WHat is ROAS

What is ROAS? (Return On Ad Spend)

What is ROAS?

ROAS stands for Return On Ad Spend. It’s a way to track the effectiveness of your digital ads and is represented as a percentage. You can think of it as how you earned much revenue or profit per dollar spent on advertising, but it isn’t necessarily an accurate reflection of that (we’ll cover why later).

The difference between ROAS and ROI.

The main difference between ROAS and ROI is that ROAS looks at revenue generated from ads while ROI considers both ad revenue and costs. This is why you’ll sometimes hear people say that ROAS is a vanity metric – it looks good on paper but doesn’t necessarily tell the whole story.

How to calculate ROAS?

You can calculate your ROAS by using the following equation:

(Ad Spend/Revenue or Profit) = ROAS

For example, If your ad spending was $100 and you made $200 in revenue, your ROAS would be 2 (100/500) = 2.

An example of ROAS in action.

Let’s say you’re running a marketing campaign for your new shirt store. You want to track how many people click on your ads versus actually making a purchase, so you set up conversion tracking with Google Ads or Bing Ads. At the end of the day, how do you know if your ad spend was worth it?

ROAS can help you answer that question. Let’s say your ad spend was $100, and you made $200 in revenue. Your ROAS would be 200% (200/100)*100=200%. This means that you made two dollars in revenue for every dollar you spent on advertising. That’s a great return, and you should consider running more ads to increase sales.

Why does knowing your ROAS matter?

It’s super important to know what your ROAS is because it can help you determine whether your ad spend generates a profitable return. If you’re paying too much for clicks, your ROAS will be lower than what’s ideal (and vice versa).

Knowing your ROAS can also help you make better decisions about allocating your advertising budget. If you know that a particular campaign is generating a higher ROAS than others, you might want to invest more money into that campaign.

What Is a Good ROAS?

What a good ROAS depends on a few factors. If you’re selling a high-ticket item, you might be content with a lower ROAS as long as revenue is high. On the flip side, if your product costs less to make, you’ll want your ROAS to be higher so that you can make a good return on every dollar spent on advertising.

According to MarketingSherpa, the average ROAS for eCommerce businesses is around 220%. This means that if your ad spending were $100, you’d expect to make $220 in revenue. This number will vary depending on your business and product.

It’s important to note that ROAS isn’t always a perfect reflection of your ads’ profitability. One reason for this is that it doesn’t consider costs other than ad spend. For example, your ad spend might be $100, and you might generate $200 in revenue, but what if your rent went up or you had to hire more employees? You’d still have made a profit on your ad spend, but the ROAS wouldn’t reflect that.

What’s a bad ROAS?

Anything below 100% is considered bad and suggests that your ads aren’t generating enough revenue for the ad spend you’re putting in. If you don’t see any sales from your ads, it might be time to cut back on your budget or ditch the campaign altogether. See our guide on how to know when it’s time to scale back your PPC budget for more info.

A few things that can decrease your ROAS

The following things could reduce your ROAS:

Increased ad spend

If you increase the amount of money you’re spending on ads, your ROAS will go down. This might be okay if you have a high average order value, but it’s important to track this metric to optimize your advertising budget.

Low CTR

A low click-through rate (CTR) means that people aren’t clicking on your ads as much as you’d like. This could be due to many factors, such as the keywords you’re targeting or the design of your ad.

Poor website conversion rate

If people are visiting your website, but they’re not converting, it could mean that there’s something wrong with your website. This could be due to several factors, such as the design of your page or the copy on your landing page.

Low average order value

If people buy your product but they’re not spending as much money as you’d like, try increasing your average order value. You could do this by offering discounts or promotions that encourage customers to spend more money before checking out.

The best ways to increase your ROAS

So when you know your ROAS and find it a bit too low, what are some things you can do to improve it? Here are a few ideas:

Decrease ad spend

If you’re earning less than your desired ROAS, it might be because you’re spending too much on ads. Try decreasing the amount of money you’re spending on ads to see if that helps. You could even try lowering your bids to rank lower in advertising auctions. The more exposure your product gets, the more likely someone will buy it.

Improve website conversion rate

If you’re not getting as many conversions as you’d like, try improving your website’s conversion rate. This could involve changing your page layout, adding more images or videos, or making it easier for customers to buy your product.

Increase average order value

If people buy your product but they’re not spending as much money as you’d like, try increasing your average order value. You could do this by offering discounts or promotions that encourage customers to spend more money before checking out.

In the end, ROAS is just one piece of the puzzle, and it’s essential to look at your numbers holistically. You might decide to prioritize different metrics over ROAS (such as conversion rate or revenue), and that’s fine.

The best way to learn what works for your business is by doing it yourself. Keep experimenting with ad spend, landing pages, and various other strategies until you find something that generates a profitable return on investment for your company.

Make sure to keep track of your ROAS and adjust your advertising strategy accordingly!

Conclusion:

ROAS is a critical metric to track when running a PPC campaign. By understanding your ROAS, you can change your advertising strategy to increase your profits. There are many ways to improve your ROAS, such as decreasing ad spend, improving website conversion rate, or increasing average order value. Keep experimenting until you find what works best for your business.

Do you have any questions about ROAS or PPC advertising? Let us know in the comments below!