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Adriel Glossary
Return on Advertising Spend (ROAS)

Return on Advertising Spend (ROAS)

Adriel Glossary
Return on Advertising Spend (ROAS)

Return on Advertising Spend (ROAS)

Ask marketers which metric they value the most. Bet it’d take them a good while to come up with a clear-cut answer.

That’s because every marketing metric is valuable in its own right. And no lone KPI can paint a full picture of how customers interact with ad campaigns.

If push came to shove, however, the odds would lean towards return on ad spend (ROAS).

What is Return on Advertising Spend (ROAS)?

ROAS measures the amount of revenue a set marketing campaign ropes in for each dollar spent. It shows how well campaigns are performing and what can be done to make the most out of the marketing budget.

There are two primary means by which marketers leverage ROAS to maximize their bottom line.

  1. Campaign budget optimization. Digging into ROAS helps sort out high-performing ads from the average ones. From there, marketers can reallocate the budget to profitable ad sets and fine-tune the marketing mix accordingly.
  2. Agile decision-making. Having to weed through a whole bunch of metrics and irrelevant data points is very much counterproductive. That’s why ROAS is a game-changer. It makes plain which ads are worthy of further investment or vice-versa, setting the stage for quick and effective decision-making.

How to Calculate ROAS?

Calculating ROAS is straightforward. Simply take the influenced revenue and divide it by the allocated budget.

ROAS Formula | Courtesy of Adriel

For instance, let’s say $100 went into Google Ads, which generates about $500 worth of sales. The ROAS here would be 500 percent.

What’s a Good ROAS?

Well, the higher, the better, of course. But as a general rule of thumb, 400 percent is the target ROAS most marketers aim for, which is twice that of what’s considered an average ROAS.  

That’s not to say campaigns with a mark below 200 percent are a lost cause. In a vacuum, a low ROAS simply means that there’s likely room for improvement.

What matters is the context. A whole host of factors spanning from advertising costs and profit margins to industry verticals and market segments are in play, and the benchmark figure you come up with should reflect that.

As food for thought, here’s what a high ROAS looks like across major ad platforms.

  1. Amazon Ads: 795 percent
  2. Facebook Ads: 1068 percent
  3. Google Ads: 1376 percent
  4. Instagram Ads: 883 percent

The average ROAS also differs across different types of advertising media. For every dollar spent, you can make:

  • $2.63 on display
  • $2.55 on linear TV
  • $2.45 on mobile
  • $1.53 on digital video
  • $3.94 on magazines
  • $2.62 on cross-media

Source: Benchmarking Return on Ad Spend: Media Type and Brand Size Matter

However, with lots of customer touchpoints across different channels, the challenge is to attribute every dollar of revenue and cost to a specific ad campaign.

Some dashboards go the extra mile and offer custom alerts that go off when a campaign falls below or exceeds a target ROAS, allowing users to turn off money-leaking campaigns or reallocate their budget to high-performing ones in real time.

Keeping track of ROAS can snowball into a Herculean task when you have multiple campaigns running across different channels. Delegating that task to a reliable marketing dashboard is not only desirable but necessary. Ideally, the one you opt for comes with push notifications so that you don’t have to check back every ten seconds for potential fluctuations.

Did we ever mention that Adriel lets you set customized alerts for whichever digital advertising metric you’d like? 😏

How to Optimize ROAS?

Improving ROAS is no rocket science. It’s a simple matter of hacking the formula, just as is the case for any given metric.

For ROAS specifically, there are three ways to go about it.

  • Increase the revenue
  • Decrease the cost of ads
  • Better yet, do both

Obviously, in practice, boosting ROAS easier said than done. But it doesn’t have to be all that complicated either.

Here are some simple, tried-and-true tactics to ramp up your ROAS.

  1. Narrow down the target audience

Take the time to segment your audience parameters - age, location, occupation, interest, media consumption habits, etc. - down to a T.

Craft detailed buyer personas and use them to narrow down the target audience. It’ll make all the difference in placing your ads in front of qualified prospects, leading to more conversions for pennies on the dollar.

  1. Nail down the bidding strategy

Efficient bidding is ad budgeting 101. Clearly establish a max ceiling and flesh out a strategy based on bidding competitiveness, high-converting keywords, and product margins. Once that’s properly executed, you’ll see a drop in cost-per-click in no time.

Have trouble tracking down the keywords to bid on? Go hassle-free with Adriel’s latest word cloud feature. It’ll map out an expansive list of both positive and negative keywords that’d jack up the conversion rate or bore a deep hole in your advertising budget.

  1. Optimize user experience

How well your landing page supports the website experience has lots to do with steering the visitor to follow through with a purchase.

The basic building blocks of a well-structured landing page include:

  1. Fast load times
  2. A responsive layout optimized for both web and mobile
  3. A killer CTA backed by clear and compelling copy

Don’t forget to align the landing page with the advertising message as well. Always think about what can be done to better accommodate a cohesive customer journey.

  1. Raise your customer lifetime value

Give your business model a quick glance. You’ll notice that most of your revenue comes from existing customers. That’ll be particularly true if your organization is in the eCommerce business or runs on a subscription-based model.

Either way, your best bet for driving up the revenue component of the ROAS equation is to get your customers to come back for a second purchase. To do so, you’ll have to tinker with different strategies ranging from loyalty programs and discounts to retargeting campaigns.

How Does ROAS Fare With Other KPIs?

Don’t hold your breath just because your ROAS starts to tick up after implementing these practices. Even with an improved ROAS, there’s more that needs to be done to ensure your campaigns are making an impact and bringing in revenue.

The best way to go about this is to take other metrics into account. The following list should give you a better idea of what your final KPI mix should look like to get the most mileage out of your ads.

1. ROAS vs. CPA (Cost Per Acquisition)

ROAS and cost per acquisition (CPA) are often called for under similar circumstances. But a distinct line has to be drawn between the two.

Take a look at the examples below. You’ll see that calculating the CPA of a set campaign can yield different results.

Ad Set X
Budget: $100
Conversions: 10
CPA: $10
Revenue: $200
ROAS: 200%

Ad Set Y
Budget: $100
Conversions: 10
CPA: $10
Revenue: $400
ROAS: 400%

The takeaway here is that just because two different ad groups convert an equal amount of users for the same price doesn’t mean both are as effective at making each acquisition count.

Having both CPA and ROAS helps uncover the true margin of returns for each ad set.

2. ROAS vs. CPC (Cost Per Click)

Before getting to the acquisition part, you must get the potential customer to click on the ad. That’s actually the whole point of pay-per-click (PPC) marketing - to get as many clicks as possible.

And to make each dollar count, it’s important to keep track of how much you’re paying to get a click.

That’s where CPC comes into play.

3. ROAS vs. CTR (Click Through Rate)

CTR is an indicator of how well a specific ad resonates with and, more importantly, elicits action from the audience. It’s an important metric to break performance down to an individual creative level.

The only problem with CTR is that the scope of insights you can draw is too granular. You’ll have to count ROAS in to get a holistic understanding of campaign performance.

4. ROAS vs. ROI (Return on Investment)

Though they look similar at face value, ROAS and ROI are two different metrics.

Whereas ROAS is used to calculate the amount of revenue earned for every ad dollar spent, ROI measures the overall profitability of the organization’s advertising efforts.

The best part about ROI is that it factors in both tangible and intangible costs ROAS doesn’t, including the price of the software used to launch the campaign, the cost of the creative used in online advertising, and the hours your team spent working on it.

In general, ROI above a 5:1 ratio indicates strong performance.

ROAS and Adriel

Alt text: The ROAS KPI and budget on Adriel’s marketing dashboard – Adriel
Measure your ROAS and total budget with Adriel’s marketing dashboard.

We can’t emphasize this enough. No KPI is meant to be a standalone measure. Not even a metric as valuable as ROAS. But the thing is, keeping tabs on a whole slew of metrics can get tricky. Well, without a solid digital marketing dashboard, that is.

The real-time, custom alarm feature on Adriel’s marketing dashboard lets you set a series of alarms for certain conditions depending on channels, including ROAS fell and low ROAS.

Adriel maximizes workflow efficiency for users with a unique real-time alarm system that notifies you when ads, campaigns, or marketing channels aren’t performing as expected.

With a focus on ROAS, Adriel determines which investments are yielding the most returns. This granular approach leads the competition by enabling users to compare ROI not only by channel, but down to the specific ad creative they are investing in - with instant, live data.

To see what it’s like to measure and analyze campaign performance with absolute ease, head on over to your workspace on Adriel and play around with intelligent dashboards powered by cutting-edge ad operations technology.

Talk to our product specialist or sign up now for 14-days free.

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