Return On Ad Spend: Maximizing Return On Your Ads

Return On Ad Spend: Maximizing Return On Your Ads

  • Aug 31, 2020
  • 963 words
  • 4 minutes read
Photo by StellrWeb on Unsplash 

There can be many goals when a business runs a marketing campaign, but it's undeniable that the prime objective is to gain more revenue.

One way to measure if the business is indeed earning is by calculating the Return On Ad Spend (ROAS) in addition to tracking the CTR, response rates, conversions, and calculating the overall ROI.

What is Return On Ad Spend

Return On Ad Spend (ROAS) is a marketing metric that measures how much you earn from every advertisement you run for your business.

ROAS measures the effect of every spend dollar on your marketing or advertisement. It specifically looks at the ad campaign's cost and not on the overall expenses incurred by the business, unlike with ROI.

So, how is ROAS different from ROI?

Return On Ad Spend vs. ROI

Though ROAS is similar to ROI, they use different factors to get the intended results.

Return on Investment (ROI) looks at the business's overall investment to evaluate the overall effectiveness of all the marketing efforts.

ROAS, on the other hand, only looks at the cost of the ad to evaluate the effectiveness of one particular ad campaign. So, if you want to identify which ad campaign is worth your time and money, you can use ROAS.

ROAS is a useful metric to determine which ad you should spend your dollars on.

Why You Should Calculate ROAS

Wall with old advertising signs

Sure, you can employ various marketing campaigns and get conversions, but you won't get clear insights on your campaign ads.

However, tracking and calculating the return on every ad spend will give you a clearer view of every ad campaign you run. With ROAS, you can investigate why a specific campaign generates more revenue than the others.

Furthermore, it helps you determine how a particular ad campaign contributes to your brand's net income. Without it, you are only guessing whether your ad campaign is generating more revenue than cost.

What's more, is that ROAS helps you identify better ways to allocate your budget. Working on a budget, ROAS will help you identify the profitable ad campaigns.

How to Calculate Return On Ad Spend 

To determine your ROAS on a specific campaign, you only have to remember two metrics. The first one is the cost of ads, and the second one is the revenue generated by ads.

We can put the Return On Ad Spend formula as:

ROAS = Total Ad Revenue / Total Ad Cost

This formula gives you a ratio that can be used to determine whether your marketing campaign is effective or not. If an ad campaign generates $10,000 in revenue after a $200 cost, your ROAS is 5:1.

But of course, to be able to calculate the campaign's ROAS, you have to track first the conversions and sales information for that specific campaign. Fortunately, most ad platforms make this an easy process.

To track Google Ads campaigns, you can get the data you need on the main dashboard's Ad Groups page. After you gather the conversion and sales information, you can immediately compute the campaign's ROAS.

What is a Good ROAS for my campaign?

ROAS varies from campaign to campaign. Therefore, there is no single "good" return on ad spend as different campaigns produce different results.

But as a general rule, a ROAS of 4:1 or higher signifies a successful campaign, and a ROAS of 3:1 shows a mediocre result, which may urge you to take a more in-depth look at your ROAS and check possible flaws of the information you have.

Bear in mind that your ROAS result is highly dependent on the metrics you have considered to calculate. Make sure you are attributing the revenue and cost correctly.

How to Improve Your ROAS

desk with paper with graph

Photo by Lukas from Pexels

When you get a low ROAS on one or two of your campaigns, do not immediately stop the campaign. Instead, review the factors involved in calculating the ROAS to get credible insights on the results and make a better decision.

Review ROAS Accuracy

The first step to improve your ROAS is to check the accuracy of the metrics involved. Check if you have considered all the costs of your advertising.

Inaccurate Return On Ad Spend can unnecessarily lead to canceling the highly competitive campaign.

Lower the Cost of Your Ads

One of the factors that you can look into is the cost of your ads. By lowering your ad cost, you can surely improve your Return On Ad Spend.

You may lower your ad cost by checking if you're targeting the right keywords.

Example: When running a Google Ad Campaign, you may check if you are wasting ad spend on keywords you don't want to target. You may eliminate those unwanted keywords, or you may add negative keywords instead. 

Example: You are running an ad campaign for the phrase "Baby Shoes" but you don't sell booties and leather shoes; you may add those terms on the negative keyword list to prevent your ad from showing up on different search engines queries related to those keywords.

Adding negative keywords helps improve the relevancy of your ads' traffic, thus improving your return on ad spend.

Increase the Revenue Generated by Ads

Another way to improve your Return On Ad Spend is to increase the revenue generated from your ads by checking on other metrics like Clickthrough Rate (CTR) and Cost-Per-Click (CPC) to see where your ads are going wrong.

Ads with a high CTR and a low ROAS might have a problem with their landing pages. 

Bottomline

There are multiple metrics you can use to measure your ad campaign effectiveness. Still, the most accurate method to determine whether your ads are worth the investment is by tracking and calculating ROAS in line with other digital marketing metrics such as CTR and CPC.

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