What is ROAS? The Guide to Improving Your Return on Ad Spend

Are you looking for ways to improve your pay-per-click ad campaigns?

The first step to improving your digital advertising campaigns is tracking their effectiveness. And getting clicks is only half the battle.

As a digital marketer, you need to know that if you aren’t actually generating any profit from these ads, then they aren’t effective.

Though there are a lot of benchmarks and metrics you can use to measure the effectiveness of your advertising efforts.

The most accurate way to determine whether your marketing campaigns are really worth the investment is by measuring ROAS.

If you’re new to PPC advertising, you may be wondering – what is ROAS? This is a question we get asked a lot here at LYFE Marketing.

ROAS, or return on ad spend, is a way to connect the amount you are spending on any given PPC ad campaign…

…(or your advertising costs) to the amount of revenue that’s generated from that campaign.

In other words, ROAS measures how much you get out of a campaign when you put X amount of dollars into it.

If you want to improve return on advertising spend, you first need to understand what is ROAS and how it works.

Below, we’ll dive into the basics while also giving you a comprehensive list of digital marketing strategies you can use to…

…get more out of your Adwords budget.

What is ROAS?

Return on ad spend (ROAS) is a metric that marketers use to determine how many revenue dollars they receive for each dollar spent on advertising.

Essentially, it helps you decide how effective your online advertising campaigns are so that…

…you can determine whether or not your advertising budget is being utilized most effectively.  

What is ROAS? Only one of the most important online marketing metrics around!

In many ways, ROAS is very similar to another important metric we use in marketing – return on investment, or ROI.

But what’s the difference between ROI and ROAS?

ROI is used to evaluate the overall effectiveness of all of your digital marketing efforts and how they impact your bottom line.

On the other hand, ROAS is used to evaluate the effectiveness of one particular ad campaign.

If you want to identify which ad campaigns are worth your time and money, you can use ROAS to identify the most profitable campaigns.

You can also determine whether or not the optimization that you’ve made to your ads.

Such as targeting changes or content updates, is actually working to improve the overall effectiveness and profitability of your ads.

How to Calculate the Answer to What is ROAS

Now that you know the answer to the question – what is ROAS, let’s talk about how to calculate it for your ad campaigns.

First, you’re going to need to track the conversions and sales information for your ad campaigns.

Luckily, most paid ad platforms make this a simple process.

For example, if you’re tracking the ROAS of Google Ads campaigns.

You can get the information you need on the Ad Groups page of the main dashboard.

Once you gather the conversion and sale data from Google Ads, you can plug it into the ROAS formula below to calculate your return on ad spend.

Get the information you need to measure ROAS from the Google Ads dashboard.

Some marketing metrics are difficult to calculate, but ROAS is not one of them!

Once you have the numbers you need, you can plug them into the following formula to calculate your return on ad spend:

ROAS Calculation Formula: ROAS = (Revenue – Cost) / Cost

Simply put, ROAS is the number you get when you divide the net revenue earned from an ad campaign by the cost spent on that campaign.

Before you start plugging numbers into the formula, consider which campaign you want to evaluate.

Once you’ve decided, you’ll take the total revenue generated from this ad campaign and subtract the cost of running the ad.

This gives you your total campaign revenue.

Once you’ve calculated total campaign revenue, you just need to divide this by your ad spend to get the return on ad spend.

Memorize this formula and use it to track your ROAS for Google PPC ads.

Why and How to Use ROAS

So far we’ve taken you through what is ROAS and how to measure it.

But we haven’t really discussed why good ROAS matters or how you can use it to improve your online advertising campaigns.

ROAS is important because it helps you determine how a particular ad campaign is contributing to your brand’s bottom line.

Without it, you are simply guessing at whether the ad is generating more revenue than cost.

When it comes to how you can use ROAS, this metric offers great insight into many different sections of…

…online marketing including strategy, marketing direction, and budget.

For instance, if you find a certain campaign has a high ROAS then you can investigate why this campaign generates more revenue than others.

The insight that you gain from this investigation will inform different aspects of your campaigns moving forward.

Allowing you to maximize return on your future ads.

In addition, ROAS helps you identify better ways to allocate your budget.

If you find that one campaign has a low ROAS, you may opt to take some budget from this campaign to give to…

…another campaign that’s more successful.

In the future, you might be cautious about running similar campaigns. Or do away with them all together based on the ROAS measurements over time.

In the end, ROAS helps you get more out of your budget.

Whether you run an e-commerce business, B2B, or service-based business, most small businesses working with a limited budget.

It’s important that they spend wisely.

When you measure ROAS and make strategic changes based on what you find.

You are able to improve the overall effectiveness of your ad campaigns to generate more revenue with the same amount of ad spend.

It’s easier to understand what is ROAS with this chart that shows some of the ROAS calculations for ads across different types of media.

7 Practical Ways to Improve ROAS

While calculating ROAS is a pretty straightforward process, actually improving your return on ad spend is another story.

There are three main ways that you can increase ROAS:

1. Increase revenue while keeping costs the same.
2. Decrease ad cost while maintaining revenue.
3. Increase revenue while lowering cost.

Of course, these are easier said than done. The best strategies for improving ROAS will ultimately depend on your individual ad campaigns.

However, we’ve put together a comprehensive list of general strategies that any brand can use to improve their PPC campaigns and boost ROAS.

1. Include a branded PPC campaign.

If you aren’t already implementing branded PPC campaign, this strategy will be a real game-changer for improving the ROAS of your PPC ads.

Typically, branded search ad campaigns will get between 2 to 4x the average ROAS of non-branded campaigns.

Since the shopper already knows what they want at this point, it’s clear to see why the conversion rates would be…

…higher (and thus the ROAS better) for branded campaigns.

Some marketers might argue that bidding on your own brand name is a waste of time and money.

If the consumer already knows what they want, wouldn’t they just search for your store and click on an organic result without costing you any money?

Well, the problem with this line of thinking is that it doesn’t take into account competitors that might be bidding on your branded keywords.

Though it’s a rather cutthroat strategy to bid on another business’ branded keywords, it does happen.

And you can’t assume that a competitor won’t swoop in and capture the consumer’s attention and turn them into their…

…new lead with their own PPC ad when the consumer searches for your brand.

You never know when a competitor is going to bid on your branded keywords!

Also, using your branded keywords will boost your Insta-quality score since the keywords will be very relevant to your ads and landing pages.

This will obviously translate to lower CPC.

So, if ever users click on your ads, it’s okay since it’s cheap traffic.

And if they choose to click your organic listing, then that’s definitely better. Either way, they will land on your webpage.

Additionally, bidding on your own branded keywords allows you to control the conversation about your brand.

Rather than leaving it up to chance, you are strategically getting the right links in front of the right customers at the very top of the…

…search engine results page.

This helps avoid the possibility of any of your audience clicking on an organic search result that leads them to your competitor’s site.  

2. Add negative keywords.

One of the easiest ways to decrease unnecessary ad spend and improve ROAS is by adding negative keywords.

Negative keywords are keywords or keyword phrases that you don’t want your ad to show up for.

For instance, say you are running an ad campaign for the phrase “womens boots”.

But there are certain types of boots that your ecommerce company doesn’t offer. You may want to include those boot names in the negative keyword list.

In this example, you might add “hiking,” “cheap,” or “fur-lined” to the negative keyword list.

This would prevent your ad from showing up for search engine users that are using these keywords or phrases in their search query.

Using negative keywords helps improve the relevancy of the traffic your ads bring in, thus improving your return on ad spend.

Stop paying for unwanted traffic by adding negative keywords to your Google ad campaigns.

3.  Optimize your landing pages when you want know to what is ROAS.

Getting search engine users to click on your ads is only half the battle.

If you want them to convert (which is a surefire way to improve ROAS).

Then you need to make sure that you have a solid landing page optimization for conversion.

If you are currently sending all of your ad traffic to the same landing page (or even worse – your home page).

It’s time to stop and re-evaluate your conversion strategy.

The landing page that your PPC ad leads to should be in line with the audience you are trying to attract and the messaging you’ve used in your ad.

Your landing page should feature content that provides a smooth transition from the ad copy.

For example, if your ad is for a buy one get one free offer, then it needs to lead to a landing page that advertises the same offer.

Part of optimizing your landing pages for higher conversion value is A/B testing them to see what resonates best with your audience.

This involves having two slightly different versions of the same landing page to see which converts better.

When you A/B test different landing pages, make sure to only change one or two of the elements such as headline or CTA.

That way, you’ll know which element is responsible for driving more conversions.

A/B testing your landing pages helps you determine which elements convert the best.

4. Don’t rely just on broad match.

Using broad match in your Google Ad campaigns is a great way to see which keywords are giving you the best return.

However, it can also cost you a lot of money without providing the return you need.

You can start by using broad matches to figure out which keywords convert the best.

Then reduce your reliance on this tactic to spend more of your time and budget on developing an exact keyword match strategy.

Let’s look at an example…

Let’s say that you find a broad match for a general keyword term like “reusable water bottle.”

Then, you find that some more specific keyword phrases like “BPA free reusable water bottle” or “stainless steel reusable water bottle”…

…are converting the best.

These specific terms are likely to lead to more conversions than the general phrase “reusable water bottle” because…

…they suggest that search engine users are further along in the buyer’s journey and they’ve done their research.

Once you know what converts for you, it’s time to stop relying on broad matches for your PPC ad campaigns.

Instead, you can readjust your strategy once you’ve found more specific terms that help convert and use these terms to bring in new buyers.

5. Adjust bids based on device.

Another tip for increasing ROAS is to adjust your bids based on the device.

With Google Ads, you can set different bids for mobile devices, tablets, and desktop computers.

Typically, you would start with a desktop bid and then adjust your other bids based on this.

You will adjust the bid based on a percentage which can be decreased up to 90% or increased up to 900%.

Adjusting your bid by device is easy with Google Ads.

To start, you will want to reduce your bid for mobile devices. That’s because most mobile device users are at the beginning of the buyer’s journey.

They are using their mobile devices to research products but often just aren’t ready to make a purchase yet.

Though that’s not the case with every mobile user, it’s worthwhile to adjust your bid down for mobile given that…

…these clicks aren’t as valuable as desktop clicks.

You can start by adjusting your mobile bid down by 20% to 50%.

If you find that your ROAS has improved, that’s because your mobile audience isn’t as far along in the buying process.

You can take the money that you save from adjusting your mobile bid and put it toward another ad campaign with a higher ROAS.

6. Adjust bids based on time and location.

Another bid adjustment you can make to improve your ROAS is to adjust your bids based on the time and location of the query.

For example, let’s say that an HVAC company recognizes that their ads don’t convert as well on the weekends because…

…they are closed and no one is there to answer the phone.

That means that the clicks that come from these weekend ads are not as valuable as other clicks.

This is an occasion where you would want to reduce your bids during weekend time slots.

Reducing bids during times when consumers are less likely to convert helps you cut down on wasteful ad spend and improve your ROAS.

Similarly, increasing your bids during times when consumers are more likely to convert can help you improve revenue, which also boosts ROAS.

The same is true for location. Look at the location data for your current paid search ad campaigns. Are certain areas converting better than others?

Perhaps you find that consumers in big cities tend to convert at higher rates than those in rural areas.

If that’s the case, then you’ll want to increase your bids for the areas where clicks are more valuable.

And, decrease your bids in areas that don’t convert as well.

If you have a brick and mortar location that depends on foot traffic for sales, then it’s especially important that you use geo-targeting for your PPC ads.

Why waste ad spend on consumers who will never make it into your store?

Narrow down your audience by geo-targeting the locations of your physical stores and the surrounding areas.

Improve relevancy for your brick-and-mortar store with geo-targeting.

7. Work on improving the quality score of your ads.

The higher your Google quality score, the lower your cost per click and the higher your ad ranking.

These factors obviously play an important role in the likelihood that search engine users will see and click on your ads.

Therefore, quality score is correlated with a lower cost per conversion. (And as we mentioned above, lowering your costs helps improve ROAS!)

Google uses the quality score to determine your ad ranking. A large part of the quality score formula revolves around ad relevance.

If you want to improve your ad relevance, you can start by structuring your campaigns into smaller and more targeted ad groups.

Rather than having just one or two ad groups with all your keywords in them.

Develop ad groups that are specific and directly related to the keywords they contain.

Your quality score plays a vital role in your cost per click, ad ranking, and thus campaign success.

Once you’ve re-structured your ad groups, focus on optimizing your ad copy for the keyword.

If you want to increase relevancy and boost click through rates, you need to make sure that the ad copy is closely tailored to the keyword you’ve chosen.

Work on drafting copy that contains the keyword but still makes users want to click.

Want some bonus tips and information on ROAS? Don’t forget to check out our guide to understanding return on ad spend (ROAS).

Start Improving Your Return on Ad Spend

Now that you know the answer to the question – what is ROAS? It’s time to start looking at your own return on ad spend.

If you find that it isn’t what you were hoping for, you can use some of the strategies above to work on improving your…

…ROAS thus benefiting your company’s bottom line.

If you’re still struggling to reach your target ROAS or understand what is ROAS, feel free to reach out to our team.

As an AdWords management agency, we know just what it takes to help you get the most bang for your online advertising buck. Contact us today.