As marketers, we find that as a bunch, we tend to be better at English than math and science.
While we might not be especially great with math, we want to ensure that we’re making the most out of our marketing efforts. That’s why we need a tool that can analyze data, calculate effectiveness and measure ROI.
For our business, one key calculation is return on ad spend (ROAS).
If you’re interested in measuring your return on investment, here’s a brief overview of (ROAS) and its difference from ROI. Now, let’s review how to calculate it by using examples.
What is Return on Ad Spend (ROAS)?
ROAS is a metric that measures the revenue generated compared to every dollar of an advertising campaign. ROAS can help businesses determine the effectiveness of their advertising strategy by taking into account the money they’ve spent and what they’ve generated so far.
Our online ad platform will automatically measure the effectiveness of every campaign by tracking your desired social actions: likes, shares, retweets, mentions and more.
Measuring multiple analytics is the only way for a business to be able to evaluate the success of a marketing campaign. By looking at metrics, like (ROAS) and click-through rate, you’ll be able to measure your promotions’ progress as well as provide more accurate results.
When you publish materials online, it’s vital to track performance and generate insights.
One of the best ways to improve your marketing is by tracking your performance. Whether the data you’re using has been purposefully collected or gathered from a third-party tool, it’s ultimately one of the only ways to prove your department is achieving results on its own.
It’s important to remember that there are times when your data isn’t as quantifiable, such as brand awareness or sentiment. It can also be difficult to track downloads and email sign-ups, which might not generate revenue in the end.
It’s important to consider the context of your data and review qualitative (emotional) data as well as quantitative (analytical, logical) data.
Let’s begin with a review of how ROAS is different from ROI break-out analysis.
ROAS vs. ROI
ROI calculates the total return of an overall investment, whereas ROAS only examines one specific campaign. Essentially, ROI is a broader measure that looks at all your investments. While ROAS talks about a specific investment and helps you measure the success of this particular campaign.
This means that the only cost considered in a ROAS calculation is the cost of advertising, while the cost of an entire project or campaign will be considered in an ROI calculation.
The goal of your ads campaign is to generate a positive return on your ad spend. To determine how many dollars you should spend on advertising, take into account the size and nature of your target audience.
HubSpot offers a detailed tutorial that explains how to determine your ad spend by understanding the bidding system used by ad networks.
ROAS is a tool that gives you an inside look into how your ads are performing, and if they’re working. Knowing this information can help you take the steps needed to quantify your success and find areas of improvement.
ROAS is a metric that can be calculated in a number of ways. Let’s review how this is done now.
How to Calculate ROAS
Profit margin is the ratio of revenue generated by ads to the cost of ads. This can help you see if your ad campaigns are effective and profitable. For example, a 10:1 profit margin means that for every $1 spent on ads, $10 is generated.
The equation is simple, but it can be difficult to hit the balance when calculating the cost of an ad. You’ll need to consider the cost of the ad bid, labor costs for creating assets, vendor costs, and affiliate commissions.
It’s essential to have data that’s accurate. If you don’t start with accurate data, then all your findings will be inaccurate too.
It can be tough to measure the revenue from an ad, even if it leads to a sales sale. For example, someone may convert from your ad because they downloaded an ebook, but they haven’t yet spent any money on the item. They might wait a long time before making their purchase.
You can keep revenue and conversion rates in check with a CRM software like HubSpot. It will allow you to follow your numbers and make the necessary changes to boost conversions. With HubSpot Ads, it also makes sense for lead tracking.
With a CRM and ads software, you can easily track your data and tie it all together. By doing this, you’ll be able to identify marketing leads and what kind of results your ad campaigns are producing.
Of course, most questions are on your mind: “What is a good ROAS?” and “How can I improve my ROAS?”
If you know your ROAS and other metrics aren’t performing due to poor ad placement or bids and clicks, it might be time for you to take a closer look at what’s going on.
It’s important to note that some ad campaigns might not have the intent to make immediate revenue. If that’s the case, a lower ROAS can still be successful if there is a purpose behind it.
What is a good ROAS?
The average return on ad spend can go anywhere from $4 to $11 for every dollar spent on advertising.
Digital search advertising has a significant return on investment (ROI) of 11 percent. For every dollar invested in digital ad campaigns, U.S. advertisers gained $11, which makes it the best investment- to- ROI available in the United States.
How to Increase ROAS
If you want your ROAS to improve, you can lower your ads spend and review your campaigns to make sure they’re running efficiently. Optimizing landing pages and removing negative keywords can also help.
ROAS can be a useful metric for measuring your overall success. But it’s important to also look at other data and metrics, so that you can properly get the full picture of what your return on investment is.
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