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Increasing return on ad spend (ROAS) involves improving the efficacy and efficiency of your marketing campaigns to generate more revenue from your advertising budget. So, how do you increase ROAS? Read on to find out more.
Here you’ll find:
Digital marketing pros know that running ads across multiple platforms helps get your brand in front of the right folks at the right time – but at what cost?
That’s where the ROAS metric comes in. Generally speaking, the higher your ROAS, the better. So how can you make the most of it? Read on for some of our favorite strategies.
6 ways to increase ROAS
The strategies you employ to increase ROAS will depend on the type of campaigns you’re running, your industry niche, and your overall marketing goals.
While all of these strategies may not work for your specific needs, here are a few ideas to get you started:
- Improve ad relevance
- Optimize targeting (and retargeting)
- Bid management
- Leverage ad extensions
- Ad copy, landing page, and keyword optimization
- Focus on lifetime value (LTV)
Improve ad relevance
Create highly relevant and engaging ad creatives that resonate with your target audience. Tailor your ad copy, images, and calls to action (CTAs) to match the interests and needs of your audience.
Don’t forget targeting (and retargeting)
Ensure that your ads are reaching the right audience. Use targeting options provided by ad platforms (Google ads, Facebook ads, etc.) to narrow down your audience based on demographics, interests, behaviors, and other relevant factors.
Plus, retargeting campaigns will re-engage users who have previously interacted with your website or shown interest in your products or services. Ever received a cart abandonment email from Amazon or another ecommerce site? That’s retargeting at work!
A bonus: Retargeting can help increase conversion rates and ROAS by reminding interested prospects to complete their purchase or take the desired action.
Bid management
Monitor and adjust your bidding strategy to maximize the value of your ad spend. Test different bidding strategies such as manual bidding, automated bidding, or target ROAS bidding to find the most effective approach for your campaigns.
Ad extensions
Take advantage of ad extensions offered by PPC and social media platforms to provide additional information and opportunities for users to engage with your ads.
Extensions like sitelinks, callouts, and structured snippets can improve ad visibility and performance.
(Image: Adobe Stock)
Keyword, ad copy, and landing page optimization
If you’re using paid search advertising, optimize your keyword selection to target the right keywords (and negative keywords). Regularly review and update your keyword list to include new opportunities and exclude irrelevant terms.
Continuously test and refine your ad copy to improve click-through rates (CTR) and conversion rates. Experiment with different headlines, descriptions, and CTAs to find what messaging resonates best with your audience. And, you can never go wrong with some good ol’ fashioned a/b testing.
Don’t forget to ensure that the landing pages linked to your ads are optimized for conversions. Streamline the user experience, remove distractions, and include clear and compelling CTAs to encourage visitors to take the desired action.
Focus on Lifetime Value (LTV)
Instead of solely focusing on immediate conversions, consider the long-term value of your customers.
Invest in strategies to enhance customer loyalty, increase repeat purchases, and maximize customer lifetime value, which can ultimately contribute to a higher ROAS over time.
What ROAS is + how to calculate it
ROAS is a metric that shows how much revenue is generated from ad campaigns. The good news is, calculating ROAS is pretty simple:
(Image: HawkSEM)
This can be shown as a ratio, percentage, or dollar value. Generally speaking, the higher your ROAS is, the better. This metric is extremely useful for analyzing the effectiveness of your ad campaigns – but keep in mind it’s not the end-all-be-all.
You should also be keeping an eye on key metrics such as cost-per-acquisition (CPA), click-through rate (CTR), conversion rate, return on investment (ROI), quality score, or even average order value (AOV).
How do I know if my ROAS is “good”?
There’s not really a universal benchmark for what qualifies as a good ROAS. There are, however, a number of considerations to take into account that help determine whether or not your ROAS is favorable. Chief among them are industry, marketing objectives, your business model, and profit margins.
For example, if your primary objective is to maximize revenue and profitability, a higher ROAS may be desired. Alternatively, if your goal is customer acquisition or to increase brand awareness, a lower ROAS may be acceptable initially with the expectation of longer-term benefits.
Industry standards for ROAS can vary significantly across different sectors. Researching industry-specific benchmarks can help you gauge whether your ROAS is competitive within your niche.
Ultimately, what qualifies as a good ROAS depends on your specific circumstances, objectives, and expectations.
What ROAS is not
This is a fun one. By understanding what ROAS is not, you can avoid misinterpretations and ensure that you’re using this metric effectively along with other key metrics and within the broader context of your marketing and business objectives.
Let’s take a moment to clarify its scope and debunk any misconceptions.
It’s not the same as ROI
While ROAS measures the revenue generated from advertising spend, return on investment (ROI) takes into account all costs associated with an investment, not just ad spend. ROI typically considers factors like overhead costs, production costs, and other expenses beyond advertising.
ROAS is not a measure of profitability
ROAS indicates how effectively your advertising spend is driving revenue, but it doesn’t directly reflect profitability.
Profitability involves considering all costs and expenses associated with a business, not just advertising spend. To assess profitability accurately, you need to subtract all costs from the total revenue generated, not just advertising costs.
ROAS is not a standalone metric
While ROAS is a valuable metric for assessing the performance of your digital advertising campaigns, it should be analyzed alongside other key performance indicators (KPIs) such as conversion rate, customer lifetime value (CLV), cost-per-click (CPC), and customer retention rate.
These metrics provide additional context and insights into the overall effectiveness and efficiency of your marketing efforts.
ROAS is not static
ROAS can vary over time due to factors such as seasonality, changes in market conditions, competitive landscape, and adjustments to advertising strategies.
It’s essential to monitor ROAS regularly and adapt your tactics accordingly to maintain and/or improve performance.
ROAS is not a substitute for understanding customer behavior
While ROAS provides insights into the revenue generated from advertising efforts, it doesn’t provide direct insights into customer behavior, preferences, or satisfaction.
To understand your customers better, you may need to conduct additional research, gather feedback, and analyze data from sources beyond ROAS.
What’s considered a “low” ROAS?
A low ROAS typically refers to a return on advertising spend that is considered below average or insufficient in relation to the goals and expectations of a specific ad campaign or business.
What constitutes a low or high ROAS, then, varies depending on factors such as industry, business model, profit margins, and advertising objectives.
Alright, so we’ve established that ROAS is kind of a big deal. So, how do you know when it’s time to bring in the big guns?
When is it time to create a strategy to improve ROAS
Knowing when it’s time to create a strategy to improve your ROAS involves monitoring KPIs and recognizing signs that indicate your current advertising efforts may not be delivering the desired results.
Here are some indicators that suggest it’s time to develop a strategy to improve your ROAS:
Declining ROAS
If you notice a consistent decrease in your ROAS over time, it’s a clear sign that your advertising campaigns may not be as effective as they once were. This could be due to various factors such as increased competition, changes in consumer behavior, or inefficiencies in your marketing strategies.
High Cost per Acquisition (CPA)
A rising cost per acquisition indicates that you’re spending more to acquire each customer or conversion.
If your CPA is increasing while your ROAS is decreasing or remaining stagnant, it’s a strong indicator that your advertising efficiency is declining, and you need to take action to improve it.
Stagnant (or declining) conversion rates
If your conversion rates are stagnating or declining despite consistent ad spend, it suggests that your ads may not be resonating with your target audience or effectively driving them to take action.
Poor conversion rates can negatively impact your ROAS and require adjustments to your advertising strategy.
Inefficient use of budget
If you’re spending a significant portion of your advertising budget without seeing returns in terms of revenue or conversions, it’s a sign that your campaigns may not be optimized for efficiency.
Identifying areas of overspending or inefficiency can help you reallocate resources to activities that drive better results and improve ROAS.
Competitive pressure
Increased competition in your industry or advertising space can impact your ROAS by driving up advertising costs or making it harder to reach and convert your target audience.
If you’re facing heightened competition, it may be time to reassess your advertising strategy and find ways to differentiate your brand and campaigns to maintain or improve ROAS.
Seasonal variations
Seasonal fluctuations in consumer demand or market conditions can affect ROAS. If you notice significant changes in performance during specific periods, it’s time to adapt your advertising strategies accordingly. This can help maximize ROAS during peak times and mitigate declines during off-peak periods.
Changes in platform algorithms or policies
Updates to advertising platforms’ algorithms, policies, or features can impact the performance of your campaigns and ROAS. Stay informed about any changes to advertising platforms and adjust your strategies to align with new requirements or opportunities for optimization.
When you see one or more of these indicators, it’s a clear signal that it’s time to review and refine your advertising strategy to improve ROAS.
Conduct a thorough analysis of your campaigns, identify areas for improvement, and develop a strategic plan to optimize your advertising efforts and achieve better results.
The takeaway
ROAS shows you how effective (and efficient) your ad campaigns are, and most of the time, the higher the ROAS, the better (not to mention the farther your advertising dollars go).
But don’t sweat if you’re working with a lower ROAS. These tips and strategies can help boost that marketing metric in no time. And if you need an extra hand to increase ROAS, you can always call on the Hawks.
