When tracking ad performance, you have a lot of metrics to monitor. One of them is ROAS. But what is it exactly, and how do you measure it? Find out in our guide.
Over the past 20 years, online advertising revenue in the US alone skyrocketed from just a bit over $8 billion to almost $140 billion. The same growth rate is almost the same in Europe as well. The industry has grown by over 12% year-over-year, with search, banners, and digital video ads being the most popular formats.
With such impressive growth, you can’t help but ask yourself – how much do these companies invest in their advertising to generate a good ROAS?
If you’re not sure what ROAS is and how you can calculate and maximize it, this guide is for you. You’re about to find out why measuring ROAS is essential, what ROAS is considered good on different platforms, and what strategies you can use to improve your numbers.
Let’s dive in.
What Is ROAS?
Simply put, ROAS refers to how much your ad strategy pays off: it stands for return on ad spend. It’s undoubtedly one of the most critical metrics marketers track to learn if their ad campaigns are performing as well as expected.
ROAS answers one of the most important questions you’ll ask yourself: If I invest this amount of money into this ad, how much will I gain from it in the end?
Marketers typically include ROAS in marketing and advertising reports, especially when you need to prove the value of your work to a client.
It’s also helpful to monitor this metric daily or weekly. This way, you can experiment with your ads more efficiently and find out what’s working for your audience in real-time.
Tweaking your ad copy, testing different visuals, or adjusting your target audience can make or break a campaign and affect your campaign ROAS significantly.
Are ROAS and ROI the same?
ROAS and ROI are similar metrics, but not the same. Many people mix them up, but it’s not recommended to use these terms interchangeably.
ROI refers to your overall marketing strategy. It means return on investment and is a broader term than ROAS because it encompasses all the marketing efforts you execute to contribute to your business. Also, it’s a long-term metric you usually measure and less frequently.
To calculate your ROI, you need to consider factors such as:
- Ad costs
- Marketing team wages
- Automation tools license
The formula for ROI is the following:
(Net Return On Investment / Cost Of Investment) x 100
On the other hand, calculating ROAS is a more straightforward and frequently measured metric. It tracks how much you’ve earned for each dollar you’ve spent on your ads – it’s a tactic rather than a strategy and involves fewer factors than the ROI formula.
Why Is ROAS Important?
Suppose your campaign goal is to raise brand awareness. In that case, you may not be tracking ROAS as your primary metric since increasing your conversion rate isn’t your priority. You may value impressions more than ROAS in this case, and it makes perfect sense.
However, in most situations, it all comes down to ROAS. The whole point of advertising your products or services is to reach more potential customers or clients and to make money.With that in mind, tracking ROAS seems like a logical choice. It simply measures how effective your ads are, and the higher it is, the better – you’ll know that your ads are converting at an optimal level. If not, you should make adjustments to optimize them.
To avoid wasting your budget on ineffective strategies and make sure your ads are really contributing to your overall revenue, it’s essential to track ROAS. When you know exactly how many conversions came from each of your advertising channels, you know where to focus your attention – and your money – in your future campaigns.
That means measuring your ROAS helps you decide how you’re going to execute your ad strategy in the future.
How to Calculate Your ROAS?
The simplest formula for calculating your ROAS is this:
Revenue attributed to your ad campaign / total cost of your ads = ROAS
Sometimes, it’s expressed in percentages:
Total revenue attributable to your ads / total cost of your ads = ROAS (%)
Here’s an example.
Say you’ve invested $300 in your current Google ad campaign. When the campaign finishes, you calculate the revenue from the ads, and it’s $900. It means your ROAS is 3, which is considered excellent.
On the other hand, if you spend $300 on your campaign and generate a revenue of $150, your ROAS is 0.5. In percentages, it’s only 50%, which means your ads haven’t been very profitable.
To calculate your ROAS as accurately as possible and trace your conversions back to your ads, you can use analytics tools that allow you to track conversions and their sources. One of the most popular tools for this is Google Analytics.
However, remember that it’s not always possible to trace every single sale to your ads, so ROAS is not always the most precise metric.
For example, a person may see an ad on Facebook but decide to go directly to a brand’s store and purchase there instead of clicking on the ad and buying a product online.
A quick note: you can also calculate your ROAS on different levels. For instance, you can measure it for a specific ad set or for a particular channel rather than calculating your total ROAS. This way, you can gain a more accurate insight into how a particular channel or campaign is performing.
What Is Considered a Good ROAS?
Now you know why you should track ROAS and calculate it, but how do you know if your numbers are satisfactory? How do you know if you need to adjust your ads or keep going?
A general rule of thumb is that everything beyond 4 or 5 is excellent. If your ROAS is 3 or below, you should experiment with your ads and see what you can do better to increase your profit.
The ideal ROAS may also depend on the platform you’re using for advertising.
- Facebook ads: If you’re running Facebook ads, anything between 4 and 10 is considered good ROAS.
- Google ads: The average ROAS for Google Ads is 2. If you manage to score above that, you can consider your ads profitable.
Note: These are just examples of what good ROAS can look like. It also largely depends on your business goals, your industry, or ad placement within a platform.
ROAS vs. Other Relevant Metrics
There are, of course, other important metrics you can track to find out how successful your ads are. If your CTR is high and your CPC is low, it means that your ads are probably resonating with your audience.
However, these metrics don’t tell you how well the campaign is converting. It’s possible to have a campaign with a lower CTR but higher ROAS, and vice versa, depending on the cost of the product or service you’re advertising.
The bottom line is, metrics like CTR can tell you if the ads you’ve created:
- Are visually appealing to your audience
- Have attention-grabbing copy
- Offer a persuasive CTA that motivates your target customers to click
It’s important and valuable to know all of this, but the only way to learn if your ads are making you money is to track your ROAS.
How to Improve Your ROAS: 7 Actionable Tips
Just calculated your ROAS? If you’re unhappy with the result, don’t worry. You can implement numerous strategies to make the most out of your ads and improve your ROAS over time. Essentially, if you’re looking to enhance your ROAS, some of these three things need to happen:
- Your CPC needs to be lower.
- Your post-click conversion rate should be higher.
- Each of your conversions should bring more revenue.
How can you manage that? We’re sharing a few tips.
#1) Be mobile-friendly
Sometimes, it’s not your campaign; it’s your website.
Amazon makes sure its users have a streamlined purchasing process on mobile phones. Think that’s by accident? Actually, over 80% of mobile users complain about being unable to buy something via their smartphones.
That’s why it’s critical to create a mobile-friendly purchasing process – your ads may seem ineffective if you look at your ROAS when the problem actually lies outside of the campaign.
#2) Review the whole customer journey process, including checkout
As we mentioned, sometimes the ads are attention-grabbing and have a strong CTA, but the issue is something else. To discover what seems to be the hiccup, you can review the whole customer journey from the keyword they’re searching for to the checkout.
Maybe your landing page copy isn’t compelling, or your checkout process is too confusing. Make sure you optimize them and then go back to monitoring your ROAS again.
#3) Improve your ads
To drive more traffic and make more revenue, your ad creatives need to stand out.
Is your copy well-targeted? Maybe you should replace your CTA with a call-to-value button to encourage more clicks and conversions. Or enhance your visual to stop more eyes while they’re scrolling through their feed.
Testing different versions of the same ad will help you pinpoint exactly what kind of ads your target audience likes. Then, you can pour more of your budget into the ads that are generating conversions.
#4) Place your ads differently
Where you place your ads can be of utter importance.
If your ROAS is low, you may test different ad placements to see if it makes any difference in your conversion rate. For example, when running Facebook ads, you may get more out of them if you use newsfeed ads. The ones in sidebars usually don’t get much visibility.
If you choose in-stream ads, you can opt for pre-roll, mid-roll, or post-roll ads. The ones displayed before the video are the most popular choice and typically more affordable. Still, if you can skip them, you have a slimmer chance to capture your audience’s attention. Mid-roll ads may cost more, but viewers are more likely to keep watching (both the ad and the video) if an ad appears at this point.
Again, using Adline will automate placement testing.
#5) Review your keywords
Focus on long-tail and specific keywords rather than on broad ones that will spend your budget without making any conversions. If you want to increase the quality of your website traffic, target more specific, long-tail keywords with low keyword difficulty. They will match your audience’s search intent more accurately. Moreover, your competitors may have missed them!
Specific keywords are vital for businesses with physical locations. They can improve their ROAS largely by focusing on location-specific keywords, such as “best [producit name] in [city or neighborhood name].”
#6) Retarget your old customers
It’s a well-known fact that it’s easier to sell more to your existing customers than acquire new ones. It’s also cheaper to invest in retaining your clients than attracting new people who will purchase your services or products.
To increase your revenue per conversion, you can focus on retargeting people who have already bought something from you. It’ll cost less to get another conversion from them than to turn new website visitors into customers. Use strategies such as:
- Offering bundle deals, discounts, and coupons
- Offering free shipping for a minimum purchase value
- Introducing loyalty programs
#7) Test bidding strategies
If you’re wasting your ad budget, it may mean you’re bidding inefficiently. But if you test different bidding strategies, you might be able to lower your cost-per-click.
To gain better control over how you spend your ad money, you can set your maximum bid manually. Experiment with different bidding limits to find what generates the best ROAS. Sometimes even a high CPC can bring more revenue if you use Smart Bidding options.
Boost Your ROAS with Adline
Advertising is a powerful growth tool if done correctly. To get your ads right, you need to test, test, test. Find what works for your target audience and what channels drive the most revenue from ads.
How will you learn that? By monitoring ROAS and calculating how much you get back for each dollar that you invest in advertising. If you’re not happy with the numbers you’re getting, trace back your steps and identify the issue you need to solve to get back on track.
Sounds daunting? With Adline, it can be easy.
You’ll get an advertising strategy tailored to your needs and learn how to effortlessly run all your campaigns in one place, with 10x higher chances of converting leads and growing your business.Want to save time and money while using an effective tool to generate qualified leads from your ad campaigns across platforms? Sign up for a free trial today!