How to Calculate and Improve Return on Ad Spend

2023-02-14

Returns on ad spend (ROAS) are a crucial indicator of the performance of marketing efforts. This metric allows you to measure the revenue generated from each dollar spent on a campaign. It also simplifies strategizing how to allocate money across various channels.

While tracking ROAS is vital, many business owners don't know how to measure it. Here is a detailed guide on calculating this metric and tips for improving it.

Calculating return on ad spend

When determining ROAS, you must first calculate the costs incurred on the campaign. After that, evaluate the revenue received from the generated leads. Once you have these figures, divide the revenue by the ad cost (ROAS = Ad Sales / Advertising Costs).

For example, if you spent $2000 on Facebook ads and got $4000 from sales, your ROAS is 2. This aspect means you received a 200% return on the incurred amount. Financial experts often express ROAS as a ratio or multiplier. In the provided case, the results would be 2:1 and 2X, respectively.

Determining the revenue to use when calculating ROAS

You can use several methods to assess the revenue of ad campaign sales. The first is the single touch attribution model. This credits the generated sales to the first or last touch before lead conversion. When using the first touch option, you will assume that you converted a lead with the initial ad they viewed. Conversely, you will consider the last ad the customer saw before conversion when applying last-touch attribution.

Another model you may use when determining revenue from ads is multi-touch attribution. This method allows you to account for all ads influencing a buying decision. It also credits all touchpoints and interactions with a consumer before conversion. Due to these features, multi-touch attribution is more accurate when calculating ROAS.

Costs to consider when calculating ROAS

Assessing the actual costs of ads is vital when calculating ROAS, especially if you incurred other expenses that didn't directly go into the advertising platform. If you hired an agency to handle your ad campaigns, factor in the cost of their services. Likewise, consider all commissions and incentives paid to your marketing team. Other expenses to include when calculating ad spending are:

‚󏬆¬†¬†¬†¬†Network transaction fees

‚󏬆¬†¬†¬†¬†Cost-per-click or impression

‚󏬆¬†¬†¬†¬†Commissions paid for referrals

Factoring all the costs linked to ad spending will ensure an accurate figure. It prevents a false ROAS that may affect marketing campaigns and cause your brand to stagnate.

What ROAS rate suits your business?

The ideal ROAS for your business can differ based on various factors, including:

‚󏬆¬†¬†¬†¬†The channel you posted ads on

‚󏬆¬†¬†¬†¬†The goal of the marketing campaign

‚󏬆¬†¬†¬†¬†The technology inuse

Another factor that may influence whether a ROAS is good is simply your business's overall health. If your company is doing well, the benchmark should be at least 4X. However, if the brand is currently struggling to establish itself in the industry, expect about 2X ROAS.

Companies that consumers don't know about may have a lower ROAS. They must build awareness before consumers buy from them. In addition, they may need a higher investment to compete with other brands.

The proper ROAS for your company can depend on the industry. Fields with high customer lifetime value (CLV) often have a greater ROAS. On the other hand, companies with low CLV may get fewer returns from advertising campaigns.

Tips on improving returns on ad spend

6 steps to improve your return on ad spend

A low ROAS means your brand isn't making the most of its marketing budget. It may also indicate that you’re not targeting the right audience, leading to lower conversion rates.

Identifying ways to boost ROAS will significantly increase revenues. It also simplifies achieving marketing goals with fewer resources.

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Here are some tips on improving ROAS:

Advertise on the appropriate social media channels

Each social media marketing channel is suitable for different business types and goals. If you don't use the appropriate platform, you may fail to reach your audience. This issue will then lead to limited leads and fewer ad sales.

Before using a specific channel, identify the goals you want to achieve. Next, confirm whether the platform is the best option based on your budget and market demographics.

If you are targeting an audience new to your brand, consider Facebook Ads. While you may have a lower conversion rate, you can build awareness quickly. In the long run, you will drive more traffic to your pages and ultimately get a higher ROAS.

Other situations when advertising on Facebook is appropriate include:

‚󏬆¬†¬†¬†¬†When targeting an audience below 65 years of age

‚󏬆¬†¬†¬†¬†When you want to grow your community before launching a significant project

‚󏬆¬†¬†¬†¬†When you want to complement email and website marketing

Another popular social media platform to consider for ads is Instagram. To generate a good ROAS, postads on this channel if you already have enough engagement on your posts. You can also use it if your target audience is between 25-34 years old.

YouTube advertising can improve customer targeting and generate a high ROAS. This platform is ideal if your audience frequently watches videos on the site. It is also suitable if you can fit the vital information in a short clip of 30 seconds.

Understand and categorize your target audience

Understanding your target market is an effective way to boost ROAS. Research your audience and develop a buyer persona when creating an ad campaign. After that, tailor the message to attract their attention and prompt more purchases.

 When grouping your target audience, base the categories on these three aspects:

‚󏬆¬†¬†¬†¬†Interest

‚󏬆¬†¬†¬†¬†Purchase intention

‚󏬆¬†¬†¬†¬†Subcultures

Categorizing your audience based on their interest will simplify creating data-driven messages. It also lets you connect with consumers, leading to higher sales revenue. Understanding purchase intentions allows you to convince interested buyers and simplifies designing ads that directly address specific needs.

Grouping your audience based on their subcultures involves studying their beliefs. It also includes learning their preferences and buying habits. This information allows you to target consumers with particular ads in the sales funnels. You can also identify when they are likely to spend and plan your campaigns for better returns.

Prioritize the buyer's journey

The steps your audience takes in the buyer's journey will influence ROAS. If the targeted consumer doesn't engage with your posts, you’ll generate fewer sales from ads, lower ROAS, and cause losses in severe cases.

Prioritizing the buyer's journey can ensure you address customers' needs at each stage. Additionally, it prevents a significant drop in engagement towards lead conversion.

An ideal way to focus on the buyer's journey is by prioritizing active customers. This step involves aiming your efforts and ads at users that are highly likely to buy.

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A couple of strategies to help you focus on active buyers are:

Developing an active buyer profile

Creating an active buyer profile helps identify consumers that are a good fit for your brand. Determine the characteristics of the ideal customer for each service or product you offer. After that, use this data to narrow your leads and focus on those that will help you get a high ROAS.

Gathering data about the buyer's journey

Collecting enough data about your potential buyers can improve ROAS in many ways. It allows you to tailor the sales experience and offer reliable support. You can track lead sources and identify aspects that are highly likely to trigger sales.

Leverage marketing AI to build a detailed database. Platforms using this technology can collect information using contact forms and help identify the content a page visitor consumes to evaluate their needs.

Customer relationship management (CRM) tools are ideal for gathering details in the buyer's journey. With these solutions, you may identify platforms that bring in high-quality leads. From there, you can track each potential customer and motivate them to buy without aggression.

Offering reliable customer support

When a customer views an ad, they might have some questions. If you don't respond to inquiries fast or provide enough guidance to help them move to the next stage, you may lose leads.

Offering reliable customer support is ideal for improving return on ad spend. When your leads get the details they need about products and services, they are highly likely to buy. This measure also speeds up decision-making and helps you generate more sales from an ad campaign.

Provide reliable customer support by answering inquiries fast. Since you may not always be available, consider using AI. With the right tools, you can automatically reply to emails, texts, and live chat. You can even record the contact information provided on your website to a CRM tool.

Improving communication will boost ROAS in many ways, including:

‚󏬆¬†¬†¬†¬†Following up before an interested consumer changes their mind

‚󏬆¬†¬†¬†¬†Helping customers differentiate closely-related products

‚󏬆¬†¬†¬†¬†Improving credibility and prompting more purchases

‚󏬆¬†¬†¬†¬†Assisting customers without appearing too ‚Äúsalesy‚ÄĚ

Engaging leads from your ad campaign could be tricky if you didn't offer reliable support when they first contacted you. Streamlining communication with them will simplify work for your marketing team and help you avoid negative impressions that may lead to second thoughts and lower ROAS.

Offering clear product messaging

Product messaging is vital during the consideration stage of a buyer's journey. If you don't mention the features and benefits of what the brand offers, you won’t get a desirable ROAS.

Ensure that all your products have clear messaging about:

‚󏬆¬†¬†¬†¬†The price

‚󏬆¬†¬†¬†¬†The primary purpose

‚󏬆¬†¬†¬†¬†The problems the item can help a consumer solve

‚󏬆¬†¬†¬†¬†The main ingredients or components

Disclosing information about products helps consumers compare them with others. Further, it reduces the number of potential buyers withdrawing before a purchase.

Improve ad relevance

Irrelevant ads can lead to fewer clicks and low ROAS. When creating marketing campaigns, ensure that the ads are compelling and relate to the target audience.

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Some tips on improving ad relevance for a higher ROAS are:

Choosing keywords carefully

Each keyword used in an ad should directly relate to the theme of your campaign. Viewers should easily associate it with the services or products you offer. Before selecting words to use in an ad, verify whether people interested in your brand include them in search queries. After that, create about 5-20 variations and incorporate them based on the length of the ad poster or email.

Longtail keywords are often more effective for ad campaigns since leads using these phrases are more likely to be of a higher quality than those searching using single words.

Ensure ads are simple but compelling

Lengthy, complex ads may cause readers to lose interest. They may even trigger your audience to mark them as irrelevant, limiting your reach. Create simple ads to prevent putting off your audience and boost engagement. An ideal strategy is applying the lingo your target consumers often use. You can also incorporate images they relate to and use easy-to-read fonts.

A call to action can determine the measures a page visitor takes after viewing your ad. Ensure that your posts have compelling CTAs that help your audience identify the steps to take. Additionally, verify that each CTA matches the campaign's goals and the stage in a buyer's journey.

Direct traffic to a relevant landing page

The page a viewer lands on after clicking your ad can influence ROAS. The purchase chances will increase if the site directly relates to the post. On the other hand, irrelevant pages can lead to a high bounce rate and lower ROAS.

Make sure that your ad content matches the post-click landing page. Likewise, verify that the messages align to prevent confusion among viewers. It's also vital to ensure the ad design matches the landing page.

Reduce your cost-per-click

A high cost-per-click (CPC) will lead to a low ROAS. Reducing this expenditure allows you to generate more returns on ad sales.

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Here are some practical tips on lowering CPC:

Improve the quality score

The quality of your landing pages, ads, and keywords can affect ROAS. If these aspects are of high quality, you will incur less and get better ad positions. Improve your quality scores to boost the performance of ad campaigns. During this process, try to enhance the landing page experience. Some ways to do this are:

‚󏬆¬†¬†¬†¬†Explaining the value a consumer will get from your brand

‚󏬆¬†¬†¬†¬†Posting unique content

‚󏬆¬†¬†¬†¬†Using trust signals such as warranty and product returns

Another way to boost the quality score is by enhancing the click-through rate (CTR). Ensure that your ads stand out by offering lucrative deals. Study your competitor's ads to differentiate yours and boost CTR.

Apply negative keywords effectively

Negative keywords may prevent your ads from showing for irrelevant searches. Avoid bidding on terms that won’t bring in sales. Applying negative keywords effectively is sure to lower your CPC and set the stage for efficient marketing campaigns.

Leverage ad scheduling

Scheduling your ads will help you reduce the cost per click. With this strategy, you can show promotional messages when your target audience is most active. It's also possible to avoid irrelevant traffic to your site and boost the quality of leads. 

Ad scheduling may allow your brand to generate more sales from each campaign. It also reduces the resources spent to trigger a purchase, boosting your ROAS.

Geotarget your dds

Targeting consumers within a specific location may boost sales revenue and raise awareness about your services, leading to less marketing spending. Manage your ad campaigns and lower the cost-per-click using geotargeting.

Before promoting a service or product, apply positive and negative bid adjustments. These can ensure you only show ads to searchers within a specific location and boosts visibility in those regions by adjusting the bidding strategy.

Lower ad spending

Spending a high amount on ads can significantly lower your ROAS. Cutting your company's marketing expenses will help you improve the revenue vs. expenditure ratio. Before lowering your marketing budget, assess your processes to identify those wasting resources. This will simplify solving the issues without affecting operational efficiency.

 

Some practical ways to cut ad spending are:

Focusing on company branding

Your company's reputation will determine the resources incurred to generate sales. If your target consumers have a positive perspective, they don't need to view many ads before buying. They will likely click your posts despite viewing others from competitors.

Focusing on company branding will help you fix issues affecting your reputation. Some aspects to address during this process are:

‚󏬆¬†¬†¬†¬†Connecting with your target audience emotionally

‚󏬆¬†¬†¬†¬†Delivering a clear and unique message

‚󏬆¬†¬†¬†¬†Setting a brand voice and tone

Proper branding can earn your customers' trust and loyalty, making it easier to produce sales from personalized ads. Your campaigns may also generate more revenue due to referrals from satisfied buyers.

Negative reviews can scare away potential customers and affect branding. However, they prove authenticity since some consumers may doubt companies with only positive feedback. Leverage negative reviews by addressing customers' concerns andresponding to each message. Take responsibility for faults and empathize with the client.

Optimizing messages for ongoing campaigns

Many brands wait until an ad campaign ends to assess its performance. This issue makes it tough to influence the results. On top of that, it wastes resources and complicates identifying issues lowering the ROAS.

Tracking the performance of outreach campaigns can help you cut costs. It also allows you to reallocate the budget into other channels to avoid wastage.

When running an ad campaign for a month, track its progress on specific platforms for about two weeks. If you notice that some sites lead to more sales and conversion, leverage them for better returns. You should also identify ways to boost ad performance on the other platforms before the campaign ends.

Measuring your results accurately

Creating accurate reports can help you assess how you spend a marketing budget. Still, many brands rely on poor-quality data that provides false insights. Identify ways to lower ad spending by applying modern attribution models. Sort the data collected from marketing campaigns to ensure integrity and simplify optimizing ads and measuring outcomes. 

Use efficient marketing technology (MarTech)

Marketing tools can help you test the efficiency of ad campaigns, automate some processes, and limit the sources spent on projects. Leveraging the right marketing tools can boost ROAS and improve workflow.

Before adopting a specific tool for your brand, assess your needs. Check the goals you want to achieve from the ad campaigns and verify if you will rely on the tool entirely or complement it with other systems.

Marketing tech must have some vital features to simplify work and cut ad spending. A few critical aspects to look for in software include:

Integration

An ideal marketing solution must integrate with other vital systems. For example, it should connect with your CRM software to simplify managing leads. It should also allow you to access your social media platforms on the same screen for easier campaign management.

Implementing MarTech that allows integration has several benefits. First, it avoids file transfers that may cause errors and affect the integrity of your database. Second, it reduces the devices and resources needed to create and track ad campaigns.

Multi-channel experience

Consumers will likely engage you on different platforms after viewing your ads. When looking for MarTech, opt for solutions offering multi-channel support. These will help you engage customers in other media. They also allow your team to track each interaction and provide a seamless experience.

Data-driven insights

Analyzing marketing campaigns can be time-consuming. This issue makes it tough to strategize ad spending. You may also fail to identify opportunities to improve sales.

Marketing solutions that offer data-driven insights can boost ROAS. With such software, you may revise your targeting strategies and reach the right audience. It's also possible to simplify lead scoring and follow up on customers that may generate a high LTV.

Flexibility

The marketing needs of your brand may change as it grows. As a result, you’ll need to alter some strategies and use different channels for a desirable ROAS. Before picking software to help you with ad campaigns, ensure it's flexible. An ideal solution should quickly adapt to different marketing methods and support growth by offering tools to track ROAS and enough cloud storage.

Adopting flexible MarTech can ensure your customers get a high-quality experience. Using such software, you may provide fast load speeds on post-ad clicks. It's also possible to avoid over-presenting the same ad to a user.

Enhance your website

The functionality of your website can influence users landing on it after clicking an ad. Revising your site will rectify issues that may cause potential customers not to buy and streamline experiences across all platforms for a better shopping experience.

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Here are some ways to enhance your website and improve ROAS:

Simplify navigation

Users who click on an ad mainly want to get more information about the product or service or to shop if you captured their attention during the consideration stage. Ensure your website is easy to navigate to boost ad-generated sales. When attaching a URL to an ad, make sure it allows the user to take a desirable action, including:

‚󏬆¬†¬†¬†¬†Signing up for your emailing list

‚󏬆¬†¬†¬†¬†Scheduling a demo

‚󏬆¬†¬†¬†¬†Contacting the company

‚󏬆¬†¬†¬†¬†Retrieving an abandoned cart

Since page visitors may need to compare items before buying, ease the process by allowing a manual search. Organize the product content based on the type and price to facilitate filtering.

Another way to ease page navigation and increase ad sales is by using drop-down menus. These allow page visitors to identify the content grouped in a specific category and prevent them from searching the entire website for information.

An easy-to-navigate site can boost ROAS by reducing the resources spent on campaigns. If users can easily find content, they’re less likely to message you for assistance, weigh their options faster, and buy within a shorter time.

Ensure your website is mobile friendly

Many consumers use their mobile phones to research products and services before buying. They’re also more likely to click on ads when using phones than computers. Creating a mobile-friendly site will convert more page visitors who click your ads and improve the shopping experience, increasing the number of return buyers.

Optimize your site for mobile use by reducing load times. Lower and eliminate redirects that may frustrate page visitors. Other ways to ensure your site is mobile-friendly include: 

‚󏬆¬†¬†¬†¬†Using a responsive layout

‚󏬆¬†¬†¬†¬†Limiting pop-up notifications

‚󏬆¬†¬†¬†¬†Decluttering web pages

‚󏬆¬†¬†¬†¬†Making images clickable

‚󏬆¬†¬†¬†¬†Testing your URLs on a mobile device

‚󏬆¬†¬†¬†¬†Considering the mobile design when writing content

‚󏬆¬†¬†¬†¬†Ensuring button sizes automatically adjust to screen size

When designing a website to boost your ROAS, you should also consider the font. An ideal page should contain legible information and allow users to adjust the font size based on their visual needs.

Optimizing websites for mobile use can boost ad ranking, increasing traffic and the numberof leads. Ultimately, it can contribute to higher sales revenue, and better ad spend returns.

Review the product pages

Reviewing your product pages will help you ensure they contain the relevant information. If they don’t, you can redesign them and edit the content to encourage purchases. An ideal product page should contain detailed information about each item and include high-quality graphics like images and videos. These can help potential buyers visualize the product and determine if it suits their needs.

Transparent pricing is a vital aspect to consider when revising the product page design. Ensure each item has a correct price tag and make the area noticeable using a different font or color. Highlight discounts and offers so consumers know how much they save by buying from your brand.

Market seasonal offers

Promoting seasonal offers is an effective way to boost ROAS. You can prepare the target market by posting holiday and festive season discount ads in advance. You will also allocate enough time to build awareness and excite consumers for the offer period.

Plan your seasonal offers at least a month in advance to get the best returns on ad spend. During this process, identify the products or services your target buyer will likely need in the given period. Moreover, assess the most effective way to promote sales and allocate enough resources to the campaign.

When planning seasonal offers, ensure that your ads are relevant to what consumers search in that period. Encourage sales by attaching reviews and testimonials to the promotional message. When promoting seasonal sales, you can also:

‚󏬆¬†¬†¬†¬†Gamify your ads

‚󏬆¬†¬†¬†¬†Offer premium pricing

‚󏬆¬†¬†¬†¬†Build a seasonal email list

‚󏬆¬†¬†¬†¬†Offer lucrative discounts to loyal customers

‚󏬆¬†¬†¬†¬†Entice first-time buyers with product bundles

Pre-seasonal campaigns can boost sales when other brands aren't promoting their items. These strategies also build consumers' anticipation for new services or product lines.

Create your pre-season campaigns a month or two in advance and track engagement. Likewise, follow up on each inquiry to boost the number of decided customers by the time you launch the main campaign.

Improve return on ad spend with Smith.ai

Measuring and boosting your return on ad spend will ensure your campaigns yield desirable results. However, employing the discussed measures may require an expert's help. You also need the right solutions to track key indicators and analyze data.

At Smith.ai, we can help you boost ROAS and grow your brand. Our agents can screen leads on the initial calls or chats, based on the criteria you choose, and keep in touch with leads who fill in contact forms to streamline the buyer journey. We can also call on your behalf to speed up sales and offer reliable support.

Smith.ai also provides software to gather valuable metadata and help you make better decisions. In addition, Smith.ai was recognized by Clutch as a top sales outsourcing provider. You can chat with us live, 24 hours a day, right on our website. Book a free 30-minute sales consultation to find out more.

 

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Business Education
Elizabeth Lockwood is the content marketing associate at Smith.ai. She focuses specifically on writing and editing engaging articles, blog posts, and other forms of publication.

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