If you’re going to be running paid ads, whether it be on Google, Facebook, or some other platform, you’re going to come across the phrase “ROAS.” If you’re not sure what this is, you’ll want to learn it and understand its importance in measuring the success of your ad performance.
In this blog post, we will go into the definition of ROAS and provide some useful insight into how it can be used to measure success within your ad campaigns.
What Does ROAS Mean?
ROAS stands for “return on ad spend,” and means exactly as it says. Your ROAS represents your return for every dollar spent.
For example, let’s say you run a few shopping ads through Google. After a month, you’ve spent $1,000 and made $1,700 in sales. To calculate your ROAS, all you need to do is divide your sales by your spend.
1,700/1,000 = 1.7
Your ROAS is a 1.7, meaning you’re making $1.70 for every $1 that you spend.
How Is ROAS Used to Measure Success?
For obvious reasons, your return on investment is a huge factor in whether or not you can afford to run ads for your business. Because of this, your ROAS can be used to provide a simple measure of whether or not your ads are successful.
For some businesses, simply having a ROAS above zero is considered a success. However, it’s generally accepted that you want to hit at least a ROAS value of 1.
It’s important to consider what other costs are associated with your ad spend. For instance, businesses who sell products online may have to pay out of pocket for certain fees or shipping. In the end, this needs to be considered when looking at ROAS.
Another example is sites that sell products through dropshipping channels. Since the product is not owned by the site, they have to set their prices so that they can make sales while also making a profit. If their profit margin is too low, then their ROAS needs to be even higher to be worth keeping paid ads in the budget.
For your business, simply factor in all the expenses that come with making a sale or desired conversion. If your only expense is the ads you run, then set a goal ROAS to aim for and start your campaign. If other expenses are involved, be sure to factor that in when calculating your return on ad spend.
There are also special instances where businesses run ads simply for visibility to their site, product, or something else. In this case, ROAS may not be as important as say the total number of clicks that they are receiving with their ad spend.
Tips for Maximizing ROAS
Whether you’re running ads on Google, social media, or some other platform, there are some general guidelines you should follow in order to maximize your ROAS.
- Set Clear Goals: Define specific, measurable objectives for your ad campaigns, whether it’s increasing sales, leads, website traffic, or brand awareness.
- Audience Targeting: Utilize detailed audience targeting options available on each platform to reach the most relevant audience for your products or services.
- Keyword Research: Conduct thorough keyword research to identify relevant keywords with high search volumes and low competition for Google Ads. Use tools like Google Keyword Planner or SEMrush.
- Compelling Ad Copy: Write attention-grabbing ad copy that clearly communicates the value proposition of your product or service and includes a strong call-to-action (CTA).
- High-Quality Creative: Use visually appealing images or videos that resonate with your target audience and accurately represent your brand.
- A/B Testing: Continuously test different ad creatives, headlines, CTAs, and audience targeting options to identify what resonates best with your audience and drives the highest ROAS.
- Optimize Landing Pages: Ensure that your landing pages are optimized for conversions, with clear messaging, intuitive navigation, and a compelling offer that aligns with your ad content.
- Ad Extensions: Take advantage of ad extensions (such as site links, callouts, and structured snippets) in Google Ads to provide additional information and increase the visibility of your ads.
- Budget Management: Monitor your ad spend closely and allocate your budget based on the performance of individual campaigns, ad sets, or keywords to maximize ROI.
- Remarketing: Implement remarketing campaigns to re-engage with users who have previously visited your website or interacted with your ads, increasing the likelihood of conversion.
- Ad Schedule Optimization: Analyze the performance of your ads at different times of the day and days of the week, and adjust your ad schedule to focus on the times when your target audience is most active.
- Platform-Specific Strategies: Tailor your advertising strategies to the specific features and algorithms of each platform (e.g., Facebook, Instagram, LinkedIn, Twitter) to maximize effectiveness.
- Track and Analyze Performance: Use tracking pixels, conversion tracking, and analytics tools to monitor the performance of your ad campaigns in real-time and make data-driven optimizations.
- Continuous Optimization: Regularly review and optimize your ad campaigns based on performance data, market trends, and changes in consumer behavior to maintain a high ROAS over time.
- Stay Updated: Stay informed about updates and changes to advertising policies, algorithms, and best practices on each platform to adapt your strategies accordingly and stay ahead of the competition.
Closing Thoughts on ROAS
It’s important to always keep in mind that your ROAS will fluctuate over time. It will almost never be the same day-to-day, week-to-week, or even month-to-month. The important thing is understanding your profitability range and ensuring that you stay within it. Factors outside of your control, such as search volume, seasonality of products, and more can affect how many times your ads show, but the quality of your ads will always play a crucial role in your ROAS.
Need help understanding and managing your ROAS for paid ads? We can help! Contact us today so we can start a conversation about your business and goals.