Search
  • Derek Hairston

ROAS & ROI Calculator for Facebook Ads

Updated: Jan 28

The purpose of running ads for all businesses is to generate results. The ultimate result for every business is profit, or a positive return on investment. That’s why at Olam we believe it is important to focus on ROI when considering Facebook ad campaigns for our clients. Now, we want to put power into the hands of all businesses and marketers to be able to easily estimate their ROI on Facebook ads.


ROI has been used to measure business success for many years. In this post, we will introduce Return on Ad Spend (ROAS), if you are not already familiar with it. Then we will dive further into ROI.


You can go ahead and download calculator by clicking here, but to get a better understanding of ROI and ROAS keep reading below.



What is ROAS

ROAS, or Return on Ad Spend, is the metric that is just one step before ROI. ROAS is the metric that determines how much money you earn for every dollar you spend on Facebook.


Here is the formula:


ROAS ($) = Facebook Ad Revenue - Facebook Ad Spend


Or as a percentage...


ROAS (%) = Facebook Ad Revenue / Facebook Ad Spend


ROAS is to ROI as Gross Profit is to Net Profit...that’s for the accounting buffs.



What is ROI

While many Facebook advertisers tend to neglect ROI or deem it as unfitting, that’s a mistake. ROI captures an ad campaigns true profit in totality. When you run an ad campaign on Facebook, you invest more than just adspend.


To run ad campaigns you might invest in an agency fee and software to get the job done. Then there are expenses that should be attributed, but not expensed entirely on the ad campaign, as those resources are used in other areas of the business, such as employees working on the project or video production.


Here are the calculations for ROI:


ROI ($) = Facebook Ad Revenue - (FB Ad Spend + Attributed Expenses)


Or as a percentage...


ROI (%) = Facebook Ad Revenue / (FB Ad Spend + Attributed Expenses)


For every business the attributed expenses will vary, so for simplicity, the ROI calculator only includes the Agency fee as the additional Attributed expense. You can add more under that as you see fit



How to setup ROAS in Facebook Ads Reporting

If you have an ecommerce business, setting up your ROAS metric within the Facebook ads report is relatively easy. You simply integrate your website platform (i.e. Shopify) with your Facebook Business Manager using the partner integration.



If you do not have an ecommerce store, you have to set up conversions manually. This part can get nitty-gritty, especially when including leads in the calculation. You can add a conversion value to each lead for a service business by assessing the conversion rate of a lead, and using that as the ROAS.


For example: Let’s say you sell a product for $50. Then if it takes 5 leads to convert 1 customer each lead is worth $10 in sales. Make sense?


So if you are running a lead generation campaign, you could set custom conversion for leads that submit the ‘lead form’ and add a conversion value of $10. This way, in your Facebook ads report, you can see the ROAS in real-time.



How to use ROI calculator

The purpose of the ROI calculator is to estimate if an ad campaign will be profitable or worthwhile. The calculator uses average conversion rates and industry data from study performed by Wordstream.



The only information you have to enter into the calculator is: your ad spend, your selling price per item, how many times per year a customer purchases, and additional costs.



If those industry averages are not fitting to your business, there is a separate sheet where you can manually enter your anticipated CPC and conversion rate.



Conclusion

With this ROI calculator, you can make better marketing decisions for your business. Before starting a new Facebook ad campaign, use this ROI calculator to get an idea of what to expect as a return on investment.


Recent Posts

See All

© 2023 by Olam, LLC.