How to Improve ROAS and Get More From Your Ad Spend

The global ad spend is expected to reach $645 billion by 2024. This figure shows us that businesses spend money to make money.

As a marketer, you probably know that organic traffic gets more saturated and takes ages to gain momentum and attract leads.

Ads are excellent to reach your market actively. However, you should understand the effectiveness of your marketing campaigns, and ad spend ROAS is the main success benchmark of your efforts.

ROAS is an important performance metric. But what’s the big deal about it. We’ll show a complete guide to improving PPC ROAS and maximizing your ad spend.

In the end, you will have a comprehensive roadmap of ROAS calculation by which you can approach your advertising campaigns in a different light.

What is ROAS & how to measure it?

ROAS stands for Return on Advertising Spend. ROAS is a metric that businesspeople use to assess whether or not their advertising efforts are worth the expense.

Here is the formula to calculate ROAS:

Conversion Value / Cost of Ad Campaign = ROAS

Conversion value refers to the revenue you earned. Mind that conversion value is accountable for the revenue you earned only from the ad, not revenue that you made from other sales channels.

For example, you sold two items at $100 each—total revenue is $200. One sold item is a conversion from your ad, while the other is your friend’s purchase. In this case, your Conversion Value is only $100, not $200.

Take a look at this concrete example:

Total cost of ad campaign = $250
Conversion value = $500
ROAS = $500 / $250 = 2

What does the ROAS formula mean? For every dollar spent, you are earning $2 back. ROAS is a better measurement of the efficiency of advertising campaigns than CPA, as it tells you the direct relationship of your advertising investment with your revenue.

To express it as a percentage, multiply the final result by 100. In our example, the ROAS percentage is $500 / $250 = 2 X 100 = 200%.

How to Calculate Breakeven ROAS Formula

Breakeven ROAS refers to a number you must meet to determine if you are making money off your ads in terms of a percentage value.

The formula for breakeven ROAS is

· Breakeven ROAS = 1 / Average Profit Margin %

Before you calculate ROAS and its breakeven point, you must identify your average profit margin percentage. But before that, you need to know your Average Profit Margin. Here are the formulas:

Average Profit Margin = Average Order Value – Average Order Costs
Average Profit Margin % = Average Profit Margin / Average Order Value X 100

To understand it further, please see the table below as an example of a marketing campaign outcome:

In this case, see below:

Average Order Value = $150
Average Order Costs = $88

Therefore, your average profit margin is $150 - $88 = $62. Then, your average profit margin percentage is $62 / $150 X 100 = 41.6%.

Now that you have your average profit margin percentage, let us say that you spent $100 on advertising to get these sales. When tracking sales and advertising spend, your breakeven ROAS is 1/41.6% = 240.38%.

What does this mean? If your ROAS is lower than the breakeven point, you are overspending money on ads.

How to identify good ROAS for your niche

Every niche has its own benchmarks, and marketers should use them to come up with a successful ad strategy. For example, the conversion rate for big-ticket items differs from low-priced ones.

ROAS is a controversial metric. There is no good or bad ROAS, as everyone has their own vision. Based on our experience, on Amazon, the average ROAS is only 3x or 300%. Consumer electronics have a ROAS of 9x while toys have 4.5x.

A good rule of thumb is a ROAS of 6x. It means that you are getting $6 back for every dollar you spend.

For example, if you spent $100 on ads, and your revenue is $600, your ROAS is 6. The thing is that this does not tell you if you are profitable. In case you earn $600 in revenue, your total expense is $500, plus you spent $100 on ads, which means you’re not generating money.

Let’s look at some ways you can improve your ad spend numbers.

10 ways to improve ROAS

There are several ways to improve ROAS, but we want to focus on the best 10 approaches that work.

1. Observe your competitors' strategies

Your competitors use PPC campaigns to generate sales Since you have the same intentions to make a sale, you can borrow some of their successful PPC campaign ideas.

While there is no way to see the ROAS from their ad groups, there is a way to find where they advertise. Use a tool like SimilarWeb to find out which ad networks your competitors are using. Even though SimilarWeb is not 100% accurate, but it is a good starting point.

Here are some more tools you can use:

Of course, it is not a foolproof method for ad placement to succeed. However, your competitor is not likely to take these actions without putting a lot of thought into it. As such, pick a successful competitor—these guys are not experimenting on ads. They’re probably making a bank from their campaigns.

What benefit does this give you? First, it tells you how your strong competitors reach out to their target audience. Then, you can emulate their ad copy or get ideas on making your ads more attractive and convincing.

Second, you can see where they are spending most of their advertising dollars. For example, you are likely promoting your brand on Instagram, but your strong competitor spends most of its ad budget on Google ads.

From here, you can say that it is high time you also advertise on Google ads, not Instagram. After all, why would a strong brand advertise there if it is not working, right?

2. Keep refining your keywords and bidding strategy

Keywords are basic expectations. Without them, your advertisement will not even see the light of day. As such, you must keep refining your keywords until you get your desired volume of impressions. Keywords also play a role in how customers make decisions.

For example, the keyword “flashlight for kids” will never make an adult hiking enthusiast buy it. The word “kid” connotes a toy—not for serious camping activities.

You must also analyze your results such as your revenue data or conversion data. The best thing to analyze big data is to use omnichannel analytic software programs such as Improvado. It will help you see ROAS data in a different light.

Sometimes, it is also likely that you are using the wrong keywords in your ad groups. It is why you should use keyword research tools like Ahrefs—they tell you the volume of what people are searching for. In addition, Google has a keyword planner and research tool—consider using it if you advertise on their platform.

Why? Sophisticated advertising platforms use keywords to determine what campaign to show a user. If your keyword is a poor match to the user’s intent, your ads will not have a lot of impressions, which is the very top layer in a sales funnel.

No impressions = no clicks. No clicks = no conversion rate.

The other thing you must do is tweak your bidding strategy. There are many bidding strategies, but the most common ones include how much you will pay and how the advertising network will show your ads.

Here are some examples:

Smart bidding – the ad network will optimize and automate your ad to help you achieve high conversions. The system chooses a target audience, and also uses the right format like banner ads.
CPC bidding – you are paying per click of your ad; you can make an ad group for a specific demographic, and you will only pay if someone clicked your ad.
CPM bidding – best for brand awareness, your ads are likely to find their way at the top of the blog page or the top of the search engine results.

If your goal is to improve your ROAS, the best bidding strategy is Smart Bidding. The algorithm of the ad network will determine if the person or user is likely to respond positively to your ad. If not, the machine will not show your ad group to the user.

3. Find the right audience and the right platform for ads

Before the internet, most companies advertise on TV, print, and radio. They still do, but traditional non-digital ads have shrunk. Anyone could see these ads, even those who do not belong to the advertiser’s target market.

Today, you do not have to use these marketing channels. Instead, advertising networks can show your ad to specific demographics of your choice. For example, you can show your ad to a female audience only or people in a particular state, city, or country.

The keys to a high ROAS are high conversion value and a small ad expense. As such, you will get the best returns for your advertising money if you advertise only to the right audience and on the right advertising platform.

It does not make sense to advertise on TikTok if you sell medicine for older adults. 60% of TikTok’s users are people below 34—your target market is not on this platform. Besides, it is a video platform for entertainment..

In this case, Facebook should be your go-to advertising platform. Facebook has balanced demographics, and its users are likely to reach out to someone they know who will benefit from your product.

Each advertising platform has its benefits. The safest platforms to use are Google ads, YouTube ads, and Facebook if you are just starting. Both Google and YouTube are search engines, while almost half of the world’s population has Facebook.

If you are using several platforms, use a program that can prepare and analyze your marketing data. This way, you can see which of your actions are resulting in revenue.

4. Lower the cost to develop your ad campaigns

Instead of spending thousands on online advertising costs, divert that money into the advertising campaign expense. One common mistake that we see too often is that eCommerce companies attempt to make TV-level ads. These advertising costs are expensive but may not always be worth it.

Shampoo companies pay scientists, models, and professionals to act and shoot a shampoo video ad. They have deep pockets to do this, but many eCommerce brands that sell online don’t.

Instead of keeping up with these big brands' online advertisers, you would do better if you invested more in impressions, clicks, or advertising on various networks from your marketing budget. Don’t forget to eliminate campaigns that perform poorly.

Here are some tips on how you can lower the cost of developing ads:

Outsource your ads to specialists
Use images, not videos
If you launch a video ad, keep it short
Use free music and video (no copyright)

Pro tip: Storytelling explainer videos ads tend to perform better than any other type of video content.

5. Optimize ads for appropriate devices

There are thousands of device models. Desktop, laptop, tablet, mobile devices—you name it. Each device displays an app or browser differently.

If your ad is displayed inaccurately, the audience will not respond positively. In addition, the ad would look unprofessional, affecting how people see your brand. Nothing will repel users more than a poor illustration of your brand.

Each platform has ideal sizes for images and videos. For example, Facebook has a page dedicated to its ideal ad sizes. The same thing goes for Google. You can then use a free tool to edit images online, So takes the time to review these standards and comply with these rules.

It is now up to these platforms to make changes according to the user’s device. It is why for a single image ad, the platform may ask you for five variants of it—each variant works for specific devices.

Pro tip: The better you design your ads to make them suitable to these platforms, the more impressions they’ll gather. This is purely coming from experiences.

6. Make your landing pages look like a real brand

Your landing page is your storefront. If it is not enticing enough, no one will buy. The landing page makes a person decide whether or not they will spend—it is the final step to your ad creation process.

If a person stumbled across your landing page, it shows that you did well in your advertising efforts. Your ad is attractive, and the people who saw it are the right audience. As such, they clicked on it and found themselves on your landing page.

Here are some tips on how to make your landing page look like an authentic brand:

Use professional hero banners
The copy must focus on benefits to the customer
Use a killer headline that sums up why a person must buy your product
Keep the landing page short and straightforward
Use images where appropriate
Add a video if necessary
Identify the pain and say that you are the solution

A landing page is probably the most challenging kind of copy to write. It is the culmination of your marketing efforts. If you fail here, you not only lose the opportunity to make a sale, but you also lose a return on ad spend.

7. Create better content: headlines, videos, sales copy, testimonials

Content is king. You will meet your target ROAS if you put the best content out there. From headlines to copy to testimonials - everything matters.

Here are some tips to help you write good ad copy with high ROAS:

Headlines – keep them short and straight to the point; use words that arouse curiosity.
Message – the message of your ad must contain two things: the problem and the solution. It must explain the pain point and that your products solve this pain.
Testimonials – testimonials from users or buyers matter; it makes your product more credible and your ad more believable.

Videos are excellent for a return on ad spend, but they are also expensive. Use a video only if it is essential or already seeing a return on your ads.

8. Reduce cart abandonment by leveraging CRO strategies

Conversion rate optimization, or CRO, is a gamut of approaches to convince a person to make a purchase. However, to increase your ROAS, you must first increase your conversion rate. After all, the target ROAS is a factor of sales.

One thing you can do is reduce your cart abandonment. Users will typically add products to their cart out of impulse, and then leave your website without completing the purchase. It is a lost opportunity, but you can fix it.

Here are some tips on how to reduce cart abandonment:

Be transparent on the purchase costs like shipping and handling
Make the checkout process easy and short
Add a thumbnail of the products on the checkout
Add several payment methods

As you can see, there are potential reasons customers leave their shopping carts and abandon the purchase. If they find out they have to pay extra for handling, they will distrust you, thinking you are milking money off them.

Also, make sure that your payment processor and pages load fast. People typically leave a website if the page takes more than three seconds to load.

Another thing you can do is use an email software program that records the customer’s email address. It saves the email address and then sends an automated message to people who abandoned their shopping carts.

You can customize the message in this email for a specific ad campaign—make sure the consumers can reply to it so you can address their concerns.

As you go along, you will begin to realize that your customers have different reasons for not pursuing the purchase. So listen to them, and make room for improvements in your shop, products, and processes.

Bonus Tip: Choose the highest converting ads and platform to rinse and repeat.

Not every social media platform is the ideal place to advertise. Each platform, be it Facebook, YouTube, or Google, has its demographics. Advertising on the wrong platform can be catastrophic.

For example, it does not make sense to advertise on Twitter if you’re in the cosmetics business. The best platform for this could be Instagram.

There are so many platforms out there, so let me provide a snapshot of the most used ones and when you should use them.

1. YouTube | Google Ads

With more than 2.3 billion users, YouTube is ideal for products you can demonstrate, such as a how-to video. It is also an excellent choice if you offer online courses or products where the consumers need guidance.

The search intent in YouTube and Google are highly specific and more targeted than social media sites which makes the conversions incredibly easy (if you target the right audience).

If you use the right keywords as a digital marketer, you can reach your target audience and get more ad clicks from people who are really looking for a product or service such as yours.

2 . Facebook

Facebook is a place where people build relationships. Use the platform to connect with your already existing customer base. It is a platform for building loyalty from your customers. Use it to release announcements, provide customer support, and do other after-sales activities.

Advertise on Facebook to capitalize on consumer relationships, such as if you have a new product that your existing customers may be interested in buying.

3. Instagram

The platform is home to many young people. It is an ideal social media site for tangible things, especially in the niche of beauty and physical health.

Instagram is an excellent advertising option if your product has something to do with food, cosmetics, food supplements, body-building devices—anything in which the results are visible.

Other marketing platforms like TikTok and Pinterest are not as effective. These platforms are home to very young people—those who love short videos or those who just want to have something to see online. However, their audiences are not exactly buyers.

Step Away From The Data To Investigate Issues Unrelated To Your Ads

After implementing these strategies I recommended, you may also want to look at other things apart from your marketing plan.

For example, is your product living up to the customer’s expectation? If not, do not expect people to talk positively about your product. If your product reviews are bad, no one will buy what you sell, even if they clicked on your PPC campaign ad.

Another thing you must consider is your after-sales services. It refers to the customer support you offer after buying your item. Some examples of this service are shipping and tracking, repair, warranty, returns, refunds, technical support, etc.

When calculating ROAS, remember that it is a measurement of how effective your ad campaigns are and whether they bring revenue to your business. But, more importantly, it tells you if your ads make you money or drain your coffers.

ROAS is a better measurement than click-through rate. CTR only tells you the number of clicks per impression, but it does not translate into money.

While conversion rate is also a good metric, it does not show you a good picture of what is happening on a dollar-by-dollar basis—but ROAS does.

FAQs

Calculating ROAS: How to Define Good ROAS for My PPC Campaigns?

A good ROAS for your marketing campaigns is higher than your breakeven ROAS. You lose money if the actual ROAS is lesser than the breakeven ROAS. Why? Because in the breakeven ROAS, you are already factoring in the cost of your goods and services.

What is best to track for marketing dollars? ROAS or CRO?

ROAS is a better metric because it tells you the financial health of your business about ad campaigns. CRO is nothing more than conversion rate optimization. You can convert as much as 50% of people who saw your ad, yet if your ROAS is bad, your business is in financial trouble.

What is the difference between ROAS vs ROI?

ROAS is a measurement of how much revenue you make based on your advertising activities. ROI, or return on investment, is nothing more than how much profit you made in your business against what you initially invested.

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