ROAS, or return on ad spend, is a metric that tells you how much revenue your game’s ads are generating compared to how much you're spending on those ads. Let’s break down why ROAS is a critical metric for game developers, the return on ad spend formula, and how you can increase it.
Why is ROAS so important?
There are many game growth metrics to track, but ROAS is really the only one that matters. Why? Because most other metrics like LTV and CPI are ultimately a function of ROAS. Think of ROAS as your game’s financial compass - as long as the ad campaigns you’re running are ROAS positive, your game is likely performing well.
Today, it’s harder and more expensive than ever to stand out and reach the right users - high CPIs, fluctuating user spending, and AppTrackingTransparency are just a few factors. But ROAS can prove your UA campaigns aren't just a shot in the dark:
- On a macro level, ROAS proves your entire user acquisition and growth strategy is effective.
- On a micro level, you can look at the ROAS for each ad set and pinpoint which creatives and channels actually convert, bringing in players who stick around and really engage with your game.
How to create a ROAS goal
The first thing we need to do to set a ROAS goal is assign it a time period - like ROAS D1, D30, or even D180. The time frame you choose depends on your game’s payback period, also known as a recoup day or breakeven day. In other words, how many days does it take your ad campaign generate the exact amount of revenue you spent?
You should aim to have a short payback period, but you also want a high ROAS - that means there’s usually a tradeoff. If you have a short payback period, you need to continue making new hits to make money - but if it’s longer, it’s not the case, as the absolute amount you make it profit would be higher.
Normally, games with short paybacks (D1, D3, D7) have low CPIs and shorter LTVs - meaning ROAS growth slows down quickly. Meanwhile, games with longer paybacks (D90, D180, D360) are the opposite, monetizing users for longer and continuing to grow ROAS even after they’ve paid back.
Largely, determining the time frame in which you set a ROAS goal depends on two things:
- Genre: For example, strategy games should look at ROAS on a day pretty far into the future because they’re monetizing players way beyond the initial install. But hyper-casual games should look at ROAS closer to Day 1 or 3 because their monetization timeframe is super short.
- Access to funding: Massive game companies can afford looking at ROAS a long way out, (some even up to D720), because they have tons of cash. But smaller startups should use shorter timelines like D30 because resources are more limited: if your runway is only 6 months, then it doesn’t matter what profit you make in month 12, as you’d be out of business. Similarly, smaller independent studios have higher capital costs than large publicly traded ones.
How to calculate ROAS: Return on ad spend formula
To calculate ROAS, divide the revenue you earned during a set amount of time by the amount you spent, then multiply that number by 100%. Take a look at the return on ad spend formula here:
ROAS = (revenue generated in X days) / (revenue spent in X days) * 100%
If you’re a mid-size studio that spends $2,000 on a campaign for your midcore game and sees a return of $10,000 thirty days later, that’s a 500% ROAS D30. That means for every $1 you put into ad campaigns, you get $5 back in revenue.
($10,000) / ($2,000) * 100% = 500%
How to increase ROAS
There are many ways to increase return on ad spend. One way is to improve your in-game metrics like LTV with live ops and new content, but that’s hard to do. Another way is to lower your CPIs by A/B testing your marketing channels and creatives, also hard to do.
Our top tip is to lean into direct-to-consumer channels, like web shops and game launchers - which are much simpler to set up and get going and instantly boost return on ad spend, guaranteed.
That’s because, instead of paying the 30% in-app purchase fees to Apple and Steam, you can pay lower fees like 5%-10% and keep more revenue per user in your pocket. That automatically boosts the revenue you generate over a certain time period, which means higher ROAS for you.
In the example above, you spent $2K generated $10K in 30 days through in-app purchases. But while you generated $10K, users actually spent $14.3K. The $10K is what you get after Apple and Google take a 30% cut of total player spend.
If you shift just a fraction of that to a web shop - let’s say 30% of total player spend - that means you pay a 10% shop fee on 30% of the revenue, and a 30% app store fee on 70% of the revenue. Ultimately, you’re saving $864 in app store fees.
So now your return on ad spend formula looks more like this:
($10,864) / ($2,000) * 100% = 543%
Notice that higher ROAS? And all you did was create a web shop.
Use our return on ad spend calculator
Do the math yourself with our interactive return on ad spend calculator. Just input your current in-app purchase revenue and press calculate. You’ll discover just how much more revenue you can save by shifting some spend to a web shop. Then recalculate your ROAS with your new revenue figure - we guarantee it’ll be higher.
Increase your game’s ROAS today
Reach out to us to learn more about setting up your own direct-to-consumer channels with Stash. By selling in-game items to users directly on a web shop or first-party game launcher, you can earn more revenue to eventually put behind your user acquisition campaigns. You’ll see your ROAS increase in no time.