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The success of any business is relative because every business is flourishing amid different circumstances and is affected by different factors. Advertising is a great way to generate traffic and convert them into sales, but the chances of it working for your business is also relative. And that’s why it’s important to measure your advertising campaign’s shortcomings and find ways to improve your returns.
But how do you determine the effectiveness of your advertising efforts? Well, there is a marketing metric called ROAS that can help you with it, and here we will shed light on the same. Get ready for some answers.
What is ROAS?
ROAS is the short form for Return on Ad Spend. It’s a marketing metric used in the digital world to ascertain a digital advertising campaign’s efficiency. ROAS tells you how many dollars you will possibly receive in return for every dollar spent on advertising. Now, if it sounds like we are talking about Return on Investment (ROI), you’re right; the similarity is there. But it’s not the same.
Well, If you are familiar with the term Return on Investment, it’ll be easier for you to understand ROAS better. They both work in a similar way as a marketing evaluation tool, but the key difference lies in their subject matter or the paradigm of study.
According to reptile marketing, return on investment (ROI) aims at evaluating the overall effectiveness of your marketing. On the other hand, Return on Ad Spend (ROAS) evaluates a particular move’s effectiveness like an ad group, an ad, or even a keyword. So, if you are looking for an answer to whether an online advertisement is worth your efforts and money, checking your ROAS would clear up many doubts and might as well save your money.
How to calculate ROAS?
If you are not a fan of maths, it might sound a bit intimidating, but it’s quite simple to understand. The formula is given below.
ROAS = Revenue Dollars (Profit from Advertising) / Advertising Spend Dollars (Cost of Advertising)
Let’s understand it with the help of an example: You allocated $5000 (Cost of Advertising) for an advertisement campaign, let’s say a PPC campaign (Pay-Per-Click). By determining the number of clicks and considering the check-out, you figured that the clicks generated around $15000 (Profit from Advertising) worth of sales.
So ROAS would be, 15000 / 5000 = 3
It implies that you will get a return of $3 worth of sales in return for every dollar you spent on advertising. Now, if you have to calculate the return on investment, the cost of advertising ($5000) would be subtracted from the return on sales ($15000), and the resulting amount would be considered the profit. And that’s the key difference between calculating ROAS and ROI.
The purpose of ROAS.
It’s quite a possibility that your advertising efforts might be working against you, and you have no idea. And that’s what ROAS tells you, and it’s important to calculate ROAS because it gives a much detailed review of specif ad elements rather than the campaign as a whole.
In simple terms, tracking ROAS tells you that the changes you made in your ad campaign are working or not, and if certain things are not working, you can figure out the elements that require your attention and some alterations.
Monitoring your ROAS can also help you find a way to increase your returns without having to increase your budget. They simply help you make a more informed decision for your ad campaigns. Isn’t it quite effective? But how to know if it’s working for you or not?
What is a good ROAS?
Tracking your ROAS is great, but how do you know if it’s doing well? And what elements are yielding returns? Well, the simple answer would be: the higher the ROAS, the better it is for you.
Remember the following rule of thumb of ROAS.
· If ROAS is below 3:1, it’s a red flag with LOSS written on it. Some changes in your marketing are required.
· If ROAS is 4:1, things are working, and you are making profits.
· If ROAS is 5:1 or above, your efforts are paying off well.
How to increase ROAS?
Above, we discussed how you can determine the ROAS and what levels describe your efforts’ effectiveness. Considering them, it’s clear that 4:1 ROAS is ideal to aim for, and you can say it’s a sweet spot because if you drop to 3:1 ROAS, it’s not a good situation. However, if you get 5:1 ROAS or above, it’ll be wonderful. So, 4:1 is a safe place where you get returns, and you are not drowning in losses. Once you have set your ROAS target, you need to define your budget, and all your actions should be in line with this decision. Here are some things you should do.
Optimize Your Landing Pages
Landing pages are the first impressions you cause on the customer, and you don’t want to mess that up, do you? The products or services your website is offering should be described from the perspective of customers and not the business. People tend to pay more attention to the things that relate to them, and then they are more likely to pay more than just attention, i.e., their money. So, get your ads to compliment your landing pages.
Refine Your Keyword Targeting
Keywords are a great way to attract traffic. More traffic means more potential customers, so it is essential to use suitable keywords to attract the target audience. You can use long-tail keywords to attract more traffic. Study your data and determine what works best for you. Using negative keywords can help you reduce the cost.
Pay Attention to Conversion Rate Optimization (CRO)
Customers abandoning their carts is not a good sign for your sales. Analyze the reasons and use CRO strategies to improve the cart abandonment rate. The numbers of clicks are not enough if they are not being converted in customers.
Promote Seasonal Offers
Seasonal offers and discounts actively increase the conversion rate. Optimizing your offers according to the occasion and your ads relevant will help attract more people and complete the buying process. It’s one of the most effective ways to increase your sales.
Conclusion
In the article above, we tackled several questions and attempted to answer them, providing you insights on the working of ROAS and effective ways to improve it.
