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ROAS Return On Ad Spend Calculator
Return on Ad Spend
In the following article, the topic of ROAS (Return on Ad Spend) is explained in full with definitions of what ROAS is and how to calculate ROAS. You will learn how to maximize ROAS and other general ways to improve ROAS.
ROAS is a digital marketing and advertising measurement that greatly influences the value of ad buying campaigns. To learn more about ad buying, the extensive world of data and eventual ad spend returns, keep reading this article.
For those who are unfamiliar with ROAS and digital advertising refer to the following page, Digital Advertising for a comprehensive overview of digital advertising and its practices.
Digital marketing is here and will not go anywhere soon. With ad spending increasing substantially over the coming years measuring the impact of ads in terms of revenue is an extremely useful tool.
That’s exactly what ROAS is. If you are interested in what ROAS is, how to calculate ROAS and information on how to improve your company’s ROAS keep reading to hear our advice on return on ad spend, a major digital marketing measurement.
What is ROAS?
Return on ad spend (ROAS) is a marketing measurement that calculates the return in revenue for every dollar spent on advertising. In digital advertising this metric is our version of a measurement you have most likely heard of before, ROI (Return on Investment).
ROAS is a standard for showing how successful an ad campaign is. While you may think of ROAS as a final reporting metric the reality is that this measurement is very important for optimizing ad spending in real time.
Meaning return on ad spend is calculated continuously while performing ad buying and will inform how marketers continue to place and purchase ads. ROAS is one of many measurements that help advertisers optimize their campaigns.
How to Calculate ROAS
Return on ad spend = Revenue/Cost
In digital marketing this number representing revenue must be linked to an advertising campaign. So revenue means the total value of revenue brought in from advertising.
In the same respect, cost means the overall amount of money it took to maintain this advertising campaign.
Since this measurement is return on ad spend, we are only concerned with business earnings and finances from the advertising campaign.
Take the following example as a case study on how to calculate ROAS.
A beverage company sets up a brand new campaign to improve conversions on their website and gain new customers. The goal of the campaign is to see a significant rise in revenue.
$3300 – ad spend
$290 – purchase ad buying software
$410 – maintenance fees
Total Cost equals $3,900
Due to these marketing choices the beverage company receives a significantly higher conversion rate and their revenue comes out to $6,825.
The beverage company’s ROAS is now equal to:
ROAS = $6,825 / $3900 = $1.75
Since the beverage company is now earning a ROAS value of $1.75 this means that for every dollar spent on advertising, they earn back 75 cents.
This would be a positive ROAS value for the beverage company and indicates that the advertising efforts worked. However, is this ROAS a good value or should it be higher? The following questions are answered below.
What is a Good ROAS?
Now that you know how to calculate ROAS, it’s time to ask ourselves. What is a good ROAS?
Since ROAS measures the effectiveness of your advertising efforts it’s important to understand whether your ROAS value is high or low.
What can be a bit confusing about ROAS is that for each industry the benchmark of a good ROAS value is different.
Benchmarking Return on Ad Spend is very difficult and due to its complexity, we suggest you consult with digital marketing professionals to understand whether or not your ROAS value is good for the industry you operate within.
There are many things that determine the value of ROAS for your business. The following are a few important aspects.
The industry that your business operates within, the cost-per-click of your advertising and a business’s overall profit margins.
How to Maximize ROAS
In order to get the highest return on ad spend a focus on efficiency is important. One of the best ways to increase efficiency in digital ad buying is to purchase ads programmatically.
Programmatic ad buying means that ads are purchased automatically through a software program. In essence for each ad you purchase an auction style sale will take place ensuring you pay the best possible price for each ad impression.
If the idea of programmatic ad buying is new to you don’t worry, the following article Your Ultimate Introduction to Programmatic Advertising and Using a DSP, gives a great explanation of programmatic advertising.
Why is ROAS Important for a Business
ROAS gives businesses significant and actionable insights into the effectiveness of an ad campaign or strategy. In short, ROAS helps marketers optimize advertising messages and achieve their target returns and audiences.
When talking about ROAS a similar measurement comes to mind, ROI.
ROI (Return on Investment) is a common term for businesses. It measures a very similar thing to ROAS; however the two measurements are always different and in turn will tell you something different about your business.
ROI calculates the return on all business expenses, including ad spend. This could be operational costs and much more. ROI is a business centered measurement and helps companies establish how ads are affecting their bottom line.
ROAS, as described earlier is only focused on returns for advertising compared to each advertising dollar spent. It is an advertising centered metric and thus does not consider all business expenses.
Ways to Improve ROAS
If you want to survive in the digital marketing world you should focus on improving ROAS and running efficient advertising campaigns.
Improve User Experience
One of the key ways to improve ROAS involves analyzing the entire onboarding and digital marketing process. While ads generate clicks to a website, it’s important to make sure that the user experience on your website is high quality and accessible.
Landing page loading speed, functionality and overall design aesthetic influence whether or not customers make a conversion when visiting a website.
To learn more about the importance of user experience in the customers buying process read the following article, Why User Experience is Key to Digital Marketing Success.
Implement PPC Advertising
PPC (pay per click) advertising is one of the easiest ways to ensure that the ads you buy are impactful.
PPC campaigns are structured so that you pay for each click generated when an ad is displayed, rather than paying for a set number of impressions with no guarantee of clicks. For this reason a PPC campaign is seen as efficient and impactful to actual conversions.
Utilizing PPC ad buying could improve the amount of money spent per person that clicks to a website and in turn make conversions cheaper to acquire. PPC is often regarded as a way to increase ROAS over time.
Improve Quality of Ads
Sometimes the actual content of ads is not driving clicks and conversions. If you see a consistently low ROAS as a trend, consider revising ad content.
In any advertising campaign dynamic and exciting ad content is very valuable.
Focus on Keywords
Keywords are one of the easiest ways to determine whether ads are displayed or not. When someone searches for a keyword that is connected to your business make sure that your ad is being displayed to those searches.
Negative keywords are equally as important. With negative keywords you prevent ads from being displayed to people who search with negative keywords. Another part of narrowing your target audience for maximum impact.
Geo-targeting is a simple way to get customers to your website or physical location to conduct business.
If your product is relevant to a specific location, then geo-targeting is going to increase ROAS significantly. When displaying ads make sure that you try and capture the impressions and clicks from people nearby so that the ad impact is at its highest.
Increase Mobile User Experience
Many times clicks are generated on customers mobile devices and thus your website will be displayed on a smartphone or tablet. Make sure that your website is optimized and fast on a mobile platform so that the buying process is easier for the customer.
High quality mobile user experience ranks you higher in Google and also increases the likelihood of a customer converting on your product. In turn the increase of conversions on mobile will make your ad spend worthwhile, since many ads are being displayed on phones and tablets.
Make sure to take a look at some competitors in your field who are successful with ad campaigns. See what they are doing to drive conversions and a high return on ad spend.
This means analyzing their website user experience, ad copy, SEO strategy and much more. Being on par with competitors is a business survival tactic and the same holds true for digital marketing.
SEO Design Chicago offers analysis of all the above factors and help with any digital marketing campaigns. Reach out to SEO Design Chicago today to get a professional opinion on your digital marketing strategy.