Why Is ROAS Such a Crucial Metric in Online Advertising and How to Improve It?

Making money is essential to the survival and expansion of any firm. Well, that’s probably not something you do not know. Even though it may seem like we're making you go over the basics again, many companies still overlook this. Making a profit is easier said than done; one also needs to know how to scale success. One of the numerous indicators you should be monitoring to ensure a healthy profit margin is the return on ad spend (ROAS) because it provides insight into what is and isn't working for your business.

But wait, what is this ROAS? What does it actually do? And how can improving ROAS enhance the advertising results for your business? To know the answers to all these questions, let’s look at this informational piece about ROAS and the methods to improve it.

What is ROAS?

Return on ad spend (ROAS) is a common and useful metric used by digital marketers to determine the profitability of advertising campaigns. If you compare the amount of money you get from ads to what you put into them, you may get a good idea of how effective your ads are. To reach their goals, growth marketers prioritize metrics like return on ad spend (ROAS) that measure performance and help form data-driven decisions.

Why Does Calculating Return On Ad Spend (ROAS) Matter?

You might examine various data points to fine-tune your advertising strategy. You might be questioning why you should even care about ROAS, even though it is a simple statistic to compute. In fact, you could ask yourself, “Isn't it sufficient to measure the success of a campaign based on the number of conversions or clicks?”

Well, there is a reason for all your whys and hows. You might make less-than-optimal decisions if you don't monitor ROAS in addition to those other indicators. Unless you're trying to increase brand recognition, you should consider increased sales to be the ultimate goal of your advertising efforts. You can't monitor your campaigns' success in revenue generation until you calculate and track ROAS. And without that, maximizing their potential is impossible.

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When ROAS is monitored during an advertising campaign, you might observe its growth over time. Finding out if the campaign is making money as planned can help you decide whether to continue spending money on it or try something else.

In addition, the higher-ups in your firm will expect hard numbers on the ROI of your marketing campaigns. Keeping tabs on ROAS will provide a reliable response to that inquiry. It is possible to boost future online advertising efforts by focusing on ad groups and keywords that are already performing effectively, which is what this metric helps you do. Furthermore, by monitoring ROAS, you can adjust your advertising budget to maximize returns.

What's a Good ROAS?

This is like asking, "How long is a piece of string?" because there is no concrete answer. Factors outside your control, such as the presence or absence of a global pandemic, can have just as much of an impact as those within your control, such as your business's goals and profits.

However, as a matter of thumb, we advise shooting for an ROI of at least 3:1, as anything lower than this will almost definitely result in a loss. Well, it’s true, especially if revenue, rather than pure profit, is used as the basis for calculating ROAS. You need to be prepared for the possibility of a sudden decline in your metrics and give yourself some additional scope in your profit forecast to account for the unexpected.

However, it would help if you strived for more than this basic requirement, and the truth is that the ideal way to approach your ROAS is to benchmark it at the beginning of any particular campaign and then do what you can to enhance it over time. Don't waste time comparing your company's progress to others; instead, aim to outperform your previous self.

So, the actual response to the issue of what constitutes a good ROAS is that it is all subjective. A positive return on investment (ROI) is indicated when the ROI has increased from the beginning of the campaign.

How to Improve Return on Ad Spend (ROAS)

You undoubtedly want to know how to enhance your ROAS now that you realize its significance. Well, if you need some assistance, you may consider these three suggestions:

1. Target High-Intent Audiences

To get started with retargeting, broad and interest-based targeting is fine. You may fine-tune your efforts as you collect more data with your Meta Pixel. Website visitors with high intent to purchase are more likely to become paying customers because they actively seek out your brand. Ad account data collection can also help with Acquisition Re-Engagement efforts.

This campaign focuses on people who have expressed an interest in your product but haven't made an effort to visit your website. An example of this type of audience is people who watched 75% or 95% of your video advertisement. In addition, you can narrow your Acquisition Prospecting campaigns' focus by targeting just those who have shown an interest in your competitors. That's because they're not only in the market for what you're selling, but they've demonstrated an interest in doing so in the past.

2. Test Various Lookalike Audiences

Acquisition prospecting efforts have several tools at their disposal, but lookalike audiences are among the most potent. These are the people Facebook thinks you'll want to reach based on the source audience, geography, and the number of people you tell it to target. Facebook's lookalike audience feature finds users similar to your existing audience. It allows you to reach out to people who are likely to be interested in your brand since they share similar traits with your current clients. Therefore, there is hope for their conversion. Lookalike audience testing is essential for identifying the top-performing segments, which might be scaled to a larger audience.

3. Freshen Up Your Creatives

In the end, not even the most experienced marketers and creative directors can predict with surety which piece of work will perform best. That’s why it's important to constantly try different forms of creativity until you hit on a winner. It means you have to experiment with various forms of advertising. Ads that use video or polls are highly recommended for increasing campaign engagement. Avoiding "falling in love" with one's own creations is crucial. The people who are supposed to like what you like might not necessarily share your tastes.

Moreover, just because you put a lot of time and effort into a creative piece does not give you the right to demand ROI from it. Finding an effective amount of creativity that generates a high return on ad spending allows you to expand its reach. On the other hand, even the most talented artists become tired of commercials after a while. That's why it's important to update your adverts frequently.

Conclusion

Tracking your Return on Ad Spend (ROAS) can do wonders for your digital advertising results. This crucial parameter may be easily calculated and provides a strong indicator of the effectiveness of digital advertising. By keeping an eye on it, you can expand successful efforts while cutting back on resources that lead to losses. In addition, it will assist you in honing your marketing approach, too.

Based on your specific business model and a thorough examination of your sales funnel, you can determine an appropriate ROAS. Optimizing your targeting strategy with high-intent audiences and trying different lookalikes will help you increase your return on ad spend. Advertisers will be less receptive to your messages if you don't periodically update your creatives. Finally, if you're investing in online advertising, you should track your return on ad spend (ROAS), strive to increase it, and get insight from your efforts.

If you still want to learn more about ROAS and how improving it can benefit your business, our PPC experts can help you with all your doubts and enhance your ad campaigns to generate more profits.

Get in touch now to know more about this crucial marketing metric!