ROAS: Getting Most Out of Your Ads

ROAS: Getting Most Out of Your Ads
6 min read

A brand's marketing campaign can have several objectives, but the main goal is always to bring money to the business. How do you analyze if your business is making enough profit from the marketing campaigns? Some of the methods are calculating the Return on Ad Spend (ROAS), measuring the conversions, click-through rates (CTR), response rates, and the overall Return on Investment (ROI). We are one of the top most digital marketing agencies in USA and we can help your brand achieve high ROAS through marketing campaigns.

What does Return on Ad Spend (ROAS) mean?

You can measure the money your business generates from every marketing campaign with the help of this marketing metric known as Return on Ad Spend (ROAS). How much return is generated from every dollar spent on marketing is calculated with this key performance indicator (KPI). The difference between ROI and ROAS is that ROI takes into account the entire expenses of a business, while ROAS only considers the money spent on running the ad as an investment.

Return on Investment (ROI) v/s Return on Ad Spend (ROAS)

Though these metrics are similar, they are used to measure different goals. ROI considers the total investment of a business to evaluate the effectiveness of all marketing campaigns. 

Whereas ROAS measures how successful only a single ad campaign is on the basis of money spent on running that ad. This metric will help you analyze if investing time and money in a marketing campaign is worth it. It is a crucial KPI for any business to decide which campaigns are most profitable.

Why is it important to calculate ROAS for a business?

Running campaign after campaign to get conversions but not measuring their performance will get your business nowhere. The main goal of any business should be to generate profits. At the end of every campaign, you need to collect enough insights that help you track and measure the money the campaign created for your business. You can use ROAS to analyze which marketing campaigns give you more returns and why.

What do you think is the most practical method to determine how successful a marketing campaign was? You need to calculate that campaign's contribution to your brand's net income and if it has generated more money than the money spent on running it. It gives a better sense of how to manage and spend your marketing budget. You can easily measure the ROAS of an ad campaign with the help of two metrics. The first metric is the expense of running an ad and the second one is the money generated by the ad. 

Hence, the formula for calculating ROAS is:

ROAS= Total ad revenue/ Total ad cost 

You can measure the performance of your marketing campaign with the help of this ratio. Suppose you spend $200 on running an ad, and it delivers a revenue of $1000. The ROAS will be 5:1, and since the numerator is five times the denominator, you can easily understand that your ad campaign generated 5X the revenue of what you spent, and it is a pretty good performance.

But the first step to calculating a campaign's ROAS is to track the sales data and the number of conversions. But the process of calculating these data is made simple by most ad networks. Go to the Ads Groups page of the main dashboard of Google Ads campaigns, and you will find all the required data. Once you have collected all the sales and conversion data, calculating the campaign's ROAS is the simplest task.

What ratio of ROAS should I consider as a good return on money spent on an ad campaign?

Different advertising campaigns work differently and have varied objectives, so there are no set criteria to decide if the return on ad spend is "good enough."However, a general thumb rule would be to consider a ratio of 4:1 or greater as a "good" return on investment and anything lower as a poor performance. Your ROAS calculation is dependent on the metrics you use. So you need to ensure that the revenue and expenses are correctly placed.

How do I improve my Return on Ad Spend (ROAS)?

Don't just run an ad campaign once or twice and stop just because you see poor ROAS. To achieve your ROAS goals, you need to further study the metrics used to calculate the ROAS. The more clarity you gain about the results, the better-informed decisions you make.

1. Study how accurate your ROAS is

Cross-check if the components you have used in calculating the ROAS are accurate. Have you included everything in your advertising expenses? Any mistake in the calculation of ROAS can lead you to close a campaign that might have the potential to be a huge success.

2. Reduce the expense of running your ad

It is a no-brainer that to improve your ROAS, you need to cut down on the expenses of running an ad. Are you targeting the proper keywords in your ad? Use negative keywords that enhance the relevance of your ad traffic. It will automatically result in a higher return on ad spend (ROAS).

3. Increase the money that an ad campaign generates

The other obvious strategy to increase your ROAS is to increase the income produced by every ad campaign. Analyze where and why your ads are failing with the help of metrics like Cost per click (CPC) and Click through rates (CTR). For instance, if a particular ad campaign has a high CTR but poor ROAS, fix the landing page.

Conclusion

There are tons of ways to measure the performance of a marketing campaign. But analyzing it with ROAS, along with other metrics such as CPC and CTR is the most effective and accurate technique. We are a popular digital marketing agency in USA and we can help your brand design campaigns that generate high ROAS.

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Kanika Roy 2
Joined: 1 year ago
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