How To Calculate True Roas: True ROAS in Causality Engine is calculated by dividing incremental revenue by marketing spend, reflecting the real return on ad spend for Shopify brands.
Read the full article below for detailed insights and actionable strategies.
Introduction
Return on Ad Spend (ROAS) is a key metric, but traditional ROAS often overstates performance by ignoring incremental impact. True ROAS corrects this.
Formula for True ROAS
[ \text{True ROAS} = \frac{\text{Incremental Revenue}}{\text{Marketing Spend}} ]
Where:
Incremental Revenue = Revenue caused by the marketing channel, estimated by Bayesian causal inference.
Marketing Spend = Actual spend on the channel.
Step 1: Calculate Incremental Revenue
Use Causality Engine’s incremental conversions estimate.
Multiply by average order value (AOV) or revenue per conversion.
Step 2: Gather Spend Data
Import accurate ad spend data per channel or campaign.
Step 3: Compute True ROAS
Divide incremental revenue by spend.
Compare against traditional last-click ROAS for context.
Why True ROAS Matters
Reflects genuine channel efficiency.
Excludes cannibalized or wasted spend.
Supports smarter budget decisions.
Example
If Facebook Ads generated 100 incremental conversions with AOV €50 and spent €3000:
[ \text{True ROAS} = \frac{100 \times 50}{3000} = \frac{5000}{3000} = 1.67 ]
Traditional ROAS might be higher due to over-crediting.
Related Features
Pair with Refinement Queue to prioritize channels by True ROAS.
Learn more about marketing attribution at Wikidata.
Conclusion
True ROAS provides an accurate profitability measure, essential for scaling Shopify brand marketing.
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Key Terms in This Article
Attribution
Attribution identifies user actions that contribute to a desired outcome and assigns value to each. It reveals which marketing touchpoints drive conversions.
Average Order Value (AOV)
Average Order Value (AOV) is the average amount of money each customer spends per transaction. Causal analysis determines which marketing efforts increase AOV.
Brand Marketing
Brand Marketing builds brand awareness, recognition, and emotional connection with consumers over time.
Causal Inference
Causal Inference determines the independent, actual effect of a phenomenon within a system, identifying true cause-and-effect relationships.
Causality
Causality is the relationship where one event directly causes another, essential for identifying specific actions that drive desired outcomes in marketing.
Conversion
Conversion is a specific, desired action a user takes in response to a marketing message, such as a purchase or a sign-up.
Facebook Ads
Facebook Ads are paid advertisements appearing on Facebook and Instagram. Businesses use them to target specific audiences based on demographics and interests.
Marketing Attribution
Marketing attribution assigns credit to marketing touchpoints that contribute to a conversion or sale. Causal inference enhances attribution models by identifying true cause-effect relationships.
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Frequently Asked Questions
How is incremental revenue different from total revenue?
Incremental revenue only counts conversions caused by the channel, excluding those that would have happened anyway.
Can True ROAS be less than 1?
Yes, indicating the channel is not generating enough incremental revenue to cover its spend.
Does Causality Engine calculate True ROAS automatically?
Yes, it provides True ROAS metrics in reports and exports.
Should I rely solely on True ROAS for budgeting?
True ROAS is critical but should be combined with qualitative factors and strategic goals.
Is True ROAS comparable across channels?
Yes, since it measures causal profitability, enabling objective channel comparison.
