Whenever you’re spending in your business, you need to know you’re making a worthwhile investment. So, just how much will you get back from your ad spend?
Calculating the Return On Ad Spend (ROAS) is how you keep track of the effectiveness and profitability of your advertising campaigns. ROAS helps your business make informed decisions about ad spend, so you can invest in the campaigns that will bring the biggest results for your brand.
You might be handling ads yourself, so you’ll need to do your own analysis. Or you might have an ad agency like us taking care of things for you – in which case, make sure your agency is talking to you about the ROAS your ads are achieving.
Understanding Return On Ad Spend (ROAS)
Look, we get it. The web’s full of jargon, and acronyms are often thrown around by the pros. But if you don’t understand what these ‘impressive’ numbers really mean, they won’t help you at all…
So, what actually is ROAS?
ROAS is a metric that measures the amount of money an ad brings in for your business against the money spent on running the advertising.
So far, so good?
Good.
Now, how do you calculate ROAS? Luckily, there’s a simple formula:
Calculating the ROAS of an ad campaign
Add up how much your ad campaign cost your business. In simple terms, what was the cost per click, and how many clicks did you get?
Now calculate your revenue – that’s the money your ads brought in.
Once you’ve got those two numbers, divide the revenue by the costs. So if your ads brought in £2,000 and you spent £1,000 on those ads, you get a ratio of 2:1. Or 200%.
Figuring out your ROAS shows you how your ads are doing. Are they bringing you success, or could they be doing better?
But you know what? We’re only just getting started. Keep reading – we’ve got more details coming on calculating your spend and revenue accurately to help you make sure your ads are truly profitable.
Why calculating ROAS matters
It can be tempting to take a cookie cutter approach to ad campaigns, churning out one after another, after another. But if you’re not checking your stats to see how your ads are doing, how do you know they’re landing well with the people you want to target?
It’s important to pause and reflect before you jump straight into the next campaign. When you see your ads’ profitability, you start to see what’s working and what can be improved. That way, you can get better results when you launch another ad.
In short, ROAS helps businesses evaluate how effective their ad spend is. It helps owners and marketing managers make data-driven decisions so the brand is more profitable.
ROAS is an essential metric because it shows you the ROI (Return on Investment) you’re getting from your ad spend.
Steps to calculate ROAS
We’ve already shared the basics on calculating ROAS – that’s ad revenue divided by ad spend – but there are more costs and gains to take into account.
Here’s a step-by-step guide on calculating ROAS for advertising campaigns.
First, calculate your total ad spend
This isn’t just the value you spent on PPC, it also includes the cost of creating the ad. Make sure you take costs like:
- Photography
- Graphic design
- Video editing
- Copywriting
And any other associated expenses into account. This will give you a true picture of how much your ad has cost you.
Next, look at the revenue your ad campaign brought in
Revenue generated from an ad campaign doesn’t just come from someone clicking through and immediately buying. You also need to take into account factors like customer lifetime value.
For example, you might make a 200% ROAS directly from your ad, but then a percentage of your new customers go on to buy something much bigger – the ad brought them into the brand, and now they’ve tried you out, they’re keen to buy more. That means your ROAS will turn out to be much greater. Ker-ching.
Finally, do the maths on ROAS
Just as before, calculate ROAS by taking the total revenue earned from your ad and dividing that by the total cost of your ads. It’ll give you a clear picture of the exact return you’re getting on your ad spend.
Factors influencing ROAS
Once you’ve got a value on your ROAS, you can move forward with improving it. But what factors do you need to change to get better ROAS?
The good news is, there are loads of areas you can tweak your ads to optimise your returns, including:
- Targeting
- Messaging
- Creative elements like branding, graphic design, photography, and copywriting
- Market conditions (ok, you probably can’t change those, but you can tune into them)
By being aware of the factors that impact ROAS, you can tweak them to get the best response from your audience – that means highly targeted spend and more conversions. Let’s look at how.
Strategies to improve ROAS
Once you’ve got a good understanding of the ROAS an ad achieved, it’s time to build a strategy to improve it.
The best practice for optimising ROAS and maximising advertising ROI is to look at as many factors as possible. Make changes in each area to improve your ad’s performance, while carefully monitoring your results.
Refining your target audience
For instance, if you sharpen up your audience targeting, you’ll be showing your ad to a group that’s more closely aligned with your brand. Refining your target audience might cut down the number of people who see your ads, but with the right messaging (see below!), they’re more likely to convert, so you’ll get a better return.
Remember – this isn’t a done-once job: continuous monitoring and tweaking are needed if you want to ensure the best ROAS.
Optimise your message
Once you’ve got your target audience nailed, you can refine your message too, so it speaks directly to their needs.
When you optimise your messaging for that tighter target audience, you’ll improve your conversions and up your ROAS even further. So talk to your customers and – most importantly – listen to what they say. It’ll help you get aligned with their needs and aspirations.
Get creative
Once your messaging’s clear, other elements in your ads will play a part, like the quality of your creative. That means your images, photography, colours, copy, and graphic design all need to be on brand.
Make sure everything looks the part and reflects your brand’s personality. That way, you’ll get better customers who stick with you for longer (increasing that ROAS, right?).
Optimise bidding strategies
PPC can be highly competitive – and that means it can cost your business a lot to get seen. Just as you target your messaging, take a look at your ad bidding strategy too. Think about your goals – do you want to maximise clicks? Increase your conversion rates? Or is it simply about impressions?
Being clear on your aims means you can pick a strategy to suit them. But remember – things are constantly changing online, so you’ll need to monitor your data and adapt your strategy to get the best performance from your ads.
Consider market forces
And don’t forget to look at what’s going on in the world, too. Market conditions will have a role in ROAS, so make sure you’re tuned into the zeitgeist – it’ll help you look for opportunities to relate to your audience to give them what they need.
Whether it’s the economy, the season, a trend or a social movement, tapping into the mood of the market will bring your ads a boost. Maybe your audience needs a lift when times are tough? Or perhaps it’s about rolling with success and helping them celebrate when things are looking ace.
Keeping your eye on what’s going on in the world will help you respond with ads that your audience can relate to.
A/B split testing your ads
As you adapt the elements of your ads to get the best ROAS, one way to check you’re going with the best ad option is to A/B test.
A/B split testing is where you change a single element of an ad, and test both versions at once. That could be your message, your creative, or even your audience.
Then all you’ve got to do is watch the data to see which ad – version A or version B – gets the best response.
When you analyse and optimise for all these factors – just like we do for our clients at Yatter – you improve your ROAS, and your overall advertising ROI.
Are you optimising your ROAS?
Not sure how your ads are performing? Chances are, they could be doing better. The only way to get reliably better performance from your ads is to calculate your ROAS. That way, you can understand what you’re spending on ads, and the return you’re getting.
Tracking your ROAS and optimizing your ads needs careful planning and expert strategy. It takes a lot of time, too, so finding an ad agency to do this for you is a wise move. At Yatter, we have a proven track record of achieving great ROAS for clients.
Ready to find out whether your ads are at their best? Book your free audit – we’ll take a look for you.
