Return on Ad Spend (ROAS) is a measurement used by digital marketers and advertising platforms to provide a measurement of how much revenue you are earning for every £ you spend on advertising.
This measurement helps you by giving a figure that is comparable across campaigns and advertising platforms. And ROAS can be used at a granular level – per campaign, or across all your campaigns over a longer period of time.
How to work out your Return On Ad Spend?
Whether you’re advertising via Google Ads, Facebook Ads or LinkedIn Advertising, you’ll want the security in knowing that your campaigns are running efficiently and effectively.
It’s really easy to calculate your ROAS. If you’re looking to build a formula into your own spreadsheet, then use this calculation:
ROAS = (Revenue from advertising / Cost of advertising) * 100For example:
If you spend £1,000 on Google ads in one month, and your revenue attributed to that advertising is £7,000. Then you calculate ROAS by dividing £7,000 by £1,000, which gives you a 7:1 ratio or 700% ROAS.
Or
(£7,000/£1,000) * 100 = 700%But to make it even easier we’ve provided a Return on Ad Spend Calculator below, so you can quickly calculate your ROAS across all your campaigns or timeframes.
How to use the ROAS calculator?
- Enter your ad spend into the first field – this can be monthly ad spend or over the campaign lifetime
- Enter your tracked income generated from your advertising campaign(s) into the second field.
- This will then display your ROAS %, Return on Ad Spend value in £’s, and a “so what” summary from us – so you know straight away if this is good, bad or ugly.
Factors that influence your ROAS
This depends on a number of different factors, most importantly:
Advertising Objective
I wouldn’t expect to achieve a high ROAS from an awareness campaign, but I’d expect a good ROAS from a conversion campaign.
Advertising Call-To-Action
If you’re driving your prospects through to a phone call to convert, then unless you’ve got a robust call tracking system in place, you’ll find this type of campaign extremely difficult to track through to conversion – resulting in a low ROAS %
Industry Sector
Depending on your sector or product offering, you might have a low customer lifetime value (CLV). Therefore you need to be aiming for a higher ROAS in order to ultimately drive a reasonable return on investment.
Brand Popularity
When you’re first entering a market your advertising campaign won’t have the same levels of trust that an established brand might have.
Wrong campaign objective or target audience
If your ROAS is below 300% then your campaign is failing (as it’s unlikely to provide a return on investment). I’d recommend you review your target audience and campaign objectives to ensure you’re spending your budget wisely.
Price
Especially relevant if you’re running Google Ads Shopping campaigns, your price point will affect the customers decision process.
Customer reviews
It’s important to try to elevate your customer reviews to a prominent place across your advertising, as this supports and boosts brand reputation
Description or images used for your products
How you describe your products or the images you choose to represent them will impact the ability of your campaign to drive a higher ROAS
What is a good Return on Ad Spend?
Typically a return on ad spend above 800% is good, as this, in theory, should give you wriggle room for your business expenses.
In order for your campaign to break even, you need to get an ROAS of 100%. If your ROAS is less than 100% then it means you’re spending more money than your campaign is bringing into your business.
You’ll need to review your campaign urgently to stop wasting budget. And once you then add in business running costs, you’ll be wanting to achieve an ROAS of 400% to drive a profitable Return on Investment.
How do you improve your ROAS?
Assuming you’re using our ROAS calculation from above, and only including your pure advertising costs – not any costs for packaging, product/service supply or fulfilment, then you’ll want to start by
Evaluating your campaign objective
Is the objective to drive conversions or sales? I wouldn’t expect a high ROAS from a brand awareness or email gathering campaign.
Review the customer journey
Take a look at the end-to-end flow from ad placement through to conversion. If your ad campaign metrics are robust, and you’re successful in driving visits to your landing page, but your ROAS is low, then I’d recommend you look at your landing page traffic and conversion. Something about your landing page is letting your campaign down.
Check the following:
- Do you have a good link between your advertising copy and your landing page? Or are they disjointed and putting visitors off?
- Does your landing page have a strong and clear call to action?
- Review your website analytics to see what your visitors are doing when they reach your landing page. Are they looking for other content that could be lifted up and displayed prominently on your landing page, so they don’t have to search and get distracted.
Consider ad fatigue
Have your adverts been running too long in their current state? This is especially relevant for campaigns where you are running single headline/ad copy adverts, or for display advertising campaigns. Try A/B testing new copy against the existing versions.
Check your target audience and ad targeting
Are you targeting the right people? Age groups? Demographics? Are there any that could be removed from the campaign due to poor performance. Are you targeting the right geographical locations, have you spent time optimising these via the likes of lookalike lists?
Finally, once you’ve exhausted everything in your power, take a look at your product or service, is your pricing strategy effective. Could you offer a discount or value added promotion?
Want help with your paid advertising campaigns?
If you’re looking for a refreshingly honest and approachable extension to your team, then book in for a free, no-obligation chat today. I offer power hours, Google Ads audits, team training and ongoing paid advertising maintenance packages and work across Google Ads, Facebook Ads, and LinkedIn Advertising.
Let me help you nudge the dial on your PPC advertising campaigns.
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