When an advertising campaign brings in several more customers, you might be inclined to say it’s successful. In some ways, it might be; in others, it may not. Say that campaign is costing you most of your advertising budget. However, the customers it brings in aren’t spending much more than you’re paying to get them there. Would you still call it a successful campaign?
Enter ROAS, a key metric in determining the cost efficacy of an advertising campaign.
What is ROAS?
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Return on advertising spend (ROAS) is the calculation of how much you earn versus how much you spend on advertising. Generally, the higher the number, the better, as that tells you that you’re getting more customer expenditure or revenue from each dollar you spend on advertising. For instance, say you spent $1,000 on advertising, but you pulled in $4,000 in revenue. That’s a 4:1 ROAS, meaning you make $4 on every $1 you spend on advertising.
Why ROAS is Important
ROAS can help you determine if your advertising is working as efficiently as it should. Getting $4 for every $1 spent on advertising is good, but a campaign bringing in $8 for every $1 spent is even better. ROAS comes in handy when testing different advertising campaigns to decide which types of advertising work best for your company.
How to Calculate ROAS
To calculate ROAS, first figure out your conversion value. This is the revenue that your company earned specifically from that advertising campaign. Divide that number by how much you spent on that campaign to find your ROAS.
$10,000 (conversion value) / $2,000 (campaign spend) = 5.
Your ROAS is 5, or a 5:1 ratio, meaning that you get $5 back for every $1 you spend.
4 Tips to Improve ROAS
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Creating a solid ad campaign starts with knowing how to set up campaign tracking and make stand-out ads. Follow these tips to improve your ROAS across your campaigns.
Target ROAS in Google Ads
The best way to measure ROAS consistently is to set up ROAS targeting in Google Ads. To do this, set up a campaign in Google Ads with ROAS set as the target:
- Select the campaign you’d like to track in Google Ads.
- Click Settings followed by All Settings.
- Find Bid Strategy. Click on it and then choose Edit.
- Click Change Bid Strategy followed by Target ROAS.
- Enter your target ROAS percentage and save the campaign.
Now, Google Ads will keep track of your campaign’s ROAS so that you can see from day to day, week to week, or month to month whether it’s improving.
Improve Your Keyword Targeting
Keyword targeting is an important part of ROAS because the right keywords can bring in the best potential customers for your campaign. When keywords attract the right customers, you’re more likely to convert and, therefore, improve your ROAS.
To improve your keyword targeting, use Google Ads to see which keywords are performing the best. If you have underperformers, consider replacing them in your campaigns with other long-tail keywords you find using Google Keyword Planner. You might also use other free keyword tools to help you plan your campaign keywords.
Optimize Landing Pages
Similar to targeting the right keywords, an optimized landing page can help you convert visitors into customers. Landing pages should be hyper-specific to your keywords and target audience, giving them the information they need to know to make a buying decision.
A high-converting landing page should include an engaging and simple design, empathize with your customers, solve a problem, add a foundation of trust, and let the customer know what they should do on that page with a CTA. Use A/B testing to find the best formats and elements for your landing pages that work with your audience.
Boost the Quality Score of Your Ads
Google gives a Quality Score to any ads made through the Google Ads system. The Quality Score measures the quality and relevance of your ads and targeted keywords. The algorithm decides how high your ads should rank based on your click-through and conversion rates, ad text quality, landing page quality, and a few other factors.
With a higher Quality Score, you can generally lower your ROAS because Google tends to boost high scorers with better rankings and reduced ad spend.
ROAS is a crucial number for you to keep an eye on as you pay for online ads, as it will help you fine-tune your campaigns to attract your ideal audience time and time again. When you’re running ad campaigns that involve collecting and analyzing visitor data, compliance with privacy regulations should be one of your top priorities. With ShareThis’ Consent Management Platform, you can easily manage your users’ consent preferences and streamline compliance with regulations such as GDPR.