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ROAS, or return on ad spend, is the metric businesses use to calculate how much return they receive from their paid advertising strategy.
The ROAS formula helps you determine if you made a profit after subtracting the amount you spent on ads from the amount you made from those ads. If you made money from your ad, then you should have a positive ROAS percentage, however that doesn’t always mean that you made a profit from your ads. It is important to remember that in order to have made a profit the percentage needs to be over 100%, meaning you made 100% of the money you spent and then some.
Here is an example for when the percentage is under 100%: if you received $300 from sales on an ad, and you spent $500 on the ad, your ROAS would be 60%. When looking at this number you may think that it is a good percentage, however, understanding that this percentage actually means that you didn’t make a profit. In fact, you actually lost $200.
A ROAS has many aspects that influence if it is good for your business or not, such as profit margins, expenses, and the health of your business. While there's no one-size-fits-all answer, a common benchmark used for ROAS is 4:1 ratio — $4 revenue to $1 in ad spend. As expressed before, this will depend on the position and health of your business.
Before a business can set a ROAS goal, it first must identify a set budget and the profit margins. If you have a large margin, this means that your company can afford a low ROAS, whereas a smaller margin identifies that the business must have low advertising costs to stay profitable.
There are several benefits of using our PPC tools rather than calculating it by hand.
With ineffective ad campaigns, the first sign of poor performance is a low ROAS. If you calculate your ROAS and the percentage is less than 100%, it’s time to review and rework your campaign. If the percentage is higher than 100%, then you should continue to do what you’re doing. One of the most important and long-lasting benefits of using a ROAS calculator is it forces you to be aware of important ad campaign metrics like spend vs. revenue.
Utilizing our free ROAS calculator is a great way to make sure that your ROAS is not calculated wrong. Miscalculations can harm your campaign performance. When you use a return on ad spend calculator, you guarantee an accurate result every time. ROAS is a key metric in leading you in the right direction regarding how to move forward in your campaign. If it is calculated wrong, you may end up making a poor decision on your campaign.
For good ad performance, it is important to understand what impacts the ROAS of your campaign. This can include:
It is important to target a qualified audience with your ads in order to know that the consumer viewing your ad will actually be interested. If you don’t target a specific audience or you fail to do it correctly, you could be driving up your CPC and putting your ROAS in the trash. When you fail to target the right audience for your brand, the users who would be interested won’t see your ads.
To ensure you are targeting properly, be sure that you are bidding on keywords that your audience would search for. Note whether your target audience is searching short tail keywords or long tail keywords. Short tail keywords are usually made up of one or two words and they target a very broad audience, whereas long tail keywords are longer, more detailed phrases that target an ultra-specific audience. You will most likely pay more for short tail keywords since they target that wide range of users, and you’ll typically pay exponentially less for long-tail keywords.
Your landing page is the last make-or-break element of an ad. Users see this page last before converting, so you must make it engaging and exciting enough for them to stay consistently interested enough to convert. If you create landing pages that lack the necessary elements to entice a consumer or that don’t offer a clear CTA, information about your product, or the product price, you can kiss a sale and an increased ROAS goodbye. It’s crucial that you create landing pages that turn skeptical shoppers into loyal customers.