Advertisers live and breathe in a competitive environment where each is trying to pull the waves of the market to themselves. Such an environment does allow advertisers to throw things to chance.
This puts advertisers at the edge of committing so much to getting their products in the faces of potential buyers and a lot of resources and energy are put into these marketing efforts too.
So at the end of the day, there is the need to check the health status of the adverts sponsored to spread the word. You check to see if you buried your resources or invested them.
This is where the ROAS (Return On Ads Spend) comes in. Your ROAS will allow you to know whether the ads are worth the money and effort you committed to them.
The Return on Ads Spends metric measures how much revenue is generated by your ads in relation to your advertising costs.
Why You Should Care About ROAS
#1. It Helps Determine If You Are Making Or Losing Money
For marketers and business owners who need to keep a trail of every dollar spent on their advertising campaigns, ROAS is very handy.
It’s fundamentally a shortcut to knowing if you’re making or losing money on your ads. The outcome of ROAS analysis helps you decide if to continue or discontinue a particular method of advertising.
How to find out if you are losing or making money? Subtract the expenses from the revenue and you get your company’s net earnings – it will be a profit or a loss situation.
When your revenue is higher than your expenses, you make a profit. And conversely, when your expenses are higher than your revenue, you’ll see a loss.
#2. ROAS Helps You To “Trim off the fat”
Once commit to monitoring your spending and earnings using ROAS, you have some good information to work with which can be used to improve business processes.
Trimming the fat using ROAS eliminate waste or poorly used resources while focusing on those resources where they will improve the business most.
For instance, if at the end of ads and sales, you notice your profit nose-diving, you can identify why and make appropriate adjustments.
It could be due to a reduction in sales, due to lower consumer demand leading to low sales or it could be the advertising channel that is not appropriate.
Remove what is not needed, the nonessential elements.
#3. To Help Determine Which Ad Channel is Best
Sometimes it’s hard to know which channels are the best to use in your marketing strategy.
However, by keeping track of your ROAS metrics across multiple channels like social media and Google, you can know in real-time where your ads are reaching your customers and encouraging them to take action. With this knowledge, you can focus on fixing areas that need improvement.
#4. You Can View Market Performance Instantly
Now with the Digivizer Platform overview screen, you can at any time monitor the health bar of your market to know how much revenue you’re earning in proportion to how much you’re spending and know which campaign or ad is performing best for you.
How to Calculate Your ROAS
An industry greenhorn would expect to meet a complex formula in calculating the ROAS, however, calculating ROAS is very simple. You only need knowledge of the amount of money you are spending and the corresponding earnings at that moment to calculate it.
Return on ads spend formula
Calculating return on ad spend (ROAS) is simple as already stated above. You divide the revenue attributed to your ad campaign by the cost of that campaign.
The formula is your ad earning divided by your total ad spend. For instance, suppose you spend $60,000 a month on Instagram ads and they generate $160,000 in new sales for your business. That’s a 3X ROAS ($160,000/$60,000).
How ROAS Is Related to CTR
CTR is the number of clicks divided by the number of impressions and is expressed as a percentage. CTR is an important metric because it helps you understand your customers.
It tells you what works and what doesn’t work when trying to reach your target audience. A low CTR could indicate that you’re targeting the wrong audience or that you’re not speaking their language persuasively enough to convince them to click.
Despite how important this is, CTRs alone can’t tell you if users who clicked your ads ended up as buyers. Thus, you also need to know the ROAS to have a better picture of your ad’s performance.
Ways to Improve Your ROAS
#1. Remove friction and convert more people who click on your ads into paying customers
When we talk about friction what we are referring to are the roadblocks or bottlenecks that are causing your website visitors to not be able to get what it is that they came to your site for or what is standing in their way from taking the desired action that you want them to take.
These roadblocks could be in form of a slow-loading website; multiple calls to action and confusing menu bars; too many popup ads and other forms of distractions.
When these elements become too many in the face of your potential buyer, they tend to abort the mission of continuing on your page.
So there is a need to find out what may be holding your customers back from reaching the place to make the purchase decision on your website. Remember what makes sense to you might not always make sense to your target audience.
#2. Optimize your landing pages and product pages to ensure a seamless shopping experience so consumers will want to buy more
A Landing page is a place on your website where consumers land when they click a link in an email, on social media, or ad on another site.
Landing pages may be likened to tarmac or landing runways for planes. Tarmac driveways are built using strong and durable surfacing material which makes them exceptionally resilient to heavy vehicles.
Your landing pages should be built in such a way that they will be able to accommodate heavy traffic without breaking down or becoming unnecessarily slow.
The goal is to get consumers to take action, such as taking advantage of an offer, joining your email list, or signing up for a webinar, your landing page should not distract them from taking any of those actions.
#3. Reduce cart abandonment
You must have witnessed a scenario where a customer ditched their shopping trolley in the middle of their purchase or at the cashier`s desk or point of payment.
The reasons for cart abandonment vary among customers but the most common among them would be Lack of trust.
Many web users aren’t always comfortable providing sensitive bank account info online. So when they get to that point in their purchasing journey and are asked to provide those credit card details, they become apprehensive and finally resort to abandoning the carts.
Improve conversions by building more trust on the checkout page and throughout the site via social proof and building a strong brand.
Another reason that can result in a person abandoning the cart is complexity. The complexity of the purchasing process could also turn people away before completing their purchase journey on your website.
Overly detailed forms, a confusing website layout, or hard-to-understand elements of the checkout could cause people to give up on buying through a store.
#4. Target the right audience
Targeting the right audience with relevant content can convert people who are unaware of your brand into buyers.
When you identify and target the people most likely to buy from you, you can spend less and convert more.
We hope this article has proved helpful and that you’re now more prepared to decide whether your advertising campaigns are effective or not. The article has in sufficient detail explained the best ways to improve your ROAS
As you have found out, there are plenty of ways to boost your ROAS. So, before you start working on your next advertising campaign, make sure you take the time to remove friction in the way of your potential buyer journey.
Find a way to reduce cart abandonment, understand your target audience and optimize your website for more sales which translates into more ROAS.
Knowing your ROAS helps you set long-term financial goals that will be strategic and pragmatic, rather than pure guessing.