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DownloadAnswers to Frequently Asked Questions about Time to Payback CAC
Target ROAS is the average conversion value expected to get for each dollar you spend on ads.
Target ROAS is calculated by dividing 1 upon average profit margin as a percentage of revenue multiplied by the percentage of that margin you’re willing to invest in acquisition.
There is no straightforward way to calculate Good Target ROAS by any particular industry because it largely depends on how much has been spent on ads and how much has been earned from the ads.
However the general benchmark in terms of ROAS would be 2:1 which implies earning twice the amount for the expenditure incurred.
300% ROAS is 3 times the return on the amount spent for the ads. This does not imply 3 times profit.
Supposingly, you have spent 100 INR on Advertising. Now you have 200 INR Left. Let’s say your product costs 100 INR and all other shipping and packaging expenses with other overheads come to about 70 INR.So the profit you will make is 30 INR.
Hence there is a difference between Return on ad spent and the Final Profit earned.
Firstly, calculate your average profit margin as a percentage of revenue. For your margin calculation, don’t include costs that don’t change when selling additional products, like salaries and rent. The margin here should be based on variable product-related costs such as cost of goods, fulfilment, commissions, etc.
Then calculate the percentage of that margin you’re willing to invest in acquisition. Insert both the values and you will get your final result i.e. your Target ROAS.
