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Is Your Marketing Paying Off? The Ultimate Guide to ROAS

Published Date: April 12, 2024
Is Your Marketing Paying Off? The Ultimate Guide to ROAS

How do you measure the success of your marketing campaigns? Do you analyse conversion rates, click-through rates, cost per conversion or your return on investment? While all of these are very important metrics to measure, you may be missing out on one of the most crucial ones – ROAS, or return on ad spend, is a critical metric for assessing the effectiveness of your marketing and advertising effort Measuring your ROAS gives you real-time insight into how your campaign revenue compares to costs. Yes, costs per conversion also give you great insights, but ROAS gives you a comprehensive view. In the blog, you will get an insight into the following:

  1. What is ROAS, and what is its significance in measuring your marketing effectiveness?
  2. How to calculate ROAS.
  3. Return on ad spend formula.
  4. ROAS in Digital Marketing.

While this may sound technical and intimidating for some, we promise to break it down into simple, understandable sections. So here goes:

What is ROAS?

ROAS means Return On Ad Spend. It is a measure used in advertising to understand how much revenue you earn for every dollar spent on advertising. Let’s say you run an online store selling shoes. You launch a $100 online ad campaign to boost awareness of your new shoe collection. As a result of the campaign, you generate $500 in sales from customers who clicked on the ad and made a purchase. To calculate the ROAS, you divide the revenue generated ($500) by the amount spent on advertising ($100), which equals 5. This means that for every $1 you spend on advertising, you earn $5 in revenue. (we told you we would make this simple!)

Why do you need to measure ROAS?

It’s great conceptualizing, planning, and executing an ad campaign. You put your sweat and blood into it. But how do you know if your ad is effective? Enter ROAS. This metric tracks whether your ad spend is driving revenue. As a business, you can tweak your ad campaign if it doesn’t generate your desired revenue. This helps you adjust ongoing ad campaigns, plan future ad campaigns, and allocate marketing budgets accordingly.

How do you calculate ROAS?

The ROAS formula is simple. All you must do is divide the revenue you earn from advertising by the amount you spend on that campaign. Let’s say you invest $100 in an ad campaign, and it generates $500 in sales. In this case, your ROAS would be 5 So, your ROAS would be 5, That’s a return of $5 for every $1 spent.

 

 To break it down further:

Calculate your Revenue from Advertising:Calculate the total revenue you have generated from specific advertising campaigns or channels. This includes all sales attributed to the ads, whether directly or indirectly.

Calculate Advertising Spend:Calculate the total amount spent on advertising for the same campaigns or channels. This includes expenses such as ad placements, creative production, and agency fees.

Apply the ROAS Formula:Divide the revenue from advertising by the advertising spend to calculate the ROAS. This formula provides a clear ratio of the return generated for each dollar spent on advertising.

What is ROAS in Digital Marketing

ROAS in Digital Marketing tells you how efficient your ads are at turning clicks into sales. Let’s understand how ROAS works in digital marketing using examples across different ad platforms:

Example 1: Google Ads
To showcase the power of ROAS, consider this example: you sell shoes online and target “running shoes” searches with a Google Ads campaign. You spend $100 on the campaign, and it generates $200 in sales from clicks on your ad. Your ROAS would be 2, meaning you made $2 for every $1 you spent. This is a good ROAS, indicating your ad campaign is profitable.

Example 2: Facebook Ads
Imagine you run a Facebook Ads campaign promoting a new yoga app. You spend $50 and get 100 app downloads at $0.50 per download. If each download translates to a $10 monthly subscription, your revenue would be $1000. Here, your ROAS is 20 ($1000 revenue / $50 ad spend). This is a fantastic ROAS, suggesting your Facebook ad is highly effective.

Example 3: Display Ads
You might run display ads (banner ads) on a sports website to promote your protein powder. You spend $200 on the ad campaign, but it’s difficult to track revenue directly because people might see the ad and buy later. However, you can track metrics like website traffic or brand awareness to assess the campaign’s effectiveness.

What you need to remember:

  • Generally, you want a higher ROAS, but what’s “good” depends on your business and what industry you’re in.
  • ROAS helps you compare the performance of different ad campaigns and platforms.
  • For an accurate ROAS calculation, it’s crucial to factor in all your advertising costs, not just the platform fees.

Several tools are available in digital marketing to help you track your ROAS. Here is an overview:

Advertising Platform Analytics:
Most advertising platforms, like Google Ads, Facebook Ads, and Microsoft Ads, have built-in analytics dashboards that track key metrics like ad spend, clicks, conversions, and revenue. These dashboards allow you to calculate your ROAS directly within the platform.

Google Analytics:
Google Analytics is a great tool in Google’s arsenal that provides comprehensive website traffic data. You can connect Google Analytics with your advertising platforms to track conversions and revenue generated from ad clicks. This allows for a more holistic view of your ROAS, including website behavior beyond the initial ad click.

Conversion Tracking Tools:
Several dedicated conversion tracking tools can simplify the process. These tools typically involve placing a snippet of code on your website that tracks specific actions like purchases, form submissions, or phone calls. They then connect this data with your ad campaigns to provide detailed conversion metrics for calculating ROAS.

Here are some examples of conversion tracking tools:

  • Focusing on benefits: Google offers a free tool called Tag Manager. It lets you easily manage and deploy conversion tracking codes on your website, saving you time and effort
  • ClickFunnels: An all-in-one marketing platform with built-in conversion tracking functionalities.
  • Leadfeeder: A tool that identifies companies visiting your website, allowing you to track leads generated from ad campaigns.

Marketing Attribution Tools:
Marketing attribution tools go beyond simple ROAS calculations and go deeper into understanding which touchpoints in a customer journey contribute most to conversions. This can help identify the most impactful ad campaigns within a broader marketing strategy.

Here are some examples of marketing attribution tools:

  • Attribution.io: A platform that provides detailed attribution data across all your marketing channels.
  • AdRoll: A marketing platform with built-in attribution features focused on ad campaign performance.
  • Mixpanel helps businesses see how people use their products and where they come from, like ads. This lets them improve their marketing and sales

Choosing the Right Tools

The best tool for tracking ROAS depends on your specific needs and budget. Here’s a quick guideline:

  1. For basic ROAS tracking: Leverage the built-in analytics of your advertising platforms.
  2. For deeper website insights, Integrate Google Analytics.
  3. For simplified conversion tracking, Consider dedicated conversion tracking tools.
  4. For advanced attribution analysis, Explore marketing attribution tools.

So there you have it—a complete guide to ROAS. You are now equipped to measure your return on ad spend effectively and adjust your campaigns( if needed) accordingly. All that’s left to do now is create some knock-out ads that connect with your audience. You can also contact the paid media marketing experts at AdLift, and we would be happy to take that off your plate!

FAQs

ROAS stands for Return on Ad Spend. It’s a way for businesses to see if their online ads are making them money. It does this by comparing what they earn from the ads to what they spend on them. Essentially, ROAS indicates how efficiently advertising dollars are converted into revenue for a business.

The calculation for ROAS is straightforward: it’s the total revenue generated by your advertising efforts divided by your total ad spend. The formula is ROAS = Revenue from Advertising / Ad Spend. This calculation provides a precise ratio of the return generated for each dollar invested in advertising.

For digital marketers, ROAS is a game-changer. It sheds light on whether ad campaigns are delivering a positive return on investment, ensuring their budgets are well-spen. By understanding how much revenue is generated for every dollar spent on ads, marketers can optimize their strategies, allocate budgets more effectively, and maximize their return on investment.

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