What Is A Good ROAS? Tips On How To Maximize Your Return On Ad Spend! | Replo Blog - Shopify pages without the dev time (2024)

In today’s advertising climate, monitoring ROAS is arguably more important than ever.

Recent data indicates that the value of digital advertising reached $602.25 billion in 2022, up 15.6% from 2021.[1]

Also, given that businesses spend a lot on digital advertising, it's important to see how well your campaigns are doing in relation to your budget. This is where the growth metric comes, such as conversion rate, CTRS, CPM, and, most importantly, ROAS, come into play. Take control of your digital advertising campaigns today to maximize your ROAS.

In this article, we will discuss ROAS, what it is, what good ROAS is, how it imparts your business, its limitations, and how to maintain a good ROAS.

What Is ROAS?

ROAS is a key performance indicator (KPI) taken into consideration by many online businesses when it comes to measuring an investment and the results obtained from a specific marketing action.

The ROAS reflects the amount of revenue earned for every dollar spent on a campaign.

It can be used to gauge how much money was made after paying for each advertising spend. A campaign or the complete marketing strategy can be evaluated using ROAS.

ROAS is calculated by dividing the total revenue generated from an ad by the total cost of the ad. For example, if an ad costs $100 and generates $300 in revenue, the ROAS would be 3:1. This means that for every $1 spent on the ad, $3 was generated in revenue.

A good ROAS is one that is higher than the average ROAS for the industry. Generally, a ROAS of 4:1 or higher is considered to be good. A higher ROAS indicates that the ad campaign is successful and that the money spent on the ad is being used effectively.

Conversely, a lower ROAS indicates that the ad campaign is not performing as well as expected and that the money spent on the ad is not being used efficiently.

ROAS Vs Other Metrics

ROAS, or Return on Ad Spend, is a metric used to measure the efficiency of an advertising campaign. It is a way to measure the profitability of the campaign and compare it to other campaigns.

ROAS is often compared to other metrics like Cost Per Acquisition (CPA), Cost Per Click (CPC), and Cost Per Impression (CPM).

CPA

CPA is the cost of acquiring a customer. It is calculated by dividing the total cost of an ad campaign by the total number of customers acquired. CPA is useful for measuring the cost-effectiveness of campaigns, but it does not take into account the revenue generated from those customers.

CPC

CPC is the cost of a single click on an ad. It is calculated by dividing the total cost of an ad campaign by the total number of clicks on the ad. For example, if an ad campaign costs $50 and receives 100 clicks, the CPC would be $0.50.

CPM

CPM is the cost of a thousand impressions of an ad. It is calculated by dividing the total cost of an ad campaign by the total number of impressions of the ad.

The difference between ROAS and these other metrics is that it takes into account both the cost of the campaign and the revenue genrated from it.This makes it a more comprehensive measure of the efficiency of an ad campaign than the other metrics.

Why Is A Good ROAS Important?

A good ROAS is essential for any business looking to maximize their return on investment (ROI).

Helps To Understand The best Converting Channels

Having a good ROAS helps brands understand which channels and campaigns are the most effective for their business. It allows them to focus their efforts and budget on the campaigns that are delivering the best returns.

It also helps them identify any inefficiencies and make the necessary adjustments to improve their ROAS.

Win Over Decision makers

A good ROAS also helps to impress decision makers. It demonstrates a brand’s ability to effectively use their budget to drive results. This can help to secure additional budget or resources for future campaigns.

Hels Improve Planning Process

Finally, a good ROAS helps to improve the planning process. By understanding which channels are delivering the best results, brands can more effectively plan and execute future campaigns. This helps to ensure that resources are allocated to the most effective channels and campaigns.

Benefits Of A Good ROAS

Having a good Return on Ad Spend (ROAS) is essential for businesses looking to maximize their profits and optimize their ad campaigns. A good ROAS can help brands get better results from their campaigns, impress decision makers, identify inefficiencies, and indicate effective channels. Take advantage of the benefits that come with having a good ROAS today.

Helps In Identifying

Based on their performance, ROAS enables businesses to assess the success of specific campaigns.

A business can determine the types of advertising that are doing effectively so they can scale them to get the best results by looking at each campaign in detail.

You can run a number of campaigns, and as you evaluate each one, you can use the ones that have the best returns on investment to boost your sales.

You may scale campaigns and ad sets that generate high ROAS for you to generate additional revenue.

“Trimming Off The Fat”

Once you measure the performance of each of your active ads, you can optimize your campaign budgets.

A large ad budget does not automatically equate to increased sales. However, spending wisely on your top-performing ads can increase sales and significantly increase your revenues.

The results of your ROAS calculation can help you find the ad sets and campaigns where you are overspending. To prevent losses for your company in these circ*mstances, you must lower your budget.

Helps Identify Inefficiencies

It's critical to have a strong Return on Ad Spend (ROAS) in order to spot any inefficiencies in your advertising initiatives. You can figure out where your money is going and what parts of your advertising efforts aren't working as effectively as they should with the aid of a good ROAS. You can quickly spot any areas that require improvement and make the necessary adjustments to maximize your ROAS by closely monitoring your ROAS.

For instance, if you are running a Google Ads campaign and seeing a low ROAS, this may mean that you are bidding too low or targeting the wrong keyword. You can quickly spot any problems and make the necessary corrections to maximize your ROAS by closely monitoring your ROAS.

Additionally, a good ROAS can help you identify any areas where you are overspending. For example, if you are running a Facebook Ads campaign and you are seeing a high ROAS, this could indicate that you are bidding too high or targeting the wrong audience. By closely monitoring your ROAS, you can quickly identify any areas where you are overspending and make the necessary adjustments to maximize your ROAS.

Refining Your Marketing Strategy

Successful marketing strategies are based on facts. That is a fact.

Your right hand in digital marketing is ROAS. It will enable you to evaluate the impact of a specific campaign on your company.

This measure gives you trustworthy data to use while deciding on your next marketing course of action.

To increase your future profits, you can easily determine which campaigns perform better than the others and align your marketing strategies accordingly.

Limitations Of Using ROAS

Return on Ad Spend (ROAS) is a popular metric used to measure the success of an ad campaign. It is calculated by dividing the total revenue generated from an ad campaign by the total cost of the ad campaign. While ROAS is an excellent metric to measure the success of an ad campaign, it is important to understand the limitations of using this metric.

Restricted Scope

One of the main restrictions on Return on Ad Spend (ROAS) is its narrow scope. Only the revenue made from the ad spend is used by ROAS to gauge a campaign's effectiveness. It does not account for the price of production or any other campaign-related costs.

This means that ROAS might be deceiving if the production cost is high or if there are additional campaign costs that are not taken into account.

Inaccuracy

One of the limitations of using ROAS as a metric is its inaccuracy. Many things, such as improper computations, wrong data, or false assumptions, might contribute to this mistake.

Using a formula that has been improperly put up could result in inaccurate calculations. The ROAS will be incorrect, for instance, if the formula is not designed to take all expenses into account.

Accuracy can also be compromised by incorrect data. This may happen if the information used to calculate ROAS is outdated or inaccurate. For instance, the ROAS will not adequately reflect the current situation if the data used is from a former era.

Incorrect assumptions can also lead to an inaccurate ROAS. For example, if the ROAS is based on assumptions about the customer’s behavior or the market, then the ROAS will not be accurate.

It's important to check that the formula is set up correctly, that the data used is current, and that the assumptions made are correct in order to ensure accuracy. This will help to ensure that the ROAS is as accurate as possible.

It Requires Supplementary Data

It's important to understand that additional data is needed in order for Return on Ad Spend (ROAS) calculations to be accurate and meaningful. This is due to the fact that ROAS is a ratio of revenue to ad expenditure, which necessitates the accuracy of both the revenue and ad spend data. The ROAS calculation will be inaccurate if either of these pieces of information is incorrect.

In order to ensure that the data is accurate, it is important to use reliable sources for both the revenue and ad spend data. While sales monitoring software or a company's financial documents can be used to get revenue information, the company's own tracking system or ad networks can provide information on ad spend. As any changes to the revenue or ad spend amounts will affect the ROAS calculation, it is also crucial to make sure the data is current.

How To Calculate ROAS

A novice would expect some level of complexity in the formulae for such an important business metric. However, it is very easy to calculate ROAS. To calculate it, all you need is the money you are now spending and the associated earnings. This is to put it in lay man terms.

ROAS (Return On Ad Spend) is a key metric used to measure the effectiveness of an ad campaign. It is calculated by dividing the total revenue generated from an ad campaign by the total cost of the campaign. ROAS is expressed as a percentage, and it can be used to determine how much revenue was generated for every dollar spent on the campaign.

All you need to do is to calculate the total revenue from customers who converted on your ads and divide it by the total amount you spent on ads. The formula is as shown in the image below.

Indicators Of A Good ROAS

When it comes to determining a good ROAS, there are certain indicators that can help you gauge how successful your ad spend is. A good ROAS should be positive, aim for a 4:1 ratio, and should be measurable and consistent. Aim for a positive ROAS too boost your business!

Positive Results

A good ROAS should be positive, meaning that it should be higher than the amount of money you are spending on your ad campaigns. If your ROAS is negative, it means that you are losing money on your ad campaigns.

4:1 Ratio

A good ROAS should aim for a 4:1 ratio, meaning that for every $1 you spend on your ad campaigns, you should be making at least $4. This ratio is a good benchmark to aim for when assessing the success of your ad campaigns.

Measurable

A good ROAS should also be measurable, so that you can track and analyze your ad spend over time. This will help you identify areas for improvement, as well as track your progress towards achieving your ROAS goals.

Consistent

Lastly, a good ROAS should be consistent. This means that your ROAS should remain relatively stable over time, and not fluctuate too much from one period to the next. This will help you identify trends and pinpoint areas that need improvement.

How To Maximize Your ROAS

Maximizing your Return on Ad Spend (ROAS) is essential for any business that wants to get the most out of their marketing budget. Here are some tips to help you maximize your ROAS and get the most out of your ad spend.

Bid Smarter

One of the most important components of increasing your Return on Ad Spend is placing wiser bids (ROAS). Your advertising efforts can be quite successful if you know how to place the right bids.

The most important thing to keep in mind when bidding is to understand your target market. You may choose the best bid amount by understanding who you are targeting and what their needs are. It's crucial to bid just enough to reach the proper audience without going overboard with your spending.

Check Your ROAS Accuracy

To make sure that you are getting the most out of your advertising initiatives, accurate ROAS data is essential. You must be aware of any anomalies or irregularities in your data if you want to guarantee accuracy.

Check the data sources that were used to calculate your ROAS first. Make sure the information is accurate and current. Additionally, look for any inconsistencies in the data, such as incorrect dates, figures, or other mistakes.

The accuracy of the calculations used to produce your ROAS should then be verified. Verify the accuracy of the statistics and the accuracy of the calculations. This can be accomplished by double-checking the computations and ensuring that the numbers match the data.

Use Predictive Analytics

Using predictive analytics to maximize your return on ad spend (ROAS) is a great way to get the most out of your ad budget. Using data-driven models to make predictions about the future based on the past is the process of predictive analytics. Predictive analytics can help you pinpoint the channels most likely to result in conversions and optimize your ad campaigns for maximum ROAS.

Furthermore, with predictive, you canidentify the best channels to target, the most effective ad copy and creative, and the optimal ad spend for each channel. It can also be used to identify which audiences are most likely to convert, so you can focus your ad spend on those audiences.

In addition, predictive analytics can be utilized to determine which campaigns are most likely to bring a high return on ad spend and which campaigns require modifications to maximize ROAS.

Know Your Target Audience

Knowing your target audience is essential for maximizing your Return on Ad Spend (ROAS). You may build campaigns that are more successful and increase ROAS by knowing who your target audience is.

When you know your target audience, you can create ads and landing pages that are tailored to their needs. Also, you may utilize this knowledge to produce ads that will be seen by the proper demographic. To target your adverts more precisely, you can use demographic information such as age, gender, geography, and hobbies.

Design Better Landing Pages And Ads

Designing better landing pages and ads is an essential factor in maximizing your Return on Ad Spend (ROAS). Not only will it help you get more conversions, but it will also help you improve your ROAS. Here are some tips on how to design better landing pages and ads:

1. Keep It Simple: Your landing page should be simple and straightforward. Avoid using too much text, graphics, or other elements that can distract visitors from taking the desired action. Keep the page focused on the goal and make sure the page is easy to navigate.

2. Use Visuals: Using visuals such as images, videos, and infographics can help draw attention to your landing page and make it more engaging. Visuals can also help explain complex concepts in a more straightforward manner.

3. Focus On Benefits: Make sure to focus on the benefits of your product or service. This will help visitors understand why they should take action and make it more likely that they will convert.

4. Use A/B Testing: A/B testing is a great way to optimize your landing page and ads. You can test different versions of your page or ad and see which one performs better. This will help you identify what works and what doesn't, so you can make the necessary improvements.

5. Optimize For Mobile: Mobile optimization is essential in today's world. Make sure your landing page and ads are optimized for mobile devices, so they can be easily viewed and interacted with on any device.

Landing pages can be tricky to design especially if you run an e-commerce site. Not only does it take a lot of time, a resource which many businesses do not have, it also requires a level of technical skill as well as understanding key principles.

While this might sound like a problem already, there’s no need to despair. With tools like Replo, you can design a high-converting landing page in a matter of minutes. This tool gives you access to expertly designed landing page templates, and all you have to do is to edit to suit your business. This will help you save hours of code and also a lot of money on ad spend.

Lower Ad Costs

Lowering your ad costs is an important part of maximizing your ROAS. It can be done in a number of ways.

One of the most effective ways to lower your ad costs is to bid smarter. Make sure the keywords you're bidding on are pertinent to your product or service by paying close attention to them. Also, modify your bids according to the time of day, region, and other elements that may have an impact on your ROAS.

Optimizing your campaigns is another strategy to reduce your advertising expenses. Ensure that the audience you are targeting and the ads you are running are appropriate. To determine which ad types and creative appeal to your target audience the most, you can also think about doing some tests.

Final Thoughts

The bottom line of any business is not just to generate revenue, but to make profit. One way to ensure that happens is monitoring and ensuring that your return on ad spend is okay in the least. One of the easiest ways of not achieving this is sending visitors from your ad to a poorly optimized landing page.

A landing page is a critical part of any online business, as this is where decisions are made. It is important to send visitors to only optimized landing pages in order to maximize these visits and turn them into paying customers.

Do you have a shopify store? Are you struggling to convert your visitors or you’re looking to improve your conversion rate. Replo provides you with the perfect opportunity to supercharge your store using expertly designed landing page templates you can edit and get up and running in a matter of minutes.

Are you looking to increase your ROAS by improving your landing page designs? Start here today!

Sources:

1. Digital Ad Spend (2021–2026) [Updated Jan 2023] | Oberlo Retrieved March 3, 2023.

FAQs

What is a good ROAS Target?

A good ROAS target depends on the type of business you are running. Generally, a ROAS of 2:1 or higher is considered a good ROAS target. However, some businesses may have higher ROAS targets due to their specific needs. For example, a subscription-based business may have a ROAS target of 5:1 or higher.

Is 5 a good ROAS?

Yes, a ROAS of 5:1 is considered a good ROAS. However, it is important to note that the ROAS target for your business may be different depending on the type of business you are running.

What is considered high ROAS?

A ROAS of at least 10:1 is generally regarded as having a high ROAS. It is crucial to keep in mind that the ROAS goal for your company may vary based on the kind of enterprise you are running.

What does 200% ROAS mean?

A 200% ROAS indicates that two dollars are generated for every dollar spent on advertising. This excellent ROAS shows how well-received the advertising effort was.

What is a realistic ROAS?

Depending on the kind of business you are running, a realistic ROAS will vary. A solid ROAS target is generally thought to be one with a ROAS of 2:1 or greater. Due to their unique requirements, some businesses may have greater ROAS targets. A subscription-based company, for instance, would aim for a ROAS ratio of 5:1 or higher.