There are a lot of metrics you can track in terms of your ad campaigns but the only one that actually zooms in on the success of your campaign is the Return on Ad Spend (ROAS) metric. Why? Because when you’re “spending money to make money”, ROAS shows you know if the campaign you’re running is making the money it should—and then helps you understand where you should double down or figure out ways to pivot. But when you find yourself in the “need to pivot” place, how exactly do you do that? Well, let’s dive into the ways you can increase the return on your ad spend as a small business.
What is ROAS?
Here’s a quick and dirty definition of ROAS to keep it simple. Your ROAS is the amount of revenue generated from each dollar you spent on the ad. Don’t confuse it with ROI though! ROAS is pinpointed at a specific ad campaign, not your overall marketing spend.
According to Neil Patel, in an article about calculating your ROAS, he writes, “A ROAS calculation is similar to an ROI calculation, but it’s very flexible and can be applied to one, a few, or even several campaigns. It gives you a holistic view of a specific campaign’s success, but it isn’t as high-level as ROI.”
How to calculate ROAS
The same article we just linked to shared this simple formula for calculating ROAS—and there is no reason for us to reinvent the wheel!
Divide revenue generated by the amount of money spent on a specific ad or marketing campaign.
Example:
$10,000 RevenueGenerated/ $1000 Money Spent = 10:1
The ROAS in this case would be $10 generated for every $1 spent. However, before diving into calculating your ROAS, you’ll need to determine the total cost of your campaign. For example, if you used an ad agency, paid a graphic designer, or hired help of any sort, make sure that is captured in the overall cost of the campaign. Also, don’t forget to factor in any vendor costs or equipment overhead into your total cost.
Oh, and don’t panic if this seems like a daunting task! The good news is that there are free ROAS calculators available online. Just do a quick search, and several options will appear.
Cool, now what’s a good ROAS?
The answer depends on your goals. If your goal is to just raise awareness or grow your email list, expect a low ROAS. If your goal with the campaign is to boost sales, then shoot for a higher ROAS—a 4:1 ratio is considered a successful campaign by most small businesses.
How can I improve my return?
If your ROAS is lower than you hoped, don’t throw the campaign away! Start to make it better by tweaking things and retesting. Here are a few good ideas for maximizing your ROAS. Some are more obvious than others, but all are worth considering.
Reduce Ad Cost - This one is simple. Spend less on your ads. Doing that, however, takes a little experimenting.
Search Results - Small businesses don’t always have the biggest budgets so you might consider saving money by aiming a bit lower in search results. Instead of the top spot, shoot for the 3rd or 4th position. You’ll still be on the front page in front of potential customers but you’ll have paid significantly less money
Audience Targeting - Make sure you’re targeting your audience by identifying your customers by location, device, and interests. Create ads that resonate with the specific groups you are trying to reach through segmentation in Google ad campaigns
Keywords are key - Researching and using the right keywords is important and can improve your Google Quality Score and reach
Make updates to landing pages - An increased conversion rate obviously impacts your ROAS. Some ways to increase your conversion rate with relevant landing pages include:
Rework the design and/or copy to make sure you are giving people the information they need and when
Speed it up! Optimizing your landing page speed improves the user experience. Consider fixing common speed issues, such as unoptimized images, large media files, and JavaScript problems
Sell to a warm audience - Selling to current customers costs so much less than selling to new ones. That’s why part of increasing your ROAS is increasing your customer lifetime revenue. Ways to do this are:
Retargeting- deploy retargeting ad campaigns to “follow” customers who have poked around for awhile but didn’t convert
Email Campaigns - “Back in my day, we did email campaigns…” We may sound like your grandma here, but email campaigns continue to be a powerful way to keep customers engaged and aware of promotions and sales
Rewards andLoyalty Programs - Loyalty and reward programs are a great way to reward customers for engaging with your business
Better Thinking - Sometimes as small business owners we have to step back for a moment and just think about things we could be doing better for our customers. Consider bundling products for better appeal and value, changing your pricing, adding new CTAs (call to action). You could also make sure you have as few clicks as possible in their journey to converting. Any of these small actions can have an impact on your ROAS.
Once you understand what’s working and what’s hurting your ROAS, you can begin to make the necessary adjustments to increase your ratio. It takes practice, but once you figure out the little tweaks that help your ad campaigns, you can watch your sales revenue increase while lowering the overall cost of making those sales.