The average marketer sees a 2.87:1 return on ad spend (ROAS). This means for every dollar spent, the company makes $2.87. What is a good ROAS, you might ask? Well, the answer depends.
In this post we are going to cover what ROAS is and what you can expect for a good ROAS.
What Is Return On Ad Spend (ROAS)?
Definition: Return on Ad Spend, or ROAS for short, is a business metric that measures the effectiveness of an advertising campaign. ROAS helps businesses decide if advertisements are effective, and which advertisements to increase ad spend on.
Let’s find out how to calculate ROAS.
How To Calculate ROAS
ROAS can be calculated by dividing Total Revenue by Total Costs.
Formula: Total Ad Revenue / Total Ad Cost = ROAS
For example, let’s say you are running a Google Ad Campaign. Your campaign might have cost $1,000 last month. From your campaign, you are able to determine the total revenue was $10,000. Therefore, your ROAS would be $10. So, for every $1 spend in ads your business made $10.
Example Calculated: $10,000 / $1,000 = $10.
Knowing your return from ad spend is vital to the success of any advertising campaign. Before running ads, you can also calculate your break-even ROAS.
Now, let’s get into how to what break-even ROAS is and how to calculate your break even ROAS.
Your Break-even ROAS is the return needed from an advertising campaign to break even considering business expenses. The Break-even ROAS can be calculated by dividing 1 by your average profit percentage.
Formula: 1 / Average Profit % = Break-even ROAS
For example, if your average profit percentage on a product is 20% you would need a ROAS of 5 to break-even.
Example Calculated: 1 / 0.2 = 5.
Why It Matters
So why does this all matter? Well, any successful business needs to make a profit. ROAS helps business understand the effectiveness of their marketing and advertising campaigns. ROAS can tell a business to either stop running an advertisement campaign altogether or to spend more money on a campaign since it’s effective.
Additional Cost Considerations
It’s vital a business considers all costs before jumping into calculating ROAS. Here are some additional cost considerations when evaluating your ROAS:
- Vendor/Partner Costs
- Tools & Software
- Management/Agency Fees
Be sure to add all costs together before calculating your ROAS to get a full picture of the effectiveness of your advertising campaign.
As a top-rated digital marketing agency, we see many mistakes when companies try to calculate their ROAS. These are the most common mistakes we see.
Not Tracking ROAS
The biggest and most common mistake we see is companies are not even tracking their ROAS to begin with.
Not Tracking All Revenue From Ad Campaigns
The second most common mistake we see is companies not properly calculating all revenue from advertising campaigns. It’s important to utilize a lead tracking software, Google Analytics, and other tracking metrics to measure all revenue sources from ad campaigns.
Consider hiring a professional marketing agency to help you measure your total revenue from your campaigns.
Improperly Tracking Total Costs
The third most common mistake we see is companies simply dividing Total Revenue by Ad Spend. However, to get a full picture of your ROAS companies needs to add all of the costs together. We covered this above in our additional cost considerations section, but be sure to add in software fees, management fees, vendor costs, and commissions.
What Is A Good ROAS?
Now that you know what ROAS is and how to calculate it, what is considered a Good ROAS? Well, the answer depends on your business and break-even ROAS numbers.
The average ROAS across all industries is $2.87 which means their average profit margin to break-even on their ROAS should be about 35%. Knowing this, consider your businesses average profit margin and ask some questions such as:
- What ROAS does your business need to break-even?
- Is your business making profit from your advertising campaign?
- If your ad campaign is running negative (below your break-even ROAS), are you expecting additional business from referrals or customer lifetime value?
After answering these questions, you can answer the question for yourself on if your ROAS is good for you.
How To Improve Your ROAS
If you find yourself with a low ROAS or looking for ways to improve your ROAS, here are few strategies to help.
Improve Ad Campaign Landing Pages
A common issue we see as a marketing agency is a lack of a quality landing page for the ad campaign. Landing pages need to be mobile-friendly, have a clear call to action, and quick to load. In addition, they should address the user’s problems and use the same language in your ad copy. We also remove header navigation from our landing pages to limit users from clicking around and instead point them to an order form or call button.
Optimizing Your Ad Campaign
Secondly, to improve your ROAS you should look to optimize the campaign further. This could be through adjusting your audience target, adding negative keywords, adjusting ad run times, and more. The optimizations needed will depend on your individual campaign.
Be sure to give your ad time to optimize before calling it a quits on your campaign. Learn more about how much time it takes for Google Ads to work.
Improve Your Sales Pitch or Language
Lastly, we see many companies miss out on opportunities to make sales from advertising campaigns by poor sales techniques. First, ensure you are answering the phone, emailing customers back, and ultimately being responsive. Then, ensure your sales or office team is properly trained to convert these callers. Here are some ways to improve your sales team.
Improve Your ROAS Now
Now that we have covered what is a good ROAS, ways to calculate it, and what a good ROAS is, are you ready to get a better ROAS? Consider hiring a top-rated digital marketing agency like WolfPack Advising to help with your pay per click campaigns.
Or, learn more about how Google Ads can help advance your business goals.