Return on ad spend (ROAS) is a highly crucial metric for businesses that use paid advertisements as one of their primary marketing strategies. ROAS calculator helps those businesses understand how much return they are getting compared to the money they spend on the ads.
The Basics of Return on ad Spend
Therefore, businesses must use a proper return on ad spend calculator to measure the revenues earned from paid ads or a ROAS calculation formula for manually calculating ROAS.
Before getting into all these, it is of utmost necessity to properly understand a few things. Let’s discuss those points first.
What does it Mean?
Firstly, you should understand ROAS meaning. In simpler terms, ROAS is the metric for measuring an ad campaign’s profitability, and it tells you how much profit you would generate for each dollar you spend on the ads.
Now, it’s legitimate for you to ask if you are unversed, have just started a business, or are about to start, how to find ROAS.
Well, calculating ROAS isn’t too challenging as there is a ROAS calculation formula and many easy and free tools too.
The Formula for Calculating Return on ad Spend
Providing an example of the ROAS formula can make it pretty clear to you.
Suppose your ROAS is 2.5. It means you generate $2.50 in revenue for every $1 you pay for marketing your business through ads.
Return on ad spends = (total amount of money generated from ads/ total money spent for ads) x 100.
Is ROAS Calculation that Simple?
Now you know how to calculate ROAS. But is it really that simple to project your return on ad spend? The answer is no. If a return on ad spend percentage is positive, it means that you made some money from your ad campaign. But it doesn’t mean you have gained profits.
Suppose you have managed to make a $200 sale on advertising while you spent $300 on it. The return on ad spend will be 67%, which is positive and satisfactory for you initially. But, are you actually gaining profits from your ads? No, you lost $100 instead.
How do I Track ROAS on Google?
A higher return on ad spend means your ad campaign is on the right track, and you can even spend more to achieve further improved results. Improving your ROAS for Google Ads constantly is excellent for your business.
For Google Ads, a 400% ROAS or 4:1 return is good enough but still can go higher.
Divide your conversion value by the cost of your ad to track the return on ad spend on Google.
Here are the steps required to track ROAS on Google via Google Analytics:-
- Go to the property column from the Admin section of the settings option after signing in to your Google Analytics account.
- Select the “Google Ads linking” option.
- Select your Google Ads account and press “continue.”
- You can enable the “Link configuration” option to type any name in the link group title.
- You can turn the “linking” option on for every view or select all to access data on Google Ads.
- Finally, enable the “link accounts” option.
- If you want to enable the ROAS tracking for E-commerce, you have to turn on the “E-commerce setup” option from “E-commerce settings” under the same admin section.
- To get the ROAS column, go to Acquisition> Google Ads>Campaigns>Clicks.
How do I Get the Best ROAS?
You must keep a lower “cost per click” to improve your ROAS.
You also need to improve the post-click conversion rate and revenue per conversion.
Why is ROAS Important, and which Factors Influence it?
Before we enter into a detailed discussion on why the ROAS calculator is necessary for your business, let’s look at the factors that influence it the most.
Targeting:- You must know your target audience and reach out to the right audience accordingly. Then only the audience will be interested in your ads, making your expenditure on ads worthy.
You should also focus on your keywords, if they should be a long tail or short tail.
Cost per click or CPC:- It should always remain moderate, neither very high nor very low. Higher CPC increases your expenses on ads. Lower CPC might not reach your target audience.
Ad expenditure:- To calculate how much profit you gain from your ads, the fundamental thing you should know is how much your ad expenditure is.
Revenue from ads:- You must keep pertinent data on your ad campaign’s total revenue.
Landing page:- The audience reaches your website after clicking on your ad, and where they reach is called the landing page. Most of your success depends on this page. The more engaging and attractive the landing page is, with vivid information about the products and services you offer, the more revenue your marketing campaign can generate. Things you must incorporate into your landing page are:-
- Product price
- Product materials
- Product description
- Product images
- Size and color options
- Reviews
- Return policy
- CTA
The importance of using the return on ad spend calculator
Gaining Accurate Insights
ROAS calculation helps you immediately know when your ad campaign requires treatment. If an ad is not working and causing you losses, you have the opportunity to change your strategy, as you can identify it quickly through the ROAS calculator.
Keeps you Aware
It keeps you aware of the ad campaign metrics you should further focus on and those you should keep investing in.
Elimination of Miscalculation
Utilizing a proper calculator minimizes the risk of miscalculation.
Understanding your Audience
It gives you a clear picture of your target audience or prospective customers. You can also measure how potential buyers react to particular ads.
Insight on Future Campaigns
Knowing the impact of different ads on prospective buyers eases the task of optimizing future ad campaigns.
Ease of Giving Feedback
When you report to your higher authorities or anyone concerned about the ads campaign, you have a clear insight on which ad is bringing how much profit for you and what your strategy should remain in the long run.
Impressing Decision-makers
Return on ad spend makes it easy for a business owner to get an idea of how scalable his brand and products will be in the future. So it becomes easier for them to make more significant decisions on budgets, investments, and campaigns.
Does Return on ad Spend have Limitations?
Calculating ROAS is essential, but it’s not suggested as the only metric for measuring your profits through ads.
For example, you can be satisfied with a comparably low ROAS if you aim to enhance your brand visibility and awareness. But for sales generating, something else will work. So, the return on ad spend depends on your company’s particular ad goal, which may not define an overall scenario.
Even a good ROAS can’t sometimes prevent your loss because ads aren’t the only expenditure behind your business, and there is much more.
Moreover, you can’t do a proper ROAS calculation if someone doesn’t immediately purchase a product from your website after being landed on it via ads and buys the product a few days later. The same thing happens when a customer repeatedly buys your products.
Return on ad spend calculator can’t measure marketing attribution, which means making a customer buy your products later, and customer lifetime value or CLTV, which means how long the relationship of your business continues with a customer.
Conclusion
Tracking your ads spend and the return you are able to generate from it involves numerous fruitful strategies. ROAS calculator is just one that can make you control, analyze and optimize the usefulness of your ad metrics. You can use this method to see where your business needs further growth to generate more revenues.
Have different things to know about ROAS? In case you’re still not completely satisfied, look for some more information you might need.
Some more FAQs
How can I Understand Whether my ROAS is Good?
There is nothing such as a perfect return on ad spend. It varies mainly from business to business, depending on its goals, margins, and order value. How do I improve my return on ad spend? Higher is always better, in any case. A 3:1 ratio is generally considered satisfactory, whereas 4:1 or even higher is the aspired ratio by business personnel.
How can I Improve the Return on ad Spend?
There are simply two ways to improve return on ad spend. Either you find ways to increase the revenue or reduce the costs of your advertising campaigns.
What’s the Difference between ROAS and ROI?
ROAS and ROI are truly different metrics, though frequently used interchangeably.
Return on ad spend is the metric to measure an ad campaign’s profitability, whereas the return on investment or ROI stands for the profit you make for each dollar you spend for your business.
Both are valuable metrics to measure how much profit your business is gaining. You use ROAS to understand your ad campaigns’ success rate and ROI for measuring the overall profit your business is gaining.
