ROAS, or Return on Ad Spend, measures the profit generated from your advertising. It’s your ad’s performance score, showing what you earn for every dollar spent.
To calculate it, divide the revenue from your ads by the cost. For example, if you spend $1,000 on an ad and make $4,000, your ROAS is 4:1.
ROAS differs from ROI (Return on Investment). While ROI covers all marketing efforts, ROAS focuses solely on ad performance.
Here’s a quick example:
| Ad Spend ($) | Revenue Made ($) | ROAS |
|---|---|---|
| 1,000 | 4,000 | 4:1 |
| 2,000 | 10,000 | 5:1 |
| 1,500 | 6,000 | 4:1 |
Why ROAS Matters for Your Online Store
ROAS acts as a guide for ad spending. It shows if your ads are driving sales effectively. Metrics like average cost per click, total clicks, cost per thousand views, and total impressions give additional insight into ad performance.
A higher ROAS means your ads are doing well. For example, a ROAS of 5:1 means every dollar spent on ads generates five dollars in return.
Formula:
ROAS = Revenue ÷ Ad Spend
For instance, if you spend $2,000 on ads and generate $10,000 in sales, your ROAS is 5:1.
Focusing on ROAS helps you invest in ads that offer the best return. Want to know which eCommerce platform boosts ad performance? Check out our guide on the best eCommerce platform for SEO.
Understanding your ROAS shows where to allocate ad spending for optimal returns. Explore more in our articles on how long it takes for eCommerce to make money and what is PDP in eCommerce.
Nailing Your ROAS
Let’s dive into the numbers. In eCommerce, knowing the ideal Return on Ad Spend (ROAS) is key to maximizing your ad dollars. So, what’s a solid ROAS, and how do you reach it? Let’s break it down.
ROAS Benchmarks by Industry
ROAS varies across industries. Here’s a snapshot of average and target ROAS:
| Industry | Average ROAS | Target ROAS |
|---|---|---|
| Ecommerce (B2C) | 3-4x | 4-6x |
| B2B (SaaS) | 3x | 5-7x |
| Across the Board | 2.87:1 | 4:1 |
Sources: HawkSEM, ConvertCart
For eCommerce, starting with a 3x ROAS (earning $3 for every $1 spent) is a good baseline. To thrive, aim for a 4-6x return. In the B2B SaaS world, 3x is standard, but a 5-7x return puts you ahead.
What Impacts Your ROAS?
Several factors influence your ideal ROAS:
- Profit Margins: Higher margins allow flexibility with lower ROAS. Smaller margins? You need to aim higher.
- Cost of Goods Sold (COGS): COGS is the cost of producing what you’re selling. Subtract COGS from revenue to get a more accurate ROAS.
- Operating Expenses: High costs like rent, salaries, and utilities mean you’ll need a higher ROAS.
- Business Growth Stage: Start-ups often aim for higher ROAS. Established businesses can afford more moderate returns.
- Ad Platforms: Platforms like Google Ads tend to offer better ROAS (Invoca).
Understanding these elements helps you refine your ad strategy and increase ROAS. If you’re starting out or ramping up, consider how these factors fit into your broader strategy.
Making Your ROAS the Best Ever
To boost your Return on Ad Spend (ROAS) and drive growth, focus on smart strategies that enhance efficiency and effectiveness.
Cutting Costs on Clicks
Here are a few ways to get more value from each click without overspending:
- Catchy Ads: Create ads that grab attention quickly. Make them engaging and relevant.
- Experiment with Keywords: Test different keywords to discover more cost-effective options.
- Long-Tail Keywords: Target specific search phrases with lower competition and cost.
- Negative Keywords: Exclude irrelevant terms to prevent wasted clicks.
- Avoid Expensive Keywords: Stay away from high-cost keywords unless they’re proven to bring significant returns.
Smoothing the Customer Journey
Once you’ve captured a click, ensure customers complete their journey:
- Smart Bidding: Adjust bids on platforms like Facebook for optimal returns.
- Relevant Landing Pages: Link ads to landing pages that align with the ad’s message.
- Marketing Funnels: Use targeted messages to guide customers through the buying process.
- Catalog Shopping Ads: Help shoppers easily find what they need through well-organized listings.
- Shoppable Posts: Enable users to buy directly from social posts.
- Consistent Ads Across Platforms: Maintain a cohesive look and feel for your ads everywhere.
- Influencer Partnerships: Collaborate with influencers to expand reach and boost sales.
Email Marketing
Emails can be a powerful tool when used effectively:
- Follow-Up Reminders: Reach out to potential buyers who didn’t complete a purchase.
- Product Recommendations: Suggest complementary items based on previous purchases.
- Customer Reviews: Include positive reviews to build trust and encourage conversions.
- Customer Retention: Keep your customers engaged with special offers and updates.
Implementing these strategies can help maximize your ROAS and drive sustainable business growth.
Boost Your Ecommerce ROAS
Improving your Return on Ad Spend (ROAS) isn’t about spending more—it’s about being strategic. Here’s how to make your ad dollars work harder for your eCommerce business.
Mastering Cross-Channel Ad Strategies
Running ads across multiple platforms is essential for boosting ROAS. Each platform—Google, Facebook, Instagram, and Amazon—offers unique opportunities, so use them wisely to target your audience where they spend the most time.
| Channel | Ways to Optimize |
|---|---|
| SEO, Shopping Ads, Retargeting | |
| Dynamic Ads, Lookalike Audiences, Custom Audiences | |
| Shoppable Posts, Story Ads, Influencer Partnerships | |
| Amazon | Sponsored Products, Sponsored Brands, Display Ads |
Increasing Customer Lifetime Value (CLV)
One surefire way to increase ROAS is to focus on boosting Customer Lifetime Value. The more often customers return, the more they spend over time, which enhances your ROAS.
Turn your website into more than just a store—make it a place where customer relationships grow.
Ways to boost CLV:
- Tailored Email Campaigns: Segment your audience to send personalized emails that resonate.
- Loyalty Programs: Reward customers for coming back to keep them engaged.
- Subscriptions: Offer subscription models to ensure recurring revenue.
Smart Tactics to Boost ROAS
Spending smarter, not more, is key to raising ROAS. Here are some proven strategies:
- Fine-Tune Bidding Strategies: Optimize your bids on platforms like Google and Facebook to reduce ad costs.
- Optimize Landing Pages: Make sure your ads lead to highly relevant landing pages that convert clicks into sales.
- Dynamic Funnel Marketing: Use customer data to tailor your approach at each stage of their journey.
- Catalog Shopping Ads: Simplify the shopping experience with catalog ads on platforms like Google and Facebook.
- Shoppable Posts: Turn Instagram posts into instant shopping opportunities to boost engagement.
- Influencer Partnerships: Collaborate with influencers to reach new audiences and build trust authentically.
Implement these techniques to watch your eCommerce ROAS grow and your business succeed.
If boosting your ROAS feels like too much to handle, consider hiring us. We focus on increasing eCommerce sales and consistently aim to deliver a strong ROI for your business.
