Measuring your PPC advertising success is an essential component of optimizing your paid search campaigns. However, not all metrics are created equal. If you want to make the most of your ad spending, you need to concentrate on monitoring the right metrics that will help you understand how your ad dollars are being used. This is where ad spend returns, or ROAS, comes into play.
One of the most important, but underestimated, paid search metrics is return on ad spend. It helps you connect what you are spending on a campaign to how much new revenue the ad generates. In the end, this powerful metric can help you determine which elements of your PPC ads deserve more of your budget and which ones you still need to work on.
Below, we ‘re going to talk about what ad spend return is, why it’s important and how you can use it for your company. We’ll also provide you with some tips for improving your ROAS to get the most out of your PPC ad campaigns.
What Is ROAS?
Return on ad spend (ROAS) is a metric used to measure how many dollars in revenue you receive for each dollar that you spend on advertising. This metric will help you calculate the efficacy of your advertisement campaigns online. You will decide what elements of your PPC ads are effective with ROAS, and find new ways to improve your potential ads.
If you are thinking that ROAS sounds a lot like ROI (return on investment), you’re right. These two metrics are very similar in that they are both used to help you evaluate how well your campaign efforts are performing. However, while you can hear these words used interchangeably by certain digital marketers, it’s important to note that they are in fact separate metrics.
Then what’s the difference between ROAS and ROI?
ROI focuses on the cumulative success of all the digital marketing activities. When looking at your paid search advertising, return on investment would calculate the ad benefit compared to their expense. ROI is a business-centric measure that lets you better understand how advertisements are contributing to the company’s bottom line.
In contrast, ROAS focuses on specific advertising campaigns, groups, or sometimes even keywords. This ad-centric metric calculates the gross revenue that’s generated based on each dollar spent on advertising. It clearly helps your company understand the efficacy of your paid search ad campaign.
Return on ad spending is a very useful measure, as it can help you analyze various aspects of your digital advertising. You should look at a specific ad collection and see which ones work well and are worth spending on more ads. You may also determine which options for targeting PPC ads can get you the best results.
Why ROAS is important to understand
Then what’s the fuss over wasting an ad on return? Well, ROAS is the best single metric for helping your company understand better how each individual PPC ad campaign performs. This calculation would also provide you with the details you need to allocate campaign spending through all your paid search camps.
Let’s assume , for example, that your company runs 10 separate PPC ad campaigns simultaneously. You want to increase your ad spending but you’re not sure which campaigns give you the best per dollar value. ROAS will send you the response so you can maximize your PPC budget by can ad spending on the advertising that do the best.
If you’ve got the ROAS for-ad campaign, you’ll see the campaigns are giving you more bang for your buck. If you notice that one or two campaigns outperform the others dramatically, you might want to consider re-allocating some of your overall PPC ad budget to those campaigns that do the best.
Decide easily which campaigns & keywords can get you the most money.
The great thing about ROAS is it works with more than just advertising campaigns. Also you can use this metric to test ad groups and even target keywords. For example , if you notice that your return on ad spending for certain keywords you are targeting is much higher, you may want to build new PPC advertising campaigns focused on these high performance keywords.
Calculate Return on Ads
Now that you know what ad spending return is and why it is so important, let ‘s talk about how to measure it on your own. If you want to use this metric to boost the efficiency of your PPC ad campaign, you need to follow up on your ad conversions and sales. You won’t be able to measure your return on ad spending without this detail.
Although some marketing metrics can be difficult to measure and track, luckily, once you have the right numbers to plug in, return on ad spending is pretty straightforward. The perfect formulation is what you need. Here’s the formula for measuring an ad spend return:
(Income-Cost) / Cost = ROAS
You will need to first determine which portion of your online ads you want to test before you put this formula to work. Take then the total revenue produced by this ad feature, and deduct the amount you paid to run the ad. After that, you divide this amount by your ad budget (which is your overall campaign revenue).
Most PPC campaign management tools such as Google AdWords make it easy for any ad to track your conversions and sales. You will be able to plug this into the ROAS formula once you have the conversion and sale data in front of you to better understand your return on ad spend. Alternatively, you can set up your own Google AdWords network for ROAS monitoring, or partner with a digital advertising company like ours that can do it for you.
How to Find If Your ROAS Is Good
Now that you’ve measured your ad spend return, you probably wonder – what’s a good ROAS? There is actually no answer for what a good ROAS looks like. A great return on ad spending will depend on your company, and what you’re selling. There are however some general guidelines to determine if your company is achieving a good ROAS.
Which is a reasonable percentage of ROAS? Overall you want a 3:1 ROAS at least. This means you can spend at least 3x of your ad on your sales. This is the stage you don’t lose money at. If you notice your ROAS below this amount, it’s time to reconsider your advertising, and make some big changes to increase your ad spending performance. If your ROAS is higher than 3x, then you’re making an healthy profit and your ads are doing very well.
Note that this is an average calculation and does not extend to all companies. Know that you should run a campaign for a few months before you can really see its success. Running an ad for about a week isn’t going to give you a precise ROAS.
The only way to truly increase your return on ad spending is by optimizing your ads or increasing your sales, reducing your ad spending. Can revenue can enable you to raise prices dramatically or find different vendors allowing you to cut production costs. That can be a little tricky, so we advise you to find ways to reduce your total ad spending.
We may not be able to go through all the things you can do to improve your advertising in depth but here is a snapshot of what you can do. Below we will go into more detail about the most important ones we think are.
Here are a few ways that you can reduce your spending on PPC ads and improve your return on ad spend:
1. Bear in mind the user journey
All your paid search advertising components come down to one thing-your target. If you don’t understand the customer, and where they’re on the purchaser’s path, you won’t be able to optimize your PPC ads output. While every PPC ad journey starts with one click, you also need to plan carefully where the user is going from.
When designing your PPC ads, for example, you want to make sure you have an offer that is important to the target customer. This is where people come into play from the customer. There is a fair risk that you will have more than one ideal customer so be careful how each target audience will view your advertising.
2. Create advertisements for a smartphone audience
Keep your mobile audience in mind when considering ROAS for your Google Ads. Google research has shown that on smartphones and other handheld devices there are more searches than the desktops alone. In addition, within one day of the search, 50 percent of customers making a local search for a product or service will make a purchase. Given that many local searches are carried out on mobile devices, it is important that you keep these users in mind when designing your PPC ads.
3. Change the bids according to time and location
You may also change bids according to time and place, in addition to adjusting bids based on computer. This will allow you to spend less at times, and in less likely performing locations. For instance, if you notice your ads don’t convert well over the weekends, that means these clicks are less valuable. Change your bids for advertisements that are shown on Saturday and Sunday to reduce ad spending, and thus increase ROAS.
When it comes to day time, you’ll usually see far less clicks and transfers from midnight to 7 a.m. During these hours customers are just not as likely to buy. Reduce your bids during this period, to maximize your ad budget. That way, during the periods your ads are least likely to perform well, you ‘re not spending money.
Need assistance with achieving a positive ROAS? Get in touch today.