Are you ready to break the Return-on-ad-spend (ROAS) equation down and determine what underlying components can enhance your performance?
Ad campaign ROAS is a great metric to track as it gives you an overview of your input and outputs. Adding this metric to your digital marketing campaign’s performance is an excellent strategic move; CPC, for instance, doesn’t indicate the quality of traffic and leads you are getting therefore is often referred to as a vanity metric.
By watching your ROAS closely with the rest of your KPIs, you can quickly point out weaknesses in your strategy and implement your changes rapidly. But be careful, only looking at your ROAS can also be dangerous to a certain extent, as you „just“ look at the short-term bottom line.
What is ROAS?
The ROAS or Return on Ad Spend is a marketing metric that measures the performance of your digital marketing campaigns. It has components:
- Your sales made via advertising
- Your Ad Spend
To summarize it best, the ROAS is how much revenue you make per every dollar spent on your ads.
By tracking your ROAS, you can also evaluate, track and compare your digital marketing channels. It will quickly help you determine which are best performing and adjust your ad campaigns strategies.
How to calculate your ROAS
ROAS = Total revenue / Total ad spend
For example, if your total sales are worth $4,000 and you spent $400 on advertising, your ROAS would be 10.
For every $1, you spent on advertising, you have earned $10 back.
We are often asked: what is a good ROAS?
And frequently, it depends heavily on the industry.
The role of advertising is to overall generate revenue as a business. But what if I told you that it also helps make better marketing decisions? You might already know it, but looking at the ad campaign ROAS only as a revenue generator is a great mistake because it can guide you further: it can help you change your advertising model.
- by giving accurate data on budget changes and ad spend increases
- Indicates best performing ads, PPC campaigns, and keyword
- It offers a benchmark average which you can look back at
Let’s find out which techniques you can improve your ROAS performance!
How to improve your ROAS performance
To improve your ROAS performance, dissect this metric into its core components overall. The revenue you can generate online is composed of:
- Online ad clicks
- Post-click conversions
- Revenue per conversion
Knowing that, to improve your ROAS, you need to:
- Aim right
- Increase your post-click conversion
- Increase your revenue per conversion
Let’s start and see how you can have a closer look at your strategy.
Aim correctly to increase your ROAS
1. Are you targeting the right audience?
A quick tip would be to create several audiences for your ads and test them out, rather than the classic targeting tactic from geolocation, job title, etc. Because once you find the correct audience, you can create your ads around that specific segment.
You might wonder how segmenting your audience can improve your ROAS: Quality Score. It can be enhanced in three steps: creating relevant ads, good CTR, and a fantastic landing page experience. And once those three steps are complete, your ad costs will naturally lower and improve your ad campaign ROAS.
Ps: don’t forget to implement a retargeting strategy because users that already came to your website tend to click and convert more.
2. Are you targeting the right keywords?
Now that you are targeting the right people, you also want to target the right searches. Remember that it’s not because someone fits your persona that they are ready to buy. For this point, timing is key.
You can start with negative keywords to dodge impressions and clicks that you do not fit, which will hurt your quality score.
A quick tip to avoid high bidding keywords is to target long-tail keywords; they have lower competition (and, of course, cost) – but they might also have a greater chance of getting you post-click conversion rates.
For instance, a user looking for “blue women’s mom jeans size 2” is more likely to purchase “women’s jeans.”
3. Do you use the most efficient channels?
To increase your ad campaign ROAS, you will also need to measure your ad channels and define which ones are performing and which are not.
Improve your ROAS by improving your post-click conversion rates
To go deeper, we will work on improving the pace at which you convert clicks into customers. It all boils down to giving an optimized post-click landing page experience. It sounds abstract, but trust me on this one!
1. You will follow landing pages‘ best practices – because it drives conversions
First of all, here are the three pillars of a great and optimized landing page – it has to be:
- Focused: one conversion goal per landing page
- Persuasive: clear and compelling content, with incentives or offers (and why not some social proof, so the user can not look away)
- User-friendly: responsive layouts are a must-have & the load-time should be under 3 seconds.
You might think that:
- You already know that
- You are already doing that
That’s why I am going to add two more pillars, as going the traditional way sometimes is not enough:
- Have a holistic approach. When designing your ad campaign think about the before and after of the user experience (pre-click and post-click).
- Personalize your messaging by at least using targeting data to enhance the post-click experience.
2. Have a cohesive narrative & optimize your post-click experience
We just talked about how the post-click experience is enhanced thanks to personalization, but it’s only about the likelihood of a unique visitor that converts. We aim to improve your conversion rate for all website visitors, which is only possible by optimizing your landing pages. Which we just also discussed, it can be done with pre and post-click experience.
It means that you need to run a/b tests on your design and content. By doing so, you will be able to grow your conversion and overall your ROAS.
If you want to minimize the guesswork, I suggest you invest in platforms that automate your ads optimizations and audience behavior tracking.
Increase your ROAS by increasing your revenue per conversion
Ironically, the revenue component is the most neglected part of the ROAS optimization process. Marketers tend to be obsessed with CTR and conversion rates but lack a holistic approach (which should now be part of your pillars).
1. Generate more revenue from each customer
Easier said than done, but there are some methods you can use to achieve this with… you guessed it: post-click experience!
Hear me out; for instance, if you are an e-commerce business, you could increase the average order value by proposing free shipping at a minimum purchase price or when the user does a bulk order.
Or you could try to upsell by referring the user to a high-cost product or service (“would you like a belt with your jeans?”).
And these tactics work because your ad campaign is tailored toward the best-value products or services.
Ps: the best customers are the customers you already have. Another way to increase your ROAS is to increase your customer lifetime value. To do just that, here are some quick tips you can implement:
- Retargeting campaigns
- Reward, discounts, and loyalty programs
But don’t just do that; to increase your customer lifetime value, it is mainly about simple business practices:
1. providing an excellent service
2. High-quality product.
2. Problem areas you must also think of
- Is your pricing realistic and understandable (CMO toolkit to competitive analysis)
- Are your USP and value proposition obvious?
- Did you get feedback from your customers about your offer & website?
- Are you still relevant to your customer base?
- How is your conversion funnel? Are you correctly using micro-conversions?
- Is your website looking trustworthy? Do you have social proof?
Often, the points above are neglected, leading to a poorer conversion rate and a lower ROAS than expected.
Why you can not only look at your ROAS
Especially short term, the ROAS focus can make a lot of sense. Long term, you shall not forget awareness and calculate that wisely.
You can also check out this ROAS calculator we made to discover your full potential. As every business is different and complex in its own way, at nexoya we promise to increase your ROAS at its full potential. ROAS is probably the best metric to measure the efficiency of your ad operation and is an often misunderstood indicator. Use it right, and you will achieve great results in your advertising.