ROAS: What it is, What it Stands for & How to Improve It

Launching a digital marketing campaign is the way to go if you want to see your business grow.  

There’ll be an increase in brand awareness, sales, and engagement.

More importantly, you’ll have access to different metrics you can use to track your campaign’s performance.

Now, one of the most important metrics to track is the return on advertising spend (ROAS). 

It helps you determine how successful the campaign is and what leads to conversions.

That’s what we talk about in this guide.

So, at the end of this post, you’ll have learned: 

• What ROAS is
• Why it’s important
• How to improve it

Are you ready?

Let’s go!

What is ROAS?

Return on ad spend (ROAS) is a marketing metric that measures how much your business earns for every dime invested in digital advertising campaigns.

Let’s explain a bit further. 

You know how you ask your money guy how much profit you’ll be making if you jump on an investment offer they’re selling you? 

There’s a term for it…return on investment (ROI). 

ROAS is similar to that!

In this case, the advertising costs will be the investment you’re tracking returns on.

Why is ROAS Important?

In simple words, ROAS helps you measure how effective your marketing efforts are. 

You get to know if your current advertising budget is bringing in enough revenue and whether your brand message resonates with your audience. 

Here are some more benefits of measuring your ROAS:

• Identify opportunities to scale: Assess multiple campaigns to find which one has the highest return on ad spend and should therefore be scaled up.
• Optimize your budget: Focus your spending on best-performing ads so you can protect your business from losses.
• Redefine your current marketing strategy: Obtain data-backed insights from performing campaigns to make informed decisions regarding your next marketing strategies.

Would you like to see how to calculate ROAS?

Let’s show you how in the next section.

How to Calculate ROAS

The ROAS formula is simply dividing the revenue generated from the ads by the cost of the ad campaign.

Here’s an example of a typical ROAS calculation:

Let’s assume you spend $2k per month on your ad campaigns and get about $10k in ad revenue. 

Your return on ad spend will be the revenue ($10k) divided by the cost ($2k).

ROAS = $10,000 / $2,000

Therefore, the ROAS is $5 or 5:1.

That means that for every dollar you spend on online advertising, you get $5 worth of revenue.

Let’s continue! 

5 Ways to Improve ROAS by Optimizing Your Campaigns

As a marketer or business owner, maximizing the amount of money spent on your ad campaigns is crucial to the growth of your business. 

You’ll bring in more revenue and get better results from campaigns.

That’s why in this section, we want to show you different ways to improve your campaigns and therefore your ROAS.

Way #1: Narrow your target audience

If you’re targeting a wide range of people and your conversion rate is low, you should consider narrowing that audience down.

Sometimes broad audiences might be the reason your campaign isn’t converting.

Are we saying you should cut out potential customers?

No, we just don’t want you to waste money on people who may never become your customers.

What should you do instead?

Segment your audience using different markers such as their intent, demographics, and current level in the marketing funnel.

Then, create ads and experiences that connect with them on a deeper level.

When you identify the right audience, you’ll spend less on your ads and be able to reach more potential customers. 

Way #2: Leverage negative keywords

Negative keywords prevent your ads from being seen by people searching for those phrases or words.

By leveraging negative keywords, your ads will be shown only to people who are searching for you. 

They help ensure that your marketing campaigns are efficient and improve your returns on ad spend.

So if you run a skincare business but don’t sell hair care products, you would want to add hair care or hair growth to the list of negative keywords.

Essentially, whenever someone enters keywords unrelated to your business, your ads will be invisible to them. 

That way, money will be spent on people who are more likely to buy your products.

Way #3: Improve your landing pages

What do people see when they visit your landing page? Do they find it relevant or irrelevant?

Improving your landing pages means you have better conversion rates and subsequently, high ROAS.

Here are some tips to keep in mind when creating your landing page: 

• Ensure it’s optimized for mobile devices
• Highlight products you featured in your ads
• Add a clear call to action (CTA)
• Remove unnecessary links
• Optimize page-load speed
• Use storytelling (copy) to create a seamless customer experience

Way #4: Plan a remarketing strategy

Improving your ROAS goes beyond making immediate sales. 

That’s important, but what you want is for customers to keep buying from you long after that one time. 

Simply put, remarketing needs to be part of your advertising strategy – people who’ve purchased your product or service must continue to see relevant ads.

Remarketing will help you get the most out of your existing customers. 

How do you do that?

Set up Facebook and Google pixels properly so that customers come across ads featuring upgrades or accessories to products they’ve already purchased.

Way #5: Optimize for mobile

When creating content for ad campaigns, it’s good practice to always assume that most of your customers will be browsing from a mobile device. 

With that in mind, ensure your videos, infographics, carousels, and images are designed for both large and small screens. 

You wouldn’t want a scenario where your CTA button is displayed on the desktop version but cut off when viewed from a mobile device. 

Up next, we will show you how optimizing your creative can improve ROAS. 

3 Ways to Improve ROAS by Optimizing Your Ad Creatives

Assessing an ad creative’s performance is as crucial as assessing its placement and audience. 

You need creatives that’ll make users stop, look, and click. 

Brands already have best practices and standard strategies when it comes to the technical side of ad campaigns. 

Ultimately, your ad creative can be the deciding factor in whether your campaign will be successful or not.

Let’s look at three ways to optimize your creatives for better ROAS.

Way #1: Video should be at the forefront of your creative strategy

Let’s cut to the chase. 

Videos are an important part of your digital marketing strategy and if you don’t have any, you need to start now. 

Here’s why:

• 64% of consumers make a purchase after watching branded social videos. So, if you intend to sell, videos are a must.
• Marketers who included video assets in their creative strategy experienced 34% higher conversion rates.
• Marketing professionals who use videos grow revenue 49% faster than those who don’t.

What’s more?

Videos are even more accessible today with over 6 billion smartphone subscriptions worldwide.

So if you don’t prioritize video in your creative strategy, you might be leaving money on the table.

But I don’t have fancy equipment for a big production shoot. 

What do I do?

Well,  you can simply pick up your phone and film some UGC (more about this later).

Another option is to leverage animation by creating slideshows with images and animated text. 

There are just so many ways to get started. 

Another aspect to take note of is how easy it is for brands to serve personalized videos to potential consumers through mobile phones. 

Statistics show that video ad spend is expected to reach more than $12 billion in 2024, and mobile is predicted to account for more than 70% of that. 

What does this mean? 

Aside from just putting video at the forefront of your creative strategy, ensure that it’s optimized for mobile devices.

Way #2: Leverage user-generated content (UGC) in various ad types

UGC is any media created by consumers, target consumers, or any audience on behalf of a brand. 

They come in various forms such as:  

• Social media posts 
• Videos 
• Photos
• Long-form articles 
• Reviews

UGC helps brands appear more authentic to their audience and showcases their value propositions through the eyes of real people.

Today, brands are leveraging UGC and repurposing it to use in their digital marketing campaigns and ads. 

Why?

UGC has proven over time that it’s able to generate results. 

Studies have shown that content from users gets a 28% increase in engagement when compared to typical brand posts.

Also, over 90% of consumers say UGC helps them make purchasing decisions.  

So, you need to consider using UGC to your advantage. 

Way #3: Test your ad creatives

Creative testing also helps improve your ROAS.

How?

You'll be able to identify which creative is performing well and scale it so you get a higher amount of revenue.  

When it comes to testing your creatives, there are important things to keep in mind about the process:

• Test new ads weekly 
• Test different single variables 
• Use different variations of creative before identifying your winners and scaling
• Take the various platforms you want to run ads on into consideration. 

For example, you can use the same creative for different platforms like Facebook and Instagram, or TikTok and Instagram. 

But, you’ll have to create new assets if you want to run the same content on TikTok — don’t put any important visuals in the bottom left corner or on the far right to avoid having them covered by TikTok captions.

We've also included a few examples of tests you can implement:

• Test different CTAs to find out what works best for your audience when it comes to driving action
• Test the captions you show in the first 3 seconds of a video ad
• Test real images and illustrations
• Test static ads and animated ads
• Create different variations of the messaging on the visuals

Let's tie this up!

Now Over to You

If all of these are kinda overwhelming, we feel you. 

We've only thrown so much at you because we want to see your business grow.

You can always come back to this piece whenever you get stuck. 

Also, feel free to book a demo with Insense if you’ll like to leverage UGC in your advertising efforts and get higher ROAS.

See you soon!

Frequently Asked Questions (FAQs)

Q1. What is the difference between ROAS and ROI?

The difference between ROAS and ROI is that ROAS evaluates the campaign performance up close and the tactics used while ROI measures how much profit the ad generated relative to the cost. 

Q2. What is a good ROAS?

A good ROAS is relative as every business looks at this metric differently. 

ROAS can be good or bad depending on the profitability of the featured product or service, the advertising channel, and the niche. 

If you’ve got a huge profit margin, that means you can afford a low ROAS.

…and low margin means your ad costs need to be small and your objective will be a high ROAS.

Q3. What can affect ROAS?

There are different factors affecting ROAS, but they’re dependent on the niche and size of the business. 

Some of these major factors include: 

• Market size 
• Pay-per-click (PPC) metrics such as cost per acquisition (CPA), cost-per-click (CPC), and click-through rate (CTR)
• Competition 
• Profit margin 
• Cost of operations 

Q4. What is the average ROAS across all industries?

The average ROAS across all industries is 2.87:1.

That means the average brand will generate $2.87 for every single dollar spent on ads.  

For eCommerce businesses, the benchmark is 4:1.

Either way, the average ROAS is dependent on the financial status of a company.