep?
- Marketing return: CAC, payback, incrementality, and why last-click credit misleadsLesson in Customers and growth: the economics of marketing
- How internet platforms, marketplaces, and digital ads workLesson in Internet platforms, marketplaces, and digital advertising
- Platform unit economics: contribution per order and ad revenueLesson in Internet platforms, marketplaces, and digital advertising
Related terms
- CPC (cost per click)The price an advertiser pays each time someone clicks an ad.
- CPM (cost per thousand impressions)The price an advertiser pays for 1,000 views of an ad.
- CAC (customer acquisition cost)What it costs, on average, to win one new customer.
- Gross profit and gross marginRevenue minus the cost of goods sold, as an amount or a percent.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Annual recurring revenue (ARR)The yearly value of all active subscription contracts at a point in time.
- Net revenue retention (NRR)How much recurring revenue a group of existing customers brings in a year later.
- CAC payback periodHow many months of gross profit it takes to earn back the cost of winning a customer.
Learn it in context
See ROAS (return on ad spend) at work in a lesson from Customers and growth: the economics of marketing, with checks as you go.
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