Why use this Return on Ad Spend template?
Return on Ad Spend (ROAS) is a crucial metric for every marketing team. Why? It clearly tells you how effectively you’re using your advertising budget.
Inflationary pressures are putting upward pressure on digital costs. That means that each ad dollar you spend needs to stretch farther, generating more comparative revenue to make it count.
Return on Ad Spend is a simple formula: how much revenue did you generate, divided by the total amount of cost you incurred through your advertising. This is usually expressed as a percentage, but can also be represented as a number where you calculate the multiple of revenue dollars generated by each ad dollar.
How to improve ROAS by lowering cost
If you’re finding that your ROAS is hovering around 100%, or is under that value, it means your ad dollars aren’t driving a substantial amount of revenue (sometimes, not even enough to cover your costs). To improve your ROAS, follow these steps:
- Analyze which creative sets or assets are generating clicks with a low cost. This is expressed as CPC (cost per click). Consider allocating budget to those assets to keep CPC or CPM (cost per mille) low.
- If none of your creative assets have low CPC, consider tightening the reach of your ad geographically. Instead of targeting a whole country, try targeting states or cities or regions.
- Limit the audience scope so you are more targeted in your advertising. Although this casts a smaller net, it helps to suppress costs.
- If you’re running search ads, consider bidding for longer tail keywords. This will reduce your competitive pool, and will help keep ad spend dow.
How to boost ROAS by improving revenue
If your costs stay the same, but the revenue you generate per ad goes up, your ROAS will inherently climb as well. To generate more revenue from your ads, you must:
- Ensure every had has a clear CTA that leads to a landing page that is optimized for conversion. If your ads simply send users to your general website, the conversion path will be more convoluted.
- Consider using your ads to offer special deals / discounts. Reward users for paying attention to your ads, and make it clear that this offer is only applicable to this ad. Although it will cut into your margins, this tactic helps ensure the efficacy of your ad strategy.
What to do if you have a great ROAS
Great marketers never get complacent. If you have a ROAS that hovers around 3x – 5x, it’s time to learn from your ad strategy and continue optimizing. We recommend asking the following questions:
- Which of my ads have the lowest CPC and the highest return?
- What it is about the creative itself that is resonating with our audience? Copy? Imagery? CTA?
- What are the execution settings, and how are they keeping costs low?
Once you’ve conducted a post-mortem on your ad campaign, you can start applying those learnings to all future campaigns. In doing so, you’re essentially creating a foundation of success for all campaigns that will only improve more with each subsequent set of learnings.