This post will talk about the return on ad spend (ROAS) metric and how it can be used to optimize your advertising campaigns. ROAS is calculated by dividing revenue generated from an advertisement by the cost of that advertisement.
This calculation tells you how many dollars in sales you are generating for each dollar spent on ads. A higher ROAS means more effective digital advertising, which leads to better results for your company!
We will discuss how you can easily calculate ROAS and use it as a management tool to guide your marketing strategies.
What Is Return On Ad Spend (ROAS)?
ROAS is what’s known as the ultimate measure of success when it comes to advertising. It’s not enough to know that your ad campaign performance has a lot of clicks; you also need people taking action and buying something from you so we can tell if our marketing investment was worth it or not.
As a business, the goal is to achieve as high of a ROAS as possible. Industry can have different profit margins but 3-4 ROA are common benchmarks so our goal should be at least that with 5+ being even better!
A higher ROAS means that your company is generating more revenue from the same amount of ad spend. This can be used to guide business decisions:
If an advertisement has a high ROAS, businesses know they are making money and investing in it. If the campaign’s ROAS drops below break-even levels, then you can end the campaign.
This is an important metric for marketers, as it can give you a sense of how your marketing efforts are doing and where to focus future investment on generating the best ROAS possible.
Keyword research is a crucial first step in any marketing campaign. But you can’t just research random keywords and hope to get good results. You need to choose your keywords carefully—and examine the competition as well.
Below, we will cover important tips to optimize your return on ad spend.
How to Optimize ROAS
Since we know that our marketing efforts are working when our ROAS is high, it’s important to keep track of what works for us and optimize these strategies over time.
We can do this by looking at the campaigns that we are working on and evaluating which ones are successful, using the following best practices. I will share what we do at our digital marketing agency to optimize our PPC advertising campaigns for our clients.
Refine Your Keywords To Improve ROAS
Use a keyword research tool to find relevant keywords for your campaign. We use Google’s AdWords Keyword Tool, which is free and provides the top five potential keywords related to the topic of our blog post.
Once you’ve found some reasonable candidates from among these suggestions, complete their searches in incognito mode (incognito mode will let you search the internet in a way that doesn’t log your history).
Once you’ve completed these searches, click on the Keyword Suggestion Tool at Google Adwords to find other related keywords for your campaign.
Repeat this process until it feels like there are no more relevant suggestions being found. But make sure not to overdo it. Keep your keywords in a manageable number.
Then, use the Wordtracker Keyword Tool to generate some more related keywords for your campaign. The tool is free and provides all of its results in one list.
This way, you don’t have to scroll through lots of individual pages like with Google’s AdWords Keyword Tool.
Use Negative Keywords To Lower Ad Cost
Negative keywords are words that you don’t want your ads to show up for. If someone searches “best buy electronics,” and the term “buy” is a negative keyword, then the ad won’t appear when they search this phrase.
You can add these negative keyword lists to your campaign to make sure you aren’t wasting money on irrelevant clicks.
Create A Branded Campaign
The power of a brand campaign should never be underestimated. It’s an almost surefire way to target ROAS, but wouldn’t someone who types in our name already knows how to reach us?
The following are just some facts about the benefits:
It’s 35% cheaper to market a brand than it is to advertise an unknown product.
A well-branded campaign can increase your ROAS by up to 39%.
Conclusion: A strong branding strategy will boost conversion, reduce marketing costs, and increase profit margin.
Target Users By Location
This includes advertising to customers in your location and nearby. If you have brick-and-mortar stores that carry the same product lines, then think about running ads on Google or other search engines for keywords like “near me.”
You can also make sure to do the following:
Offer Special Deals: Offer specials to make it worth people’s time while coming into your business location instead of ordering online.
Offer Rewards: Give customers a reason to come back.
Offer Promotions: Think about running periodic promotions in your store or on social media channels like Facebook and Twitter, such as “buy one get one 50% off” on certain products.
Optimize Landing Pages To Match Your Ad Content
Make it easy for people to find what they are looking for with the right keywords. You want your ads and landing pages to match up so that when someone clicks on an ad, they are taken directly to a page where they can purchase whatever you were advertising.
Avoid sending them to a home page that might not have what they are looking for or another landing page where you ask them for more information.
To make sure that your landing pages convert visitors, you can:
- Include a clear call to action.
- Describe the benefits of your offer, not just what it is.
- Include testimonials from customers as well as stock images that support your brand and product
- Provide Value – the most important thing you can do when optimizing ROAS is to provide value. To be successful in this area, all ads should lead to a relevant page on your site.
- Include a clear call to action that is focused on the value of what you offer is and not just about promoting something.
- Show why people should buy now, be it price or availability or other urgency factors.
- Provide Benefits – don’t forget about benefits! Talk up how your product will solve their problem.
Create Seasonal Ad Campaigns
Don’t forget about the seasonality of your online advertising campaigns! Consider changing up your messages and imagery to be in line with holiday themes or based on a certain time of year.
The best way to increase your return on ad spend is by promoting seasonal and time-sensitive offers.
Promoting Seasonal Offers: You’re not just advertising for the current season; you also remind customers of previous seasons!
Promote products that still have inventory left so they can purchase now before it’s too late.
This will create higher conversions and more impressions because people interested in a product but didn’t buy it might find what they wanted at an even better price with your promotion.
Protecting Your Inventory: If there is one thing we all know about retail stores, it is this; if something sells out fast, then usually another customer comes along looking for exactly that same item only to be told, “sorry, no longer available.
Adjust Your Bids in Real-Time Using Artificial Intelligence (AI) Technology
If you’re looking to maximize the value of your advertising campaign, then there’s a new technology that enables advertisers to adjust their bids in real-time for every impression.
Digital ad platforms can prioritize high-value targets, and advertising spends less money on low-value ones through factors such as location, time of day shopping behaviors–the list goes on!
Different advertising platforms offer artificial intelligence, including Google’s AdWords, Bing Ads, and Facebook Advertising.
Google offers an artificial intelligence engine that can automatically manage bids for advertisers looking to maximize their target ROAS on Google Shopping campaigns.
The AI-powered system uses machine learning algorithms that constantly optimize the campaign’s performance based on data such as keywords, conversion rates, search terms, and more!
Facebook also offers a system called “Audience Optimization” that automatically adjusts the bids for advertisers based on their conversion rates.
Bing Ads also offers Cortana Intelligence, Bing’s AI-powered engine, to manage media budgets and optimize ROAS by predicting what customers will most likely purchase.
By optimizing your advertising spend with these tools, you can maximize your ROAS and grow your business.
Reduce Shopping Cart Abandonment
There are many reasons people could abandon their shopping cart. Maybe they forgot to enter the code; maybe it was too complicated with additional steps or information needed before completing the purchase.
Studies show that an average of 70% of online shoppers abandons their shopping carts before completing the purchase.
Regardless of why someone left your store without purchasing anything, you want to reduce that number as much as possible to increase ROAS and profits.
To reduce car abandonment, you can do the following:
Create a streamlined checkout process that is simple, quick, and informative. There should be no surprises or hidden costs at the end of your shopping experience.
Make it easy for receivers to return items by offering preprinted labels with their order number included in the shipment. This tells them that you are anticipating their return and will make the process seamless.
Include a few customer reviews on your site or in your email campaigns to build trust with new customers.
Place reminders about order deadlines at checkout points throughout the shopping experience.
Offer alert messages through social media, email, chatbots, or other marketing channels for final time-sensitive information.
Promote Your Products On PLAs
Product Listing Ads (PLAs) are a powerful tool to ensure that your products have the best online presence, and they’re not just for retailers either.
Product listing ads (PLAs) appear at the top of Google’s search results when you’ve searched for an item; these links share images with product names, prices, or URLs from stores where those items can be bought right away.
They include text descriptions and reviews and all-important details in making informed decisions about what we buy!
Product listing ads may seem like something only big retailers should care about, but this couldn’t be further from the truth:
PLAs enable consumers who find themselves on smaller websites searching for information without knowing if such-and-such retailer carries their desired purchase will be able to find it.
If you’re a retailer who is considering running PLAs, certain things need to be considered before making your decision:
The keywords used in the PLA’s title and description should match those associated with your product listing on Google Shopping; this ensures that people looking for what you have will see them!
It’s not enough to use keywords; thought needs to be put into the placement of these. If you’re running a PLA campaign that includes multiple products, make sure your PLAs appear together on Google Ads when someone searches for them.
The appearance and content of each ad should follow best practices; this means they need to stand out compared to your competitor’s ads.
You need to be running a cost-per-click campaign, not just an impression or click per view; make sure you’re targeting the right keywords for your PLA’s title and description using AdWords’ keyword tool.
Have the right keywords in your ad titles and descriptions, make sure they stand out to people who are shopping for them on Google Shopping; use the keyword tool from AdWords.
Ensure that you’re running a CPC campaign instead of an impression or view per click campaign to target exactly what customers want instead of spending money on what they might not be looking for.
Make sure you’re optimizing your account by setting a low cost per click goal and then optimizing it based on the number of conversions being made; an increase in conversion will decrease advertising costs to reach those goals.
As with any campaign, more factors will affect ROAS. However, if these points are covered, then optimizing ROAS will be much easier.
Make Sure Your Google Score Is High
Google Ads assigns a quality score to ads, keywords, and landing pages. A high-quality score can reduce ad prices while giving you better placement for those ads.
The scores are calculated from relevance in advertising material (ad), experience with a website that advertises a product/service (landing page).
As this increases, so will the overall quality rating is given by Google, which improves ROAS.
To improve your Google Ads quality scores, you should increase the relevance of your ads and landing pages to your target audience.
Keep ads and landing pages as close to the same topic as possible.
Be aware of duplicate content on your site or in your advertising campaigns, which will lower quality scores drastically.
Avoid spending too much on low traffic keywords – high volume targeting has a higher ROAS than medium/Low traffic keywords because the advertiser is paying less per conversion.
Do not use irrelevant keywords, as this will lower the quality score. It would help if you also avoided too broad or specific words to your product/service because people may associate those with different products and end up on a landing page unrelated to what you were advertising for.
When using certain phrases such as “today only” or “limited time offer,” you should consider your Conversion Rate.
Avoid PPC for non-business-related terms, such as the names of TV shows and movies. This will lead to low ROAS because it is unlikely that people searching on these topics would purchase a product/service from this company.
How to Calculate ROAS
To calculate your ROAS, you need two values- the revenue generated from an advertisement and the cost of that advertisement. You can either measure this in dollars or as a percentage by multiplying these numbers.
Let’s say, for example, we spend $500 on Google AdWords ads in January, and the total revenue generated was $1500. We can calculate our ROAS as 1500/500=300%.
How to Use ROAS Calculation
Tracking your company’s advertising performance is vital to optimizing the return on ad spend (ROAS).
You can use this metric to compare different marketing channels and evaluate the effectiveness of strategies such as the sales copy used in ads, the keywords used in search engine optimization (SEO), and paid advertising.
What Does A High ROAS Mean?
Typically, a high ROAS means that our marketing efforts are working well to generate a return on investment (ROI).
It can also tell us if there is an opportunity to spread out more resources across different marketing channels to optimize our marketing efforts.
Limitations of ROAS
ROAS is a powerful metric, but it can be misleading. The value to the company depends on what goals are being pursued with advertising campaigns and conversion rates as well as how much they’re spending in total versus their budget for production costs, shipping, etc.
This becomes even more complicated when you consider that most companies spend significantly less than half of their advertising budget upfront and gradually spend the rest over time, which means there’s a significant variable cost associated with running an advertisement campaign at all levels – big or small.
It is important to consider ROAS in the context of your business goals, customer lifetime value, and advertising strategy but consider all of the cost involved when calculating it to stay safe.
ROAS is not a one-size-fits-all marketing metric but rather an indicator to help you maximize your return on ad spend across different marketing channels.
Following These Basic ROAS Optimization Principles
While it is tempting to get lost in all these new strategies, don’t neglect those fundamental principles guaranteed to take you a long way when applied wisely and strategically.
Building a successful campaign is about more than just having a great strategy: you need to have the right analysis tools in place, too!
That’s why we’re committed to providing our customers with access to powerful technologies that will help them optimize their digital marketing efforts.
Conclusion On How To Optimize Return Your Ad Spend
We hope this article helps you understand how to optimize your return on ad spend. ROAS is a metric that measures the profitability of an advertising campaign, and it’s essential for advertisers who are operating in competitive markets.
Optimizing your ROAS can be achieved by considering factors including ad placement, click-through rates, conversion rate, lifetime customer value, and more.
If you’re still unsure how to calculate ROAS or if it sounds like something you need help with, contact us today! Our team has extensive experience optimizing Google Adwords and social media advertising campaigns for clients across industries looking for new sources of revenue growth.