How to Calculate ROAS & 3 Ways to Use It
Knowing which metrics to track is an essential part of your marketing strategy to identify methods that are working and highlight areas where there may be opportunities for improvement from social media marketing campaigns to keyword optimization. Thanks to modern digital advertising tools and platforms, there is a plethora of available information offering insights into your campaigns’ effectiveness. However, knowing which metrics are the right ones to track can be tricky.
Most business owners are interested in tracking their ROI (return on investment) to gauge whether or not the money spent on a particular investment was worth what was gained in return. If you want to hone your marketing strategies and ensure that you’re promoting only the most successful campaigns, you can go one step further and start paying attention to your ROAS—return on ad spending.
What is ROAS?
ROAS is a metric that specifically focuses on how much revenue you’ve brought in from your advertising campaigns minus the cost. This metric is vital to determining the overall success of your marketing campaigns. You should be tracking this regularly to ensure that you are actually bringing in money from your advertising efforts and to help illuminate areas where you may be able to cut back spending to increase profits.
Essentially, this metric is one of the most beneficial ways to measure the impact of your advertising campaigns and adjust your marketing budget accordingly.
How to Calculate ROAS
Calculating your ROAS is easy and more straightforward than ROI. Your ROI can encompass many a number of investments from marketing campaigns to IT hardware. But, ROAS only considers the amount of money you’ve spent on advertising and the revenue you have received as a direct result of that.
Below is the basic formula for determining your ROAS:
Revenue Generated by Ads / Cost of Ads = Return On Ad Spend
How to Apply ROAS to Your Digital Advertising Strategy
Although the ROAS formula is relatively simple, there are some factors that can skew this metric. Be sure that when you calculate ROAS, you’re not including money spent on anything aside from your advertising dollars. You should also make sure that you’re using a Google Ads attribution model that makes sense for your business.
Reduce Ad Spending
Ideally, to maximize your profits, you want to reduce your spending as much as possible while still implementing an effective marketing campaign. Calculating your ROAS may reveal that you’re spending more than you need to. Try cutting back where you can to boost revenue by identifying keywords that aren’t succeeding.
Increase Ad Revenue
Naturally, the other method for increasing your ROAS is by increasing your profits. To do this, you should be regularly optimizing landing pages on your site, updating keywords in advertising campaigns, and potentially automating the process of bidding on keywords in Google Ads. These are just a few of the steps you can take to boost revenue. Understanding your ROAS, alongside other important metrics, is the key to improving your marketing campaigns and bringing in additional revenue.
If you’re not already calculating and tracking your ROAS, you should be. This metric is a more specific look at ROI because it specifically targets your advertising budget and identifies how much revenue you’re reaping in relation to your spending. Use this information to adjust your method and increase ROAS to bring in more revenue. When implemented alongside other strategies like conversion rate optimization and social media marketing, this approach will drive success, helping your business to reach its full potential.