[00:00:00] Hello. And welcome back to inside the click, your creator economy podcast. Michelle here with your word of the week, Wednesday. We're essentially building an influencer dictionary that breaks down industry terms that everyone should know when it comes to building out your creator business.
We've had past episodes on what it means to drive conversion and what is even a sub affiliate. I'll link those shows in the show notes. So you have them for your reference.
Today though I'm here to break down, return on ad spend, otherwise known as Roas. It's pronounced. Roas it's basically just the four starting letters of return on ad spend blended together and pronounced as a word.
If you're monetizing, you've likely come across this term in the creator space. It means that for every dollar spent. How much is the brand getting back in return?
We've seen [00:01:00] ROAS be shown as a percentage. So like a hundred percent ROAS would mean that for every dollar spent, you get a dollar back. But the way that we like it shown in another way that we've seen this in the industry is actually as a dollar amount. So in that same example, a dollar Roas means that for every dollar spent you get back a dollar in sales.
We've seen brands also calculate this in two ways. Regardless, the quote return that they're always looking for is sales. The cost is where you have two different methodologies.
Either one, the brand just looks at their flat fee, spend. As their costs. The second option is the brand looks at their flat fee spend. Plus the affiliate CPA they are providing [00:02:00] for each purchase driven. Flat fee plus that CPA will always lead to a lower ROAS because the cost is higher. So let's break this down.
Let's say that you're paid a hundred dollars flat fee for a campaign and you drive $200 in sales for target. And looking at flat fee spend and sales. It's $200 in sales. Divided by $100 in flat fee. So your Roaz would be $2. Woo-hoo.
Now. Let's say that target had a 10% CPA rate that they're paying for sales driven on top of the flat fee. So you have that same $100. and on top of that, they would be paying out an additional $20 to the creator. In this example. So now the math is $200 divided by [00:03:00] $120. Which is a dollar and 67 cent. ROAS.
So the first way in just looking at flat fee gives you $2 Roaz. Which means that for every dollar spent, you get $2. Whereas the second way, when you look at CPA plus flat fee going into your costs, that's a dollar and 67 cent Roaz. So for every dollar you get, you're getting a dollar and 67 cents back.
If you're a visual person. Like myself, I've also put this. In the show notes, broken this down for you. This is so important for everyone to understand, because especially now. Brands are interested in the return that creators are driving in order to justify, spend.
So that's it. Thanks for listening. Follow rate review. Share with your network. We really appreciate you all. And if you want to know any other industry [00:04:00] terms that you keep coming across, shoot us a DM on Instagram. You can email us at hello@insidetheclick.com we love hearing from you. And we want to make sure that these resources that we're creating are as helpful as possible.
All right. Talk to you later. Bye.