Return on Ad Spend (RoAS)

Businesses today spend the majority of their budget and resources on customer acquisition. While attracting prospective customers to your business is essential, it is also important to measure whether your acquisition efforts are bringing in good revenue for your business. RoAS, or Return on Ad Spend, helps you measure the effectiveness of your campaigns.

What is Return on Ad Spend (RoAS)?

Returns on Ad Spend (RoAS) is one of the marketing metrics that help measure your ads’ performance. By definition, RoAS is the ratio of your ads’ revenue to the cost of these ads in a specific period.

How to calculate your RoAS?

Return on Ad Spend = Revenue generated from customers acquired via paid channels / Cost of ads

RoAS is an indicator of the performance of your digital advertising as it tells you how much revenue you bring in for every dollar spent on your digital ads. In layperson’s terms, RoAS means how much bang you make for your buck.

For example, if you spent $100 on a digital advertising campaign and it brought in a revenue of $300, your RoAS is $300/$100 = 3. For every dollar spent on your ads, you generate $3 worth of revenue.

Now that you know what RoAS is, the next question comes – what is a good RoAS, or what should businesses aim for? While it seems like a fairly straightforward metric to calculate, there is no one-size-fits-all number that can rank your RoAS against others. RoAS depends on many factors about your business – type of industry, nature of business, profit margins, operating costs, competition, etc.

What is blended RoAS?

You can measure the effectiveness of a channel by calculating the channel-wise Return on Ad Spends from it. You can also have a more extensive overview of advertising spending in general with blended RoAS. Blended RoAS is simply a ratio of total revenue generated to the total advertising spent across all channels. Blended RoAS is also called the ‘Marketing Efficiency Ratio (MER)’ or ‘Ecosystem RoAS.’

The average channel-wise Return on Ad Spend for businesses in their early stage is hard to predict. At the same time, a blended RoAS of 6-10 indicates the good performance of their digital advertising campaigns.

Why is RoAS important?

Digital advertising campaigns create brand awareness and ensure your business has a healthy lead funnel. Since ROAS is a metric for you to measure your ad performance, keeping track of your ROAS is non-negotiable.

ROAS can also be used to determine the effectiveness of a specific marketing channel/campaign.

For instance,
If your Facebook campaigns have a ROAS of 3.5 while your PPC (pay-per-click) ad campaigns have a ROAS of 2, you can see which channel is giving you a better bang for your buck. It gets easier to calculate ROAS for channels and double down on those which fare better than others. In this case, RoAS will help you monitor and scale the better-performing campaigns to maximize the results.

RoAS, when combined with your Customer LifeTime Value (CLTV), will give you enough actionable insights to determine your future marketing strategy, budgets, and the overall direction of your brand marketing.

How can you significantly increase your Returns on Ad Spend?

Being a marketer, you want to spend your ad budget effectively. While measuring your RoAS can give you an insight into which channel campaigns are most effective, it is important to keep optimizing your campaigns to ensure the best performance over time.

So how can you increase your RoAS?

Here are some tips to increase your RoAS:

1. 1. Aim for a lower position on the search engine results page (SERP)

You know how bids work. The higher the bid, the higher the position. While everyone around wants to spend their ad dollars on getting the first spot, you can consciously choose to place a lower bid and save your valuable marketing dollars. You’ll still be visible to many visitors even if you go to the second or third position on the search engine results page (SERP).

1. 1. Optimize your landing page

Would you spend time on a landing page irrelevant to your needs? No! Each landing page should have one clear conversion goal for the visitor to complete. Making the landing page content holistic, personalized, and user-friendly will increase conversions.

1. 1. Increase your revenue per conversion

While lowering your cost spent on ads is a way to boost RoAS, you can also increase your RoAS by capitalizing on another factor – revenue. Since RoAS is directly proportional to the amount of revenue generated, increasing revenue per conversion can effectively increase RoAS. To boost revenue, you can increase your average order value(AOV) or upsell or implement ways to increase your customer lifetime value(CLTV)

1. 1. Solve customer retention

You spend substantial time and resources to acquire new customers. If they abandon your business after one purchase, your hunt for a new customer begins again. But if you optimize your customer experience and give them a chance to stick with you, they’ll never leave your side. So once you retain your customer, you don’t have to spend more money to acquire them again, and when they make repeat purchases, they bring in more revenue!

Conclusion

Return on Ad Spend, commonly abbreviated as RoAS, is a marketing metric that helps measure your ads’ performance. And as mentioned above, RoAS can be affected by a wide array of factors. We recommend you experiment with your campaign strategies to find what yields the best results for your business and keep optimizing.