Digital marketing experts live in a data-driven environment. We’re always trying to improve key KPIs in paid marketing, like click-through rate, Quality Score, or cost per conversion. Too frequently, we lose sight of the wider picture as we grow preoccupied with the most basic measures.
But, return on ad spend (ROAS) does offer a glimpse of the wider picture. This indicator provides more information about both the factors that influence conversions and the amount of money that our conversion initiatives are producing.
What Is ROAS?
Return on ad spend, or ROAS, is a marketing term that gauges how much money your company makes for every penny spent on advertising. At its most basic level, ROAS gauges the success of your marketing initiatives; the better your messages resonate with prospects, the more money you’ll make from each penny spent on advertising and the higher your ROAS will prove to be.
Understanding ROAS, ROI & CPC
Several acronym measures, such as ROAS, ROI, and CPC, are frequently used in marketing, and many of them are quite comparable. These aren’t the same, though. Each one serves a distinct meaning and objective. Let’s dissect them
ROI, or return on investment, can be very close to ROAS but it’s not the same. In essence, ROI can encompass far more than just the cost of advertising.
Cost Per Click is referred to as CPC. This is a way to gauge the cost of an advertising campaign, usually using Google adverts. It just counts how many people click on your advertisement, and you get charged a particular amount for each click. In order to assess the effectiveness of your advertising material, you can utilise this information to determine your click-through rate. Although a CPC doesn’t actually tell you anything about your ROAS, you might use it to determine your ad expenditure and subsequently your ROAS.
What to Consider in ROAS Calculations:
You must take into account a lot of different variables in order to generate an appropriate return on ad spend estimate. These are the key figures that you require…
Conversion Value
You need to know your profit from the advertising campaigns you’re analysing in order to calculate ROAS; some marketers refer to this as the “conversion value.” In general, we’ll evaluate this with revenue, but it could be worthwhile to additionally assess this with profits by taking the base production expenses for the product out of the equation.
Partner Expenses
Ads alone do not make up the entire expense of a marketing strategy. The total cost of the advertisement will probably need to be increased due to vendor costs. You should also take into account a portion of the marketer’s salary if you hired them to assist with running the campaigns. Additionally, remember to factor in expenses related to bookkeeping software to manage and track these costs effectively.
Earnings from Affiliates
You should be sure to account for how much you will be spending on that and include it in the costs if you’re working with bloggers, magazines, or other advertising businesses that take an affiliate cut. This can occasionally amount to 5 to 10% of each purchase, therefore it shouldn’t be disregarded
Costs for Clicks and Impressions
Cost per click has previously been mentioned, but you might also be charged for the number of impressions the advertisement receives. Make sure to include it if it wasn’t part of your first advertising budget.
How to Increase Return on Advertising Investment
Now that you are aware of your present ROAS and your desired ROAS, the exciting part, improving your ROAS, can begin. This is the moment to investigate your KPIs, examine all of your data, experiment with your ad approach, and eventually increase campaign income and ROAS.
Although there are many various strategies to increase ROAS, every improvement will fall into one of three categories:
- Boost ad revenue without affecting ad price
- Reduce ad costs while maintaining constant ad revenue
- Boost advertising revenue while cutting costs (the best of both worlds).
Here are a number of various suggestions for enhancing your ROAS within those areas…
Increase Your Landing Page’s Conversion Rate
Be sure the landing page that your ad leads to WILL convert. You won’t see positive results if your website doesn’t make it simple for clients to buy from you, get in touch with you, or do anything else you want them to. No matter how great your advertisement is, if your landing page copy doesn’t utilise conversation rate optimisation, your conversion rate will be low and your ad budget won’t accomplish too much. Ads that bring people to your landing page will yield a considerably higher return if it leads to more conversions.
Concentrate on the Highest Performing Ad Platforms
This may seem a little too obvious, but the campaigns with high conversion rates will provide you a greater ROAS. Once you’ve begun monitoring your ad stats, you may identify the ad group (or groups) that are most effective for your company and concentrate on those instead of wasting money on ineffective marketing initiatives.
Utilise Negative Keywords
You are squandering money if your ads appear for keywords that don’t generate conversions or don’t target your ideal client, or you are not utilising negative keywords. You can add negative keywords (keywords you don’t want your ad to appear for), to Google AdWords.
Lower Your Ad Spend
This strategy can be a little problematic because you don’t want to exclude any valuable potential consumers by drastically reducing down your target group. Similar to negative keywords, you don’t want to waste your advertising dollars on prospects who won’t buy from you.
Increase Customer Lifetime Value
Imagine that each customer brought in by advertisements went on to make multiple purchases and became a repeat customer. Due to the fact that you are now receiving the customer’s complete lifetime worth, that advertisement has just become much more valuable. You’ve doubled your ROAS even if each customer only made the identical purchase once more after the initial sale.
Final Notes
After reading this, you ought to have a clear knowledge of what your account’s ROAS data says about it and how to proceed to optimise. Although the objectives of your various campaigns may vary, the ultimate objectives, increasing revenues and enabling you to expand your business, remain the same.
