How to calculate ROAS and ROI on YouTube
There are two important metrics to measure the effectiveness of a YouTube ad campaign: the return on investment (ROI) and the return on advertising spend (ROAS).
These metrics are essential to justify your investment in YouTube advertising and prove what the impact of your campaign was to reach your business' goals compared to other marketing efforts.
In other words, they help you you evaluate where to invest the money you put into advertising and the impact of these investments on your performance.
YouTube has proven to be an especially useful channel to drive ROI and ROAS all the way to the top. An analysis of 56 case studies across eight countries shows that YouTube advertising generated a higher ROI than TV in nearly 80% of cases.
But which metric is better for you? And how do you calculate ROI and ROAS correctly? Keep reading for a complete overview of all things related to YouTube ROI and ROAS.
Understanding ROI and ROAS
The big difference between ROI and ROAS is that ROI takes into account the amount earned after the expenses were subtracted, whereas ROAS gives you a ratio based on the comparison between the amount earned and the amount spent.
Let's understand how those differences have an impact on your results:
- Return on investment (ROI) - This is a strategy-oriented metric that will compare the efficiency of an investment to reach your goals. It is expressed as a percentage and takes earnings into account only after expenses have been deducted, which means that you will be able to identify the return generated by an ad campaign run on YouTube relative to its costs. If you are selling physical goods that have associated production costs, then ROI is the perfect metric to assess your ad spend.
- Return on advertising spend (ROAS) - It measures the effectiveness of a digital marketing campaign and helps you to identify what is working and how to make your advertising more efficient. ROAS also helps in tracking the conversion rates. If you are selling a service or the goal of your ad campaign is a soft metric, such as to raise awareness for your organization, then ROAS is your go-to metric.
Calculating the ROAS and the ROI of a YouTube campaign
Because ROI and ROAS highlight different results, there are different formulas to calculate them. Let's dive into the specifics of each one.
How to calculate YouTube ROI
ROI Formula: (Gains – Cost)/Cost = ROI
Example: Imagine you are promoting a product that costs $50 to produce and is sold for $100 per unit. You sell 6 of these products as a result of your advertising campaign on YouTube. Your total sales equal $600, but your advertising costs are $100 with production costs of $300.
ROI = ($600-($300+$100))/($300+$100)=50%
How to calculate your YouTube ROAS
ROAS Formula: Revenue from ad campaign/Cost of ad campaign = ROAS
Example: You spent $4,000 on an online advertising campaign in a single month. During this month, the campaign yields a revenue of $20,000.
ROAS = ($20,000/$4000)=5
The ROAS is a ratio of 5 to 1 (or 500%). In other words, for every dollar you spent on this campaign, you made $5 worth of revenue.
Remember to consider these factors into your ROAS calculation:
- Partner/vendor costs: In order to explain the efficacy of individual marketing efforts through ROAS, add customary fees and commissions associated with partners and suppliers that assisted on the campaign or channel level. Make sure to tabulate an accurate accounting of in-house advertising personnel expenses such as salary and other related costs.
- Affiliate commission: Remember to add the percent commission paid to affiliates, as well as network transaction fees.
- Other metrics: You should also consider metrics such as average cost per click, the total number of clicks, the average cost per thousand impressions, and the number of impressions purchased.
ROAS and ROI on YouTube
The primary goal of video advertising is awareness. YouTube ads are an excellent way of promoting your brand to millions of people all over the world and getting them better acquainted with your business.
Still, video advertising can have real impact on the bottom of your sales funnel and be a key channel to drive purchase intent.
Google used its Brand Lift tool to measure how audiences respond to TrueView skippable videos on YouTube.
The study revealed that 35% of campaigns resulted in a lift in purchase intent. When it comes to people who watched 30 seconds or more of an ad, the numbers are even higher. In those cases, 61% of campaigns resulted in a difference in purchase intent.
The study highlights that increases in lower-funnel metrics generally require multiple exposures over time, but surprisingly TrueView campaigns were capable of driving lifts in purchase intent in 35% of the campaigns after only one exposure.
A previous Google research had already shown that the longer someone views a video ad, the higher the lift in brand awareness. After identifying that ads can also increase purchase intent, Google now advises YouTube advertisers to get viewers to watch more of their ads.
The longer the exposure to an ad, the best the lift in metrics throughout the consumer journey. So make sure to also invest in the quality of your creative as it plays an important part in driving your ROI or ROAS up.
Get ready for YouTube success
Understanding the metrics that matter the most for your campaign is essential to reach success with YouTube advertising.
Remember to listen to the data. Your numbers will tell you the targeting segments that are performing better, where to shift your ad spend and what the real impact of your campaign was.