How do you determine the effectiveness of your online ads? With click-through rate and cost per conversion? They remain reliable indicators… However, they should be complemented by ROAS (Return On Ads Spend).
This metric lets you quantify the performance of your advertising campaigns on Google Ads, Facebook, Twitter, LinkedIn, etc. It helps you measure, in real time, the revenue generated by a campaign relative to the budget spent. If that doesn't meet your expectations, you can make quick, smart decisions to cut losses or optimize your campaigns.
What exactly is ROAS? How do you calculate it and improve it? We explain everything in this article!
Definition of ROAS
As we said in the introduction, ROAS stands for "Return On Ads Spend." In French, it translates to "return on investment of advertising expenses."
This marketing metric measures the amount of revenue obtained for each euro spent when running an advertisement.
It can be calculated across an entire marketing budget or based on parameters such as:
- The advertising channel: Facebook Ads, Google Ads, Instagram Ads…
- The ad type: sponsored post, video post, links to the site…
- Targeting
- Campaigns
- Keywords
- Or any other parameter you consider relevant
Thanks to the ROAS calculation, you quickly know whether a strategy is effective or not. It can even help identify the techniques, channels, or formats that improve your results.
The goal is to increase the relevance of your advertising campaign because, as you know, the more relevant your ad is, the more revenue you generate!
Why calculate ROAS?
ROAS is one of the most important KPIs to monitor when you launch an advertising campaign. Here's why:
1. It allows you to optimize the performance of your campaigns
Advertising is a core part of marketing. However, it's often an expensive strategy.
If an advertising campaign isn't working, you need to identify it quickly to avoid significant losses. ROAS helps you detect ads that require quick action. You can choose to change the message, reduce the budget, or cancel it entirely to lower your ads' cost per acquisition.
2. It helps businesses improve
By knowing a campaign's ROAS, marketing managers can better understand their customers. They gain insights into their preferences, their obstacles and, conversely, what drives them to convert. You also see the channels where your audience is most receptive.
This data helps your marketing team make better strategic and budgetary decisions.
3. It can impress decision-makers
Your clients, your superiors, or your investors are highly sensitive to return on investment. For them, profitability is a key decision factor and it can influence whether you land future contracts (or receive a promotion).
With ROAS, you concretely demonstrate the benefit generated by your advertising campaigns. You prove your performance with quantified, irrefutable, and compelling data.
A top way to secure more budget in the future and/or attract investors.
How to calculate ROAS?
The ROAS formula is fairly simple:
ROAS = Recettes totales / Dépenses publicitaires totales
For example: if your ad generates €3,000 in sales but cost you €500, your ROAS will be:
3 000 € / 500 € = 6 €
Thus, for every euro spent on advertising, you earned €6.
What are the differences between ROAS and ROI?
Even though they both indicate returns from your marketing spend, ROAS and the ROI have a fundamental difference in their calculation.
The Return on Investment (ROI) includes the subtraction of costs and expenses related to the marketing strategy or to a specific campaign:
- Partner/supplier costs: all fees and commissions associated with partners and vendors.
- Agency/design costs: did you pay a freelancer to manage or create the ads?
- Internal resource costs: what is the time dedicated (and therefore the hourly cost) to create, analyze and optimize the campaign?
Let's take our previous example again, assuming the costs and expenses related to this specific campaign are €300.
The ROI is then:
(3 000 € - 300 €) / 500 € = 5.4 €
ROAS, meanwhile, remains at €6 because it looks at your advertising spend without taking additional fees into account. Its purpose is to determine whether a campaign — specifically — generated revenue and which ads are the best performers financially.
7 tips to improve your ROAS
After calculating ROAS, want to optimize it? Here are 7 best practices to try!
1. Check your tracking
Before making radical changes, you should check your tracking. A broken pixel reduces recorded conversions by skewing your ROAS calculation. That can lead you to stop a campaign that is actually effective.
So take a few moments to carefully inspect your tracking:
- Make sure that all your tracking tags are correctly configured
- Modify your attribution model so that partial credit is applied to all ads that contributed to the conversion process
- Isolate the costs and conversions of paid traffic to avoid skewing the ROAS calculation
2. Reduce Cost Per Click
Bidding inefficiently is an easy way to waste your ad spend. One way to improve your ROAS is to lower your CPC.
You can, for example, choose to aim for 3rd position rather than the top spot. It still appears at the top of the SERP, but costs less than pole position. This lets you improve the profitability of your advertising.
Another way to improve your CPC is to experiment with bidding strategiesYou may find that manual adjustments or enhanced CPC let you reduce your ad costs without affecting conversions.
3. Refine your keyword strategy
Sometimes it's better to target a narrow but highly qualified audience to improve your ad campaigns. If you're using broad keywords, try refining them to better qualify your audience.
For example, instead of “dresses” you could bet on “black strapless dresses.”
Also, if your products or services have strong features, use them in your campaigns. This might be your values (eco-friendly, made in France…), extra services (free shipping, 24/7 support…) or attractive prices (cheap, 50% off, on sale…).
4. Avoid ad fatigue
When you launch new ads, your campaign may achieve a high ROAS at the start, then gradually decline over the following weeks. This phenomenon is indicative of what’s called ad fatigue.
Ad fatigue occurs when your audience is exposed to your ads many times and eventually grows tired of them. Your ads keep circulating to the same audience, which is no longer—or no longer sufficiently—interested in your offers… This affects your ROAS.
The trick is to set a minimum ROAS threshold. When you reach it, it's time to refresh your audience to include new targeting criteria.
5. Optimize your landing pages
A well-designed landing page is essential to generate conversions and therefore improve your ROAS.
Consider optimizing your landing pages according to the purchase journey:
- For top-of-funnel users, include shorter forms and focus on messaging related to your prospects' goal or pain point
- For bottom-of-funnel prospects, use messaging that reflects your values and leverage social proof to close conversions
Finally, don't forget to match your pages to the messages and visuals used in your ad.
6. Consider retargeting
Why insist on reaching a completely new audience? Visitors to your website or social networks, as well as your current customers, are easier to convert.
Depending on the objective of your ad campaign, try to reach people who already know your business rather than new buyers. The ROAS will almost certainly be better!
7. Rely on Artificial Intelligence
Whether it's Google or Facebook, these ad platforms offer options to automate budget or bid management. What if you trusted them? After all, they know their users better than you do, and letting them handle part of the budget can produce nice surprises.
Test, analyze and compare — you'll quickly know whether it's appropriate to hand — part of — the controls to Google and Facebook.
Conclusion
The return on investment from your ad spend is the ideal indicator for measuring your campaigns' performance. However, remember to measure it regularly.
Ideally, schedule three analyses: during the first week after launch, at mid-campaign and one week before the end. This will allow you to make quick decisions to improve ROAS for current and future campaigns!
A PPC consultant will bring a fresh perspective to your campaigns and help you optimize ROAS. Get free quotes by posting your ad on Codeur.com.
