Calculate Your ROASEnter your Ad Spend and the Revenue from Ad Spend into the simple ROAS calculator.
How To Calculate ROAS
How effective was your last advertising campaign? There are plenty of metrics you could use to work this out. One of the best is called Return on Ad Spend (ROAS). It’s used by marketing teams to determine which channels they should be allocating budget to for future campaigns. Use our ROAS calculation tool to get your figure.
Today we’re going to talk about the importance of calculating ROAS and how to improve return on ad spend. The question is, if you’re not tracking ROAS do you really know how effective your advertising spend is?
What is ROAS?
Return on Ad Spend (ROAS) is a critical marketing metric for managers and decision makers. It’s one of the quickest ways to see if your advertising investment is paying off. For those managing advertising spend it’s one of the key metrics you need to be tracking.
Here’s an example of how useful ROAS is for reviewing advertising campaigns.
To increase the targeted traffic to your eCommerce store you invest in Google Ads. You set a budget of £5,000 for your next campaign. After the campaign you see that your Google Ads generated sales of £40,000. Impressive. Using the calculator, you can see that your ROAS is 800% or 8:1.
How to Calculate ROAS – Simple ROAS Calculation
ROAS = Revenue Generated from Advertising / Advertising Spend (x 100 to get the percentage)
So, for every £1 you invested in Google Ads you earned £8. Knowing the profitability of a campaign helps managers and decision makers to see which channels are working and which aren’t. Use our ROAS calculation tool to calculate your own ROAS figures.
Insights like these ensure that future campaign and investment decisions are made using real data and that a benchmark can be set. It also helps to determine which channels are the best contributors to overall sales and which need to be dropped or optimized.
What is a Good ROAS?
There is no standard figure that can be used to define what a good ROAS is. A good ROAS will differ between industries and businesses. While some businesses will be satisfied with a 2:1 ROAS, others will struggle to make that work.
From our experience working with businesses selling through eCommerce, a good ROAS is around 800%. However, anything above 400% could still be viable.
eCommerce SaaS giant BigCommerce support this further by suggesting that a good ROAS to aim for is 4:1. However, they also note that some businesses need ROAS to be as high as 10:1 to succeed.
In reality a good ROAS for your business is determined by other factors which include:
- Profit margins
- Operating expenses
- Overall business health
ROAS can be used with a number of other marketing metrics to create a broader picture of how ROAS impacts the rest of the business. Other useful metrics that should be taken into account include:
- Customer Lifetime Value (CLV)
- Return on Investment (ROI)
How to Increase ROAS
Once you have used our ROAS calculator you’re probably thinking about how to increase it. There are a few tactics you can use to increase ROAS and get it closer to where you need it to be.
Review Ad Copy
One of the most important activities you can do is to review ad copy. The ad copy is what makes people click through to your landing or product page. If you find that your click through rate (CTR) is low then ad copy could be part of the problem.
Your ad copy should be highly compelling, define your USP, be consistent with the page you are linking to and have a clear Call to Action (CTA).
Wordstream tried to find out what the ‘perfect’ Google Ad might look like. They analysed 612 of the best performing Google Ads and came up with this result.
The key elements they concluded that make the perfect ad are:
- Use the top-performing words (your, free, get, our, save)
- Include a clear CTA – the best CTA word is ‘get’
- Ensure you are always using a positive sentiment (the above ad talks about saving money in the future, not wasting money in the present/past)
- Lexical diversity
- Use of an exclamation point
- NO DKI
- No trademark / brand sign
- It’s written at about a 9th grade reading level
- A single number in the description line
Review Ad Targeting
Arguably one of the best things about digital advertising is that you can be highly effective with your targeting. A common mistake is targeting a broad audience. In fact, what you want to do is target a small audience. This audience is made up of people whom you know are highly interested in your product and that are further down the funnel.
One way to do this is by using ‘in-market segments’ in Google analytics. This will tell you what your customers are actively buying before visiting or making a purchase on your website.
One you have this data you can plug it directly in your various digital advertising platforms. In Google Ads you can create an audience and target your ads to people who fit into these in-market segments.
You can also use this very effectively with Facebook advertising. Targeting people with who have the same interests and behaviours that you have identified is really easy. Just create a custom audience to get detailed targeting options.
As you can see, using the data cross your platforms will help you to reach a very specific audience. This is one of the key processes we go through when increasing ROAS for our clients.
Optimize Landing Pages
Ensuring that your landing pages are optimized is crucial. A poor landing page experience can be one of the main reasons that your ROAS is lower than it should be. Your ad copy must directly relate to what the visitor will see when they arrive on the landing page, and vice versa.
Your landing page content has a direct impact on your Google Ad rank too, which impacts CPC. Google’s priority is to ensure that they are giving their users an outstanding user experience. They aren’t going to send users to pages with poor or irrelevant information.
To get the best results from your campaign you can use A/B testing on both your ad copy and your landing pages. This will help you to find the best combination of these two elements to increase return on ad spend.
There are plenty of tools you can use to create landing pages and optimize them for success. One of our favourites is Unbounce. Some of their customers have seen an increase in conversion rate of over 70%.
Landing pages should have one very clear call to action. You should also try and keep the copy short and to the point. You have gained the prospects interest with the ad, now you need to convert them quickly by giving them only the most relevant information and a compelling offer. For more practical conversion rate tips check out our article on converting more customers on your website.
Always Check For Complete Product Information & Pictures
Product information is the foundation of every single eCommerce site. Without accurate and complete product information you are guaranteed to be losing customers. Even worse, if you are paying to send customers to product pages with poor information you are just throwing money away.
At the very least you need to ensure that you are including the product name, a high-quality picture, the price, a short description and any relevant sizes or dimensions. Without this, potential customers are not going to buy from your brand.
One of the simplest ways to ensure that your product data is up to scratch, which will have a positive impact on your ROAS, is by using Product Information Management Software (PIM). A PIM allows you to store and edit all of your product information in one central system which means it is always up to date and complete.
You can then distribute your product information to sales channels safe in the knowledge that when a user clicks through to the product page, they have all the info they need to make a purchase. We can’t stress enough the huge impact product information will have on your ROAS if you have an eCommerce channel.
If you are unsure on whether your product information is up to scratch, we can help you review it and point you in the right direction. Just send us a message here.
Hire a Professional Marketing Agency
Another option is to hire a marketing agency that specializes in PPC advertising. We know that setting-up, running, optimizing and reviewing PPC campaigns takes time.
In smaller teams it’s not uncommon for ad campaigns to be performing well, but not well enough. Sometimes you just need some help getting your ROAS to the next level.
Outsourcing the management of PPC campaigns to an agency can be a lifesaver for time-poor marketing managers. Although some may see it as an unnecessary extra expense, a good agency’s fees will be minor compared to the additional revenue they generate when you hire them.
If you think that hiring an agency could be the way to go here are some important things to think about.
- What results have they delivered in the past?
- What companies have they worked with?
- What kind of budgets are they used to dealing with?
- Are they certified or qualified in the ad platform? (Such as Google Ads Certified)
- What results are you expecting them to deliver?
- What is your budget for hiring an agency?
You should ways try and pull together a short-list of agencies and ask them to pitch for the work. This will not only give an idea of whether they will deliver for you, but also if you can work with them as a strategic partner. Having an open and positive relationship with your agency is crucial.
In reality it’s unlikely that there will be just one factor that impacts your ROAS. Having a clear test and review strategy in place where you test different elements across different channels and review the results will help you to determine which factors will start delivering a better ROAS.
Return on Ad Spend is a highly important metric to track if you are investing in any form of advertising. Knowing how to calculate ROAS helps decision makers to make data driven decisions about which marketing channels are the best contributors to overall sales.
A good ROAS can be anywhere between 4:1 and 10:1 although this varies by industry. There are a number of factors that can influence what a ‘good’ ROAS is including profit margins and operating expenses. Other metrics that can help give more contact to ROAS include customer lifetime value and return on investment.
To increase ROAS you can try a number of activities. Optimizing landing pages and reviewing product information are two of the most effective. Creating a highly targeted audience is another way to achieve this.
Now you know the importance of ROAS, are you using it and which channels are delivering the best ROAS for you? Let us know in the comments below.