By Philip Inghelbrecht, co-founder and CEO, Tatari
Growth marketers look to ROAS (Return on Ad Spend) as a source of truth for media strategy.
To put some math behind it, ROAS is (Revenue generated by the advertising campaign) divided by (Cost to run the advertising campaign). In simple English, it is the amount of revenue generated from every marketing dollar spent.
ROAS is a standard metric that guides spending within a marketing channel. Most digital channels, including the primary walled gardens (e.g. Facebook), include ROAS in their standard analytics and campaign management tools. Marketers typically aim to achieve a ROAS between 2 and 4. Needless to say, higher is always better, and the exact ROAS target will depend on many things (the bottom of this article demonstrates this well).
To date, TV hasn’t offered anything much like that. ROAS is technically possible to measure across TV campaigns, but it is complex and demands considerate technology and operational sophistication.
Furthermore, brands want to use ROAS in an apples-to-apples comparison across channels, but that comparison is only valid if they understand the mechanics and nuances around the calculation of ROAS, some of them summarized below.
Conversion calculation
ROAS is a straightforward calculation when you can deterministically tie impressions to conversions using a tracking pixel. ROAS is much harder to derive when you have to probabilistically tie the impression to revenue, as can be the case with TV. Of all the attributable conversions, it is not always clear which specific ones come from TV. It’s critical that brands understand where that line is drawn on conversion measurement; without, ROAS is calculated on flawed inputs.
Incremental vs. Viewthrough
Another critical variable in TV attribution is the difference between view-through and incrementality. Incremental impressions are those represented only by net new customers, subtracting the consumers who would have visited or purchased without seeing the TV ad (and calculating incrementality is achieved differently in streaming vs linear TV). ROAS in TV is typically based on view-through impressions, which counts revenue against all views without filtering out those conversions attributable to other channels like social. The result is that view-through ROAS often results in many channels claiming revenue for the same event. Phrased differently, TV ROAS calculated on view-through attribution will inflate the numbers. Furthermore, true cross-channel comparison can only be achieved by isolating incremental viewers.
Factor LTV Models into ROAS
The revenue generated from a TV commercial often stretches well beyond the (first) purchase. For example, somebody trying Fiverr is likely to come back in the future for a second or third project; or somebody trying Imperfect Foods is most likely to subscribe to recurring purchases, shipped automatically. Vice versa, attrition will matter, too. As many marketers are well-aware, ROAS is more accurate when it incorporates LTV (Lifetime Value) models as opposed to immediate (short-term) revenue. In TV, as in other channels, looking at revenue in isolation obscures the real value of the ad in acquiring valuable customers.
The Halo Effect of TV
TV is an effective performance channel, but its performance doesn’t solely translate into direct conversions. TV ads also have a “halo effect” i.e. boosting traffic (and thereby ROAS) in other digital and social channels beyond a brand’s point of sale. To understand the comprehensive return on a TV impression, look to see if ROAS has increased after a TV ad campaign in other channels (e.g. Facebook or SEM). If Halo is strong, ROAS in digital may double, supporting a lower ROAS on TV (possibly below 1!); and vice versa.
With the ability to run ROAS calculations in TV as they do in other channels, growth marketers will see TV emerge as a viable and attractive performance channel within the overall media mix. For many DTC brands, the introduction of ROAS to TV is the tipping point that will tease them into the channel. The devil, however, sits in the details. As explained above, the trick is knowing how to exactly calculate and evaluate ROAS for TV.