Calculating what you are getting back from your advertising has to be one of the most important measures for a client (amazingly this statement is still under debate in certain agencies). However, with ROAS, ROI, true, simplified, complex, CIM definitions vs ICAEW definitions and the new “fashionable” measures agencies appear to introducing at an alarming rate just how do you work it out.
Let’s start with something simple
CPA – Cost Per Conversion, Yes we know technically it should be ”Cost per Acquisition” but that violates the world of accepted marketing acronyms defining CPA as cost per conversion is so much simpler.
So CPA = Total Advertising Cost / Total Conversions
What this is telling you – This is telling you exactly how much each conversion being generated from your marketing is costing you in direct advertising costs.
Easy enough; so let’s add in the brain boggling disclaimer here – We have not, in the interest of the sanity of our many clients reading this, incorporated or even attempted to incorporate conversion attribution in the calculations below; Attribution will be covered in a stand-alone post.
ROI – Return on Investment
Strictly speaking, ROI is calculated as such:
(Profit – Cost) / Cost = ROI
The complications here; what is true cost and what is true profit, the more accurate you are with these the more accurate the ROI.
ROAS – Return on Advertising Spend
Strictly speaking, ROAS is calculated as such;
Revenue / Cost = ROAS
For example, if your sales from PPC are £1,000 (revenue), and you paid £500 (cost) for PPC clicks, your ROAS would be 100%. The sums are included below;
Revenue / Cost = ROAS therefore in the example above
£1000 / £500 = 2.0
ROAS is often given as a percentage so in the example above you get a ROAS = 200%
But we prefer good old fashioned fractions which shows ROAS = 2/1
ROAS is a great place to start for calculating PPC ROI.
What this is telling you – This is telling you that for every pound you spend on advertising not only will you get that pound back but you will get another pound in revenue as well – nice going agency!
AStoR – Advertising Spend to Revenue
Strictly speaking, AStoR is calculated as such:
(1 – (Revenue – Cost) / Revenue) = AStoR
For example, if your sales from SEO are £1,000, and you paid £500 for the SEO service, your AStoR would be 100% the sums are included below;
(1 – (Revenue – Cost) / Revenue) = AStoR therefore in the example above
(1 – (£1,000 – £500) / £1,000) = 0.5
AStoR is often given as a percentage so in the example above you get a AStoR = 50%
But again we prefer good old fashioned fractions which shows AStoR = 1/2
ASToR is a great place to start when deciding if you should spend more (its why we like it).
What this is telling you – This is telling you that for every pound in revenue that you generated from your advertising you have spent 50p to generate it.
Now like we said in the disclaimer this set of computations does not account for cross device conversion contributions or indeed any form of conversion attribution modelling. What we have also not included is a consideration of true cost of delivery e.g. hosting, payment processing, postage etc. and there is a simple explanation as to why we haven’t included these;
If you are searching for “How do I calculate the return I am getting from my marketing?” on a search engine this article is a great way to get started, if you have a degree in accounting then you don’t need to be reading this post. You now have the tools to take the first step in evaluating your marketing anything beyond that come and talk to us and we will be happy to help.
- ONLY FOR THE; shortest route between two points types.
because we are nice, know how much traffic gadgets generate and because there are some really clever SEO benefits the boffins at Adrac have created a simple, easy to use tool for calculating simplistic returns from advertising. It’s FREE, we don’t ask you to sign in, sign up we don’t ask for your email address, name or even you’re inside leg measurement.