Advertising is crucial to achieving online business growth. With good advertising, you can increase your brand awareness, increase your sales and boost your online business revenue. 

But here’s where advertising can get tricky; you may have lots of clicks on your ad campaign and no conversions. 

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To analyze if your ad campaign is making money or losing money, you need to look at the Return On Ad Spend (ROAS) metrics. Overall, you want to ensure you are getting more revenue than you are spending on your ads. 

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In this article, we will look at what return on ad spend (ROAS) is and how you can maximize every dollar you spend on advertising. 

What is Return On Ad Spend (ROAS)?

ROAS or Return On Ad Spend is a marketing metric that shows the amount of revenue generated from every dollar that is spent on advertising. ROAS focuses on a specific ad or marketing campaign. Knowing how much revenue your ad campaign is generating will help you figure out the return on ad spend for your campaign. The higher your ROAS, the higher the profit generated from the ad campaign. Your ROAS can also help you figure out which marketing channels will generate more revenue for your business. 

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ROAS is expressed in ratio form. For example, 8:1 represents $8 in revenue for every $1 spent on the ad campaign. 

How do you calculate ROAS? 

ROAS is the ratio of revenue from an ad campaign divided by the amount of money spent on the ad campaign. I.e ROAS = Revenue from Ad Campaign / Cost of Ad Campaign

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For example, if a company spends $1000 and generates $20,000 in revenue, the calculation will be expressed as: 

         $20,000/$1000 = 20:1

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In this case, the ROAS will be $20 for every $1 spent on the ad campaign. Calculating your ROAS may get a bit tricky because you need to know exactly what your revenue is. 

What can be considered a good ROAS? 

Some businesses may be wondering what a good ROAS looks like. Well, this can vary from business to business, industry to industry, and campaign to campaign. 

If your campaign goal is to create brand awareness, you can expect to see a lower ROAS than a campaign targeted at making sales. 

However, on a general level, a return on ad spend of 4 dollars in revenue for every 1 dollar spent typically indicates a successful ad campaign. 

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But again, this is simply a general rule and can vary from business to business. It can also be different for different platforms. For example, on Google, an ad with a 2:1 ROAS may be considered an average. Also, some businesses may require a 10:1 to stay profitable, while others may do well with just a 2:1. 

If you’re thinking of your ROAS goal, you want to consider your profit margin. Lower profit margins may demand higher ROAS with lower advertising costs while higher profit margins may allow you to maintain a low ROAS. 

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Return On Ad Spend (ROAS) vs. Return On Investment (ROI)

Is there a difference between your ROAS and ROI? Well, the answer is yes. 

Your ROAS is used to calculate returns from one specific campaign and only takes into account the success of one campaign. On the other hand, ROI looks at a much bigger picture. It considers the effectiveness of a marketing strategy and takes into account costs like labor and order fulfillment costs.  

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While ROAS provides a more short-term assessment, ROI provides one in the long run. Are both essential metrics to track? Yes. In fact, using both metrics can provide deeper insights into your business. 

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You can find out how much revenue your business generated from a campaign with the ROAS metric while your ROI can reveal valuable insights that show the impact of the campaign on the overall marketing goal. 

Return On Ad Spend (ROAS) vs. Click-Through-Rate (CTR)

Your ROAS and CTR are both important metrics that can help you analyze the performance of your ad campaigns. While ROAS calculates how much an ad campaign made, CTR shows you if your ad (copy, creative, and call to action) generated enough interest to get your audience to click on it. 

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As we mentioned earlier, both metrics are essential for measuring performance. For example, if you have a high click-through rate and low ROAS, it means your audience is interested in your ad but they are not converting. With this in mind, you may want to consider other aspects like your targeting or landing page.  

Return On Ad Spend (ROAS) vs. Conversion Rate (CR)

CR is calculated when a customer takes a desired action. This action could be signing up to get an ebook or buying a product. Your ROAS can help you find out what your conversion rate means in terms of revenue. 

5 ways to maximize your Return On Ad Spend (ROAS)

So now we know what a good ROAS is, how can you maximize your ROAS and get the most out of your advertising campaigns? Keep in mind that a low ROAS doesn’t mean you need to discard the entire campaign. You may just need to tweak a few things in your ad. Here are five ways to maximize your ROAS: 

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1. Fine-tune your keywords 
2. Lower your Ad spend to improve 
3. Consider your Ad placement 
4. Optimize your landing page 
5. Increase average order value (AOV) 

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Fine-tune your keywords 

When choosing keywords for your ad, you may want to go for keywords that are more generic and popular. However, if you bid on keywords with large search volumes, you may end up lost somewhere in search results after spending lots of money. 

To effectively use keywords, target customers who are already searching for your product. Use narrow keywords instead of broad generic keywords. For example, instead of “gift”, you can use “Mother’s Day gift”. Instead of “jeans”, you can narrow it down to “high-waist mom jeans”. 

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Use analytics tools to find keywords with a high search and low competition. Include long-tail keywords on your product pages and consider keywords that have high-buyer intent. Analyze your data, narrow your keywords, and find which keywords work best for you. 

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Lower your ad spend to improve 

One obvious way to increase your ROAS is to reduce your ad spend. The goal is to reduce your ad spend and still get good results. To reduce your ad spend while maintaining good results, you want to zero in on efficiency. 

Here are a few ways you can lower costs by improving performance: 

• Use the right keywords: Of course, you want to target keywords that your customers are searching for.  Optimize your copy and ensure it includes all the keywords that are likely to improve your rank and increase your conversion rate. You can consider adding negative keywords (terms you want to exclude) to your ad. So when customers search for those terms, your ad won’t appear. This can save you costs from clicks that don’t convert. 
• Narrow audience targeting: Narrowing your audience down to the specifics can ensure you target your spending to the audience that will most likely convert. You can narrow your audience targeting based on age, interest, location, etc. 
• Experiment with your bidding strategy: You can experiment between the two bidding strategies: Manual bidding and Automated bidding. You don’t want to be stuck on just one bidding strategy. You can try out both bidding strategies and find out which gives you maximum results at reduced costs. 

Consider your ad placement 

Strategic ad placement can have a great impact on your ROAS. You can experiment with different ad placements. 

You can run ads that appear in news feeds to get more visibility or mobile-only ads on social media platforms like Facebook or Instagram. 

Optimize your landing page 

You may have people clicking on your ads because they are interested in your product. But this is only the start of the customer’s journey. You may lose potential customers if your ad is promoting jeans and your landing page promotes really good lingerie. 

If your customers clicked on an ad for mom jeans, it’s only reasonable that they find more information about the offer on your landing page. 

Ensure your landing page headline is well-optimized. It should also have a unique value proposition and a clear call to action. 

Increase average order value (AOV) 

Getting existing customers to buy from you again is way cheaper than trying to attract new customers. So one way to increase ROAS is to increase your customers' lifetime value. How? By increasing your average order value. 

To do this, you can employ upselling and cross-selling tactics to encourage customers to buy more at a higher price. You can also use free shipping to encourage customers to buy more products to qualify for it. 

Wrapping up 

Return On Ad Spend (ROAS) is an important metric that can help redefine your ad campaigns and improve overall effectiveness. With ROAS alongside other metrics, you can find out if your ad is generating real results. If your ROAS is low, you can make changes to your ads and optimize the revenue generated from each dollar that you spend. 

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