Social media advertising is the backbone of many businesses’ marketing strategies. To work efficiently, every social media campaign needs a clear goal, whether it’s increasing newsletter subscriptions, boosting revenue, or building brand awareness.
When the aim is to increase revenue, various metrics gauge the campaign’s success, ROAS being one of the most important. Knowing how to calculate ROAS is essential for making informed decisions and allocating your budget. By tracking this metric, you can quickly identify which campaigns deliver the best results and which need adjustment. You can optimize your strategies and ensure every dollar you spend is working hard for your business.
With its three unique offers, Ingest Labs can help you maximize your return on ad spend. To gain a deep insight, let’s examine the specifics of ROAS.
How to Calculate ROAS?
ROAS is straightforward to calculate with the formula:
ROAS = Ad Revenue / Spending
Let’s calculate the return on ad spend with an example. If you spend $7,000 on ads and generate $35,000 in revenue, your ROAS after implementing the aforementioned formula would be 35,000/7,000 = 5. This means for every dollar you spend, you earn five back. With this knowledge, you can optimize your ad spend and focus on the strategies that deliver the best results.
Factors influencing ROAS:
Knowing several factors can influence your ROAS, which can help you optimize your campaigns.
- Brand: Your brand plays a significant role. Strong, well-known brands often see higher ROAS because they have established trust and recognition with their audience.
- Market size: A larger market offers more opportunities, impacting your ROAS.
- Operating Costs: A larger market size offers more opportunities but also increases competition, which could affect your ad spend.
- Cost-per-click: It is crucial to monitor your cost-per-click (CPC). Lowering CPC while maintaining quality leads can boost your ROAS.
- Marketing Optimization: Focusing on marketing optimization, such as refining your targeting and ad creatives, can significantly improve your return on ad spend.
Therefore, by considering these factors, you can make more informed decisions and drive better business results.
Tools for Calculating ROAS
Calculating ROAS doesn’t have to be complicated. These tools will make it simple for you to know your ROAS as and when you need it.
- Online calculator tools
- Calculator.net offers a straightforward ROAS calculator that requires just your revenue and ad spend.
- AdEspresso’s ROAS Calculator provides a quick way to see your return on investment by entering your ad costs and sales.
- HubSpot’s Free ROAS Calculator is another option that gives you instant results with minimal input.
- ROAS formula for Google Ads
Google Analytics is the age-old tool used by over 30 million websites, and they need to stay relevant in the field. To fully leverage your ROAS reports, you must use Google Analytics 4. Scroll to Advertising, then Performance, and select All channels to access the latest data.
You can analyze your paid marketing channels using ROAS metrics and others, such as total revenue, cost per conversion, ad cost, and conversions. Google’s ROAS formula is built into the platform, making it easy to see your return on ad spend directly within your campaigns.
- Calculating ROAS in Excel
For those who prefer a hands-on approach, you can also calculate ROAS in Excel. Use the formula:
ROAS = Sales Revenue / Marketing Cost
This method clearly shows your ad performance, helping you understand how to precisely calculate the return on ad spend and adjust your strategies accordingly.
Knowing how to calculate return on ad spend includes calculating break-even ROAS, which helps you decide whether a campaign is worth continuing or needs adjustment. Let’s see what break-even ROAS is.
Break-even ROAS
Understanding your break-even ROAS is crucial for assessing profitability. This metric shows the point at which your ad spend generates enough revenue to cover costs but has yet to make a profit.
Break-even ROAS formula with an example:
To find your break-even ROAS, use the formula:
Break-even ROAS = 1 / Average Profit Margin Percentage
Let’s say your profit margin is 40%. In this case, your Break-even ROAS is 1 / 0.40, which equals 2.5. This means you need to generate $2.50 in revenue for every dollar spent on ads to cover your costs without losing money.
You have learnt how to calculate ROAS. To avoid errors, let’s see a few pitfalls and mistakes you might encounter.
Common Pitfalls and Mistakes to Avoid
The famous saying “Precaution is always better than cure” holds true in the case of spending money on an ad as well. Here are a few things that you could potentially avoid while investing in ads:
Overlooking the total cost of a campaign:
When calculating ROAS, it’s easy to overlook the total cost of a campaign. You must account for every expense, not just ad spend. This includes creative development, tools, and any associated fees. Fetching returns on ad spend requires careful and precise monitoring of all the costs involved.
Incorrectly attributing conversions:
Another common mistake is incorrectly attributing conversions. If you don’t track where your conversions are coming from accurately, you might give credit to the wrong channels. This skews your return on ad spend and leads to poor budget decisions. Understanding it includes using proper attribution models to allocate credit correctly.
Single vs multi-touch attribution models:
The single-touch attribution model assigns all credit for a conversion to a single touchpoint, usually the first or last interaction. Multi-touch attribution models distribute credit across multiple touchpoints, giving a more comprehensive view of the customer journey. The idea is to appreciate the latter’s importance.
Relying on single-touch models can distort your view of what’s working. The latter provides a more accurate picture by considering all the interactions that lead to a conversion.
Now that you can calculate your return on ad spend let’s see how you can use the analysis to improve it.
How to Improve Your ROAS
Improving your ROAS requires a mix of strategies that target key areas of your advertising efforts. Here’s how you can boost your return on ad spend effectively.
- Optimizing Cost-Per-Click (CPC)
Focus on creating compelling ads and using the right keywords. Lowering your CPC while maintaining quality can directly improve your return on ad spend calculation.
- Improving Conversion Rate
Enhance your landing pages and use clear calls-to-action (CTAs). Conversion rate optimization (CRO) practices can help you turn more clicks into conversions. Ingest Labs can become your strategic partner for businesses and cultivate a rhythm that will perfect your game.
- Maximizing Average Order Value (AOV)
To begin with, the Average Order Value (AOV) is the average amount of money customers spend per transaction on your website or app. Offering upsells, cross-sells, and bundles can increase AOV and significantly boost the return on ad spend calculation.
- Reviewing Attribution Models
Understand and choose the suitable attribution model. This ensures accurate tracking of conversions and a clearer picture of your ad performance.
- Reducing Customer Acquisition Cost (CAC)
Lower CAC through automation, testing, and retargeting. Reducing these costs can lead to a better return on ad spend.
- A/B Testing Campaigns
Conduct A/B tests on your ads regularly. Continuous analysis helps identify what works best, allowing you to improve your ROAS over time.
- Refining Audience Targeting
Segment your audience and analyze campaign performance. Refining your targeting improves ad relevance, boosting ROAS.
- Increasing Conversions with Retargeting
Re-engage leads with tailored messaging. Retargeting helps convert prospects who might otherwise slip through the cracks.
- Utilizing Lookalike Audiences
Create lookalike audiences to reach similar potential customers. This strategy expands your reach while keeping your ads effective.
- Experimenting with New Ad Creatives
Test new ad creatives regularly. Fresh designs and messaging can capture user attention and improve your overall ROAS.
Ingest Labs can help you improve your ROAS and, in turn, maximize your profits by transforming your ROI game. Now, let’s see what a good ROAS looks like.
What is a Good ROAS?
Determining what qualifies as a good ROAS depends on several factors.
Factors Influencing a ‘Good’ ROAS
A good ROAS varies based on industry, market conditions, and profit margins. High-ticket items have lower ROAS thresholds, while low-cost products may need higher ROAS to be profitable. Your overall business goals also play a role in defining what a good ROAS looks like for you.
Advantages of a High ROAS
- Cost-Effective Spending: A high ROAS shows that you’re getting more revenue for every dollar spent, which boosts your profit margins and maximizes returns. Knowing how to calculate return on ad spend helps you see where your money works best.
- Resource Management: A high ROAS lets you focus on the most effective channels, ensuring you get the best results.
- Competitive Advantage: Consistently high ROAS keeps you competitive, maintaining profitability and market advantage. Understanding how to calculate return on ad spend ensures you’re always in the best position to succeed.
Disadvantages of a High ROAS
- Overlooking New Customer Outreach: Focusing too much on high ROAS can cause you to neglect prospecting. You might miss out on new customers and future revenue streams by only targeting purchase-ready audiences.
- Market Exhaustion: Relying heavily on high-ROAS channels can lead to market saturation. The same audience might experience ad fatigue, resulting in diminishing returns.
- Short-Term Strategy: A strong focus on short-term gains can cause you to miss opportunities for long-term growth and lasting customer relationships. Balancing your approach ensures sustained success.
Typical Benchmarks for ROAS
On average, a ROAS of 4:1 is considered solid—meaning you earn $4 for every $1 spent. However, this can differ by industry. A ROAS of 2:1 might be acceptable for some businesses, especially if the goal is customer acquisition rather than immediate profit. Measuring your return on ad spend and then comparing it to industry benchmarks helps you set realistic expectations for your campaigns.
Achieving a Balance with Ingest Labs:
To build a sustainable sales funnel, balance your high-ROAS channels with prospecting campaigns. This approach ensures a steady flow of new leads while maintaining efficient spending. Getting into the workflow of return on ad spend helps you create multiple touch points throughout the customer journey, reaching your target audience more effectively. At Ingest Labs, we know the value of managing ad budgets to meet short-term and long-term goals.
With years of programmatic experience and a wide range of clients, we’ve found that improving efficiency and staying compliant leads to the most sustainable results. We focus on helping you gain significant returns on ad spend, as well as an efficient Marketing Efficiency Ratio (MER) that is a comprehensive overview of overall marketing efficiency. This ensures that your budget works hard for you. We help you achieve lasting success in your advertising efforts by prioritizing immediate and future gains. Ready to transform your programmatic advertising strategy? Reach out to Ingest Labs today to better understand what we do and upgrade your campaigns.