A software company spends $100 on an ad. They make $150 as a result of that ad. The revenue they gained is 150%. What is this performance metric called?
- Customer lifetime value
- ROAS (return on ad spend)
- Clicks
- Targets
Explanation:
The performance metric in this scenario is called ROAS (Return on Ad Spend). ROAS is calculated by dividing the revenue generated from an advertising campaign by the cost of that campaign and expressing it as a percentage. In this case, the software company spent $100 on the ad and made $150 in revenue, resulting in a ROAS of 150%. This metric indicates that for every dollar spent on the advertisement, the company gained $1.50 in revenue. Unlike metrics such as customer lifetime value, clicks, or targets, ROAS specifically focuses on the financial return derived from advertising expenditures, providing a clear measure of the campaign’s effectiveness in generating revenue.