ROAS or how good do you see your performance?
- Your sales: $120K
- Your competitor’s sales: $80K
You made +50% more sales than your competitor. Wait to open the champagne. What was the ROAS?
Estimating sales without reference to costs is a common mistake.
Let’s add the cost
Ad Spend: $90K
Ad Spend: $50K
You made 50% more sales, while the profit you have and that of a competitor are the same. What was the performance of spending?
ROAS (return on ad spend) meaning, definition
ROAS shows how much revenue each dollar spent on advertising brought in.
How to define ROAS: formula, calculation
ROAS = Revenue / Cost
Your ROAS vs. competitor’s
ROAS (You) = $120K / $90K = 1,33
ROAS (Competitor) = $80K / $50K = 1,6
In other words, you spent significantly more ($90K) than your competitor ($50K) to get the same profit ($30K). The reason is cost efficiency (marketing). Your result is $1,33 for every dollar spent. Your competitor is $1,6 for every dollar spent.
Profit = ROAS > 1
In the case when your ROAS > 1 consistently, you accumulate profit:
Loss = ROAS < 1
In the case when your ROAS < 1 consistently, you accumulate loss:
Stagnation = ROAS close to 1
In the case when your ROAS close 1 consistently, you don’t earn, you don’t lose, you stagnate:
What is good ROAS?
Quick answer – The higher ROAS the better.
In fact, you yourself determine what return on investment is optimal for you. Your Acceptable ROAS may depend on your margin, market aggressiveness, sales targets, etc.
The main thing is that you have a system for tracking key business indicators. Easy, fast, reliable.
What is bad ROAS
The quick answer is a constant ROAS below 1.
It is normal if your return on investment today is below one, but more often above one. But if the ROAS is below one in most cases, you accumulate a loss. It’s time to take action and improve your marketing.
How to Improve ROAS (using BI Rocks dashboard)
1. Determine where you are now (what is revenue, cost, profit, ROAS, top selling ad campaigns, etc). Get the big picture on one page:
2. Define unprofitable ad campaigns (ROAS < 1)
If you have a lot of ad campaigns, some of them are profitable, some are not.
Unprofitable campaigns are like leaking boats. If there are many such holes, your marketing goes to the bottom. We are looking for ad campaigns with ROAS < 1.
3. Look at the campaign profitability over a long period of time.
Perhaps earlier the advertising campaign was effective, but then something changed. On the next image we can see that ad campaign performance was good.
We had profitability, but then something has happened and from a profitable campaign we got a campaign that’s losing money. You need to determine what has changed:
4. Look at Ad Groups ROAS. Find unprofitable Ad Groups
Each ad campaign can have several ad groups. Different ad groups can have their own ROAS. You need to determine which of the ad groups are unprofitable and start optimizing them. Our report will help you quickly identify losing ad groups.
5. Look at the Ad ROAS. Find unprofitable Ads
Each ad group also can have several ads. Different ads can have their own ROAS. You need to determine which ad is unprofitable and start optimizing them. Our report will help you quickly identify unprofitable ads.
6. Look at Search Terms Report. Do you have not relevant search terms?
Not relevant search terms are those which you don’t want your ads to be shown.
If you find not relevant search terms you should exclude them from your Campaign (just add them in negative keywords in you Google Ads account)
6. Look at Day of Week performance
If you see that some of the day’s ROAS are better and some of the days are lower. You can add day adjustments (change bidding for some days) in Google Ads Account
In our report, you can see what is the day-of-week performance for each:
- search term
- hour of day
7. Look at the hour performance
In our report, you can see what is the hourly performance for each
- search term
- day of the week
Let’s improve ROAS
1. Let’s choose one of the Ad Campaign with ROAS < 1
After choosing a separate Ad Campaign entire report will be rebuilt according to chosen Ad Campaign.
2. Look at the campaign profitability over a long period of time.
Perhaps earlier the advertising campaign was effective, but then something changed. On the next image we can see that ad campaign performance was good. We had profitability, but then something has happened and from a profitable campaign we got a campaign that’s losing money.
We need to determine what has changed
3. With our dashboard it’s easy to see what has happened.
Ad campaign bidding was changed to more aggressive.
The average CPC was changed from $2,5 to $8.
Impression (Abs Top) increased from 50% to 100%. (before we were 50% times on first place, now – near 100%).
As result, we started to be #1 in search results, get more clicks but they were too expensive to stay profitable.
That’s why we got an unprofitable campaign. And here is the result
Start Improving ROAS now
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Return on Ad Spend in Ecommerce
ROAS in Ecommerce= Revenue (all paid channels) / Cost (all paid channels)
Return on Ad Spend in Google Ads
ROAS in Google Ads = Revenue (from Google Ads) / Google Ads Cost
Return on Ad Spend in Microsoft Ads (Bing)
ROAS in Microsoft (Bing) Ads = Revenue (from Microsoft Ads) / Microsoft Ads Cost
Return on Ad Spend in Facebook Ads
ROAS in Facebook Ads= Revenue (from Facebook Ads) / Facebook Ads Cost