Is there a right and royal RoAS?

Written by :
Krishna Kumar CS

RoAS - the single most powerful metric known to advertisers. It can enrich or ruin your ad campaign. It can make or break your brand. It is an essential ingredient to optimise your Ad spend. According to some, it is the holy grail of marketing.

RoAS expands to “Return on Advertising Spend” It measures the amount of revenue generated as a result of the money spent on advertising.

The formula for ROAS is:

ROAS = 100 x (Revenue generate due to ad) / (Dollar Spend on the Ad)

As simple as this formula appears, you are never going to the get the answer by simply plugging in the numbers. That is because

·      If you are a digital marketer, who tracks customers from click to cart, and put forth Cost per Sale as ROAS, you are not even remotely correct. Cost per Sale a highly biased version of the truth. This is because of last mile attribution. Last mile attribution means that the channel that hands over the product and collects the cash, gets all the credit, ignoring contributions from  brand equity, seasonality, synergies from other media and even promotions working in tandem. It is like the goal scorer in soccer, getting all the credit for shooting the goal and not giving credit to those who set up the play and passed the ball. Cost per Sale may give you ahigh, but it can also give you a hangover.

·      If you are an FMCG or CPG player you are truly stuffed.  “Revenue from ad” is simply not available to you, not from any of your internal sources or from any of your retail panels or external vendors.

·      Finally advertising possesses the property of persistence. It means that advertising has both immediate short term sales and sales in the long term. Customers, who buy due to the ad, may continue to buy even after the ad has stopped playing. This is the long term effect of advertising. Ignoring long term effects reduces your ROAS by half.

So what is the right way to estimate ROAS? We at RainMan believe that the only way to estimate a near correct ROAS is using mathematics or statistics, aligned with a sound knowledge of marketing.

This combination allows us to construct equations that mimic the market place and capture all the dynamics at play. Brand equity, distribution, seasonality, price, promotions, media, event sponsorship, PR, halo from sister brands, competition activity and other economic factors all have to be used in conjunction.

Then these equations are adjusted so as to capture the nuances of persistence, saturation, synergies, thresholds, non-linearity and non-symmetry in marketing. Solving these equations is the only way to arrive at the truth.  

Isn’t it time to kick some RoAS?