400% OR LESS ROAS – If your return on ad spend is less than 400% there is a chance that you might be losing money. This depends on your exact circumstances but there will likely be some big opportunities for further optimisation.
400% OR MORE ROAS – If you are acheiving more than 400% return on ad spend then you have already made some good progress with your ads. That being said, don’t stop now! There might still be room for improvement.
800% OR MORE ROAS – Perfect, if you are hitting anything above 800% return on ad spend then the chances are you are running a very profitable campaign.
How Can return on ad spend (roas) help you earn more from your ads?
What is ROAS?
ROAS stands for return on ad spend. ROAS is a marketing metric that measures the amount of revenue that is earned for every dollar that you spend on advertising. You can calculate ROAS by using our calculator down below. Calculating your ROAS is fairly easy and is something you should keep track of. We will explain why.
How do I calculate ROAS?
The formula that you use to calculate ROAS is that you divide your brand’s revenue by your total marketing spend. When calculating your total revenue, remember to include your affiliate commission costs, vendor costs, personnel salary, and other fees specific to certain ad groups, for example, cost per click. An example of calculating your ROAS is if you spend $500 on shopping campaigns in a month and during this month these shopping campaigns have generated a revenue of $3000. You would then divide the $3000 by the $500.
Why should I use a ROAS calculator?
ROAS is one of the most important metrics that all business owners who advertise should monitor. Just to be clear ROAS is not the only metric that you should be monitoring but it gives you a good idea of how your ads are performing and if there are any ad campaigns that you should be spending more of your budget on as some campaigns will naturally perform better than others.
What are the benefits of measuring ROAS?
- ROAS allows businesses to be able to evaluate the effectiveness of individual campaigns based on how well their ads have performed. When you look at and examine campaigns you can find out whether the ad type you are running is performing well, so you can scale them to maximise your results. You can run more than one campaign. As you go through and examine each of them individually, you will be able to see what campaigns are bringing in the highest ROAS and you can take advantage of this in order to increase your revenues. Campaigns and ads you are running that are driving high ROAS, these can be scaled in order for you to drive more profits from your business.
- Once you can see how well or not so well your ad campaigns are performing. After calculating the ROAS you are able to optimise your ad campaigns to help improve the ROAS and perhaps optimise your campaign budgets. Calculating your ROAS means that you can identify the ads and campaigns on which you are overspending on. If you find that you are overspending, in order to avoid any more losses you will need to reduce your budget. The last thing that you want to do is spend all your budget on ads, especially if you are not seeing any benefit from them.
- ROAS allows you to optimise your marketing strategy as ROAS provides you with reliable information so you can think about what to do next in terms of your marketing strategy. Calculating your ROAS you will be able to see what campaigns are performing the best allowing you to optimise your marketing strategy to maximise your profits in the future.
How to improve your ROAS?
Ways to improve your ROAS is to increase your conversion value and decrease costs that you spend on ads. If you increase your conversion value for no reason this can create an artificially high ROAS, even though you can do things to decrease the amount you spend, for example, spending most of your budget on profitable campaigns. If you lower your ad spend or have too many bids on your CPC this can lead to your ads being seen less. To improve your ROAS you will ensure that you are sticking to your budget as well as ensuring that your ads are being seen as often as possible by the audience you want to target.
Another way in which you can increase your ROAS is by using audience targeting. Identifying your audience is crucial. The ideal thing to do is to create a buyer persona and investigate the different segments you want to target. By personalising your campaigns, you will target the right type of customers thus encouraging them to click on your ads.
What is a good ROAS?
ROAS is affected by profit margins, operating expenses, and the overall health of the business. Good ROAS tends to sit at a 4:1 ratio this means $4 revenue to $1 ad spend. If you are a start-up business with a smaller budget you may need higher margins whereas established businesses, for example, JD Sports they can afford to have higher advertising costs. As a business, you can only define your ROAS goal when you have a defined budget and a firm handle on your budget’s profit margins. If a business has a large margin, this means businesses can survive low ROAS whereas having smaller margins means that a business must maintain low advertising costs.
The challenges with ROAS
ROAS can be considered a vanity metric, ROAS sometimes is not seen as something that can contribute to long-term business viability. ROAS only measures the cost of a single stream of advertising spending against the revenue that may or may not be sole to that spend. ROAS does not represent the entire customer journey, however, it is good as a business owner to look at a customer’s journey to see how they came about finding your website and why they made the purchase. If you are looking at your customer’s journey through ROAS you will miss all of the digital touchpoints.
However, ROAS is one of the most useful metrics that you can use, as you can get a good idea of how well your marketing strategy is working and doing the work that it is meant to do which is to drive more revenue. Using our ROAS calculator you can work out your ROAS very easily however how you choose to use your ROAS data can have a big impact on your business.