A good ROAS is 3x for Ecommerce, 4-6x for B2B, and we often see 7-10x for campaigns when done right. Read these expert insights and real-world examples to maximize ROAS on your next campaign.
Here, you’ll find:
- What is ROAS
- How to calculate ROAS
- What makes a good ROAS
- Tips to improve ROAS
Running ads across various platforms can grow your business’s reach and generate more leads. But at what cost? And more importantly, is the cost worth it?
Not knowing your ad campaigns’ effectiveness can lead to wasted dollars and inch you away from reaching business goals.
But it doesn’t have to be this way.
Every great digital advertising campaign requires ongoing monitoring and analysis to ensure it’s working. One marketing metric you want to pay special attention to is your return on ad spend (ROAS).
Let’s explore what this is and how you can calculate it.
What is ROAS?
Return on ad spend (ROAS) is an important metric that shows how much revenue is generated for every dollar you invest in ads like pay-per-click (PPC). So the higher the ROAS, the better. By analyzing ROAS, businesses can determine the success of their advertising campaigns on search and social media, identify the most profitable channels, and optimize their ad spend accordingly.
How do you calculate ROAS?
The calculation for ROAS divides the revenue you generate from ads by the amount you spend on your ad campaign.
Here’s the ROAS formula:
ROAS = Revenue from Ads / Cost of Ads
So if you spent $100 on ads and generated $300 in revenue, your ROAS is $200 / $100 = $3 or 3:1 ratio or 300% return. For every $1 you invest, you get $3 in revenue and a $2 profit.
What’s considered a good ROAS?
The benchmark you compare against comes down to your industry.
“In B2C/ecommerce, a 3x (300% ROAS) is a good baseline,” says Sam Yadegar, CEO of HawkSEM. “However, most of our clients are in the 4-6x range. Ecommerce clients must also consider the cost of goods sold (COGS) to measure true profitability.”
For instance, let’s say you have an ecommerce store that sells T-shirts. You spend $100 on advertising, and as a result, you generate $300 in revenue from sales. This gives you a ROAS of 3x (300%).
Yet, to determine the true profit margins of this advertising campaign, you must add in the cost of producing the T-shirts. Let’s assume the COGS for each T-shirt is $50.
If you sold six T-shirts ($50 x 6), your total COGS would be $300. Now, subtracting the COGS from the total revenue, you get $300 – $300 = $0.
This means that after accounting for the cost of goods sold, your advertising campaign did not generate any profit. In fact, it resulted in a break-even.
Simply looking at the ROAS calculation alone can be misleading, since it doesn’t factor in the cost of producing and selling products. So a high ROAS may actually be a low ROAS, once you subtract additional expenses.
ROAS for B2B brands
Now, what if you sell in a B2B space, such as software-as-a-service (SaaS)?
“In B2B where lead generation is the goal, 3x is a good baseline,” says Yadegar. “As an agency, we work towards a 5x-7x average ROAS (depending on the service being offered) by focusing on revenue-generating opportunities with ConversionIQ.”
ConversionIQ is HawkSEM’s proprietary software that uses AI to analyze and predict which keywords to use in ads to get more conversions from your best audience (aka paying customers).
Real-world examples of businesses improving their ROAS
What good is a strategy if there’s no proof that they work? We gathered three case studies as proof that your business can increase its ROAS using the right methods.
Let’s jump in.
1. Datadog receives a 75% increase in sales demos
Datadog is a cloud-based application monitoring platform that wanted to grow its SaaS license sales. So it partnered with HawkSEM to find a way to make this happen.
When our experts analyzed its pay-per-click account, we saw:
- Poorly rationalized ad campaigns
- Poorly chosen search terms were eating up its budget
- Poor quality ad scores
- Keywords report wasn’t being analyzed regularly
- Landing page needed a redesign
- URLs contained no tracking abilities
So we came in and built a strategy to dominate Datadog’s digital share of voice. And our team planned to do this by:
- Cleaned up inefficiencies in the advertising account
- Improved the landing page to make it easier for people to use
- Created new campaigns to capture more traffic
- Made ads that were specific to each product or service
- Showed the ads on other websites to reach more people
The outcome was spectacular:
- 75% boost in demo sales
- 40% cost per acquisition (CPA) reduction from previously unsustainable mark
- Over 3% clickthrough rate (CTR) increase from beneath 1%
2. 686 sees a 360-degree turnaround for ecommerce sales
Apparel brand 686 chose to adopt an ecommerce business model to improve sales of its fashionable tech apparel for athletes and skateboarders (smart move).
The only issue is they didn’t know how to reach its online store sales and ROI goals, which included:
- Boosting sales for its winter outwear
- Maintain a 350-400% ROAS
So they partnered with HawkSEM’s team of PPC experts (another smart move).
Our team got together with 686’s team and talked about customer personas, unique selling points (USPs), and key performance objectives.
The strategies we used include:
- Made special ads for people in the United States who like 686’s warm clothes (personalization)
- Showed pictures and prices of the clothes when people search for them (visuals)
- Made ads that change depending on what people are looking for (dynamic search ads)
- Showed ads to people who have already visited the 686 website before (remarketing)
The results were incredible:
- 714.29% increase in search engine marketing (SEM) sales transactions
- 562.45% boost in year-over-year SEM revenue
- 303% increase in ROAS
- 186.56% increase in conversion rate
- 76% of account impressions had a quality score at 8 or higher
- 67.01% reduction in cost per conversion
3. ThriftBooks boosts average order value by 50%
ThriftBooks wasn’t new to working with agencies. However, it outgrew its first partnership and wanted an agency that could help them scale. The good news: HawkSEM was given the chance to show them how it’s done.
Its goal was to boost ROAS and grow revenue.
How we achieved it: building more complex campaigns with multi-touch attribution. During implementation, we conducted customer acquisition strategy tests, leading to the discovery of a profitable niche.
The outcome we saw was on the money (literally):
- 50% higher average order value (AOV)
- 35% increase in year-over-year clickthrough rates (CTR)
- Maintained an internal target ROAS
The moral of these lessons: Don’t go it alone. With the right agency, you can maximize your ROAS and reach business goals.
ROI vs. ROAS: What’s the difference?
Return on investment (ROI) and ROAS measure your marketing efforts’ effectiveness by calculating how much revenue you receive in return. While they may sound similar, there are key differences between the two.
ROI is a broader metric that evaluates the overall profitability of an investment. It takes into account all the costs and returns associated with a particular initiative, not just advertising expenses. ROI considers factors such as production costs, operating expenses, and other investments made in the business.
On the other hand, ROAS specifically focuses on the return generated from advertising spend. It measures the revenue generated from advertising efforts relative to the amount spent on those ads. ROAS shows the efficiency and effectiveness of your advertising campaigns in driving revenue.
How ROI & ROAS look in the real world
Think of ROI as a big-picture metric that considers the entire investment landscape, while ROAS zooms in on the specific impact of advertising efforts.
Let’s put this into context with an example.
Imagine you invest $1,000 in a marketing campaign that includes advertising, content creation, and other promotional activities. As a result of this campaign, you generate $5,000 in revenue. To calculate ROI, you’d subtract the total costs associated with the campaign (including advertising costs) from the revenue, and then divide that by the total costs.
For example, if the total costs were $3,000, your ROI would be ($5,000 – $3,000) / $3,000 = 66.67%.
Now, let’s shift our focus to ROAS. If you spent $500 on advertising as part of the same marketing campaign and generated $2,500 in revenue directly from those ads, your ROAS would be $2,500 / $500 = 5x (or 500%).
While ROI gives you a holistic view of the profitability of your investment, ROAS provides specific insights into the performance of your advertising efforts. Both metrics are valuable in their own right and serve different purposes in evaluating your marketing strategies.
By analyzing ROI, you can assess the overall impact of your investments on your business’s profitability. Then ROAS sheds light on the effectiveness of your advertising campaigns, so you can optimize your ad spend and maximize revenue.
Pro tip: To bring down your advertising costs, you’ll need to either reduce your ad spend or find keywords with a lower cost-per-click (CPC).
Benefits of tracking ROAS
We’ve covered that ROAS can help assess the effectiveness of your advertising efforts. But what are the benefits of tracking ROAS?
Here’s a look.
Identify high-performing channels
In the vast landscape of advertising channels, it can be challenging to determine where to invest your resources. Tracking ROAS cuts through the noise and identifies the channels that deliver results.
By analyzing the ROAS for each channel, you can pinpoint the ones that generate the highest return on your ad spend. This knowledge empowers you to focus your efforts and advertising budget on the most profitable channels, leading to better outcomes.
Optimize ad spend for maximum ROI
One major advantage of tracking ROAS is the ability to optimize your ad spend. By closely monitoring the revenue generated relative to your advertising investment, you can make data-driven decisions to maximize your return on investment.
If certain campaigns or channels aren’t yielding a positive ROAS, you can reallocate your budget or make adjustments to improve their performance. This ensures you use every advertising dollar effectively.
Enhance campaign performance
ROAS uncovers patterns, trends, and opportunities to enhance your campaigns. With this knowledge, you can fine-tune your targeting, messaging, creative elements, or landing pages to optimize your campaign performance. By continuously improving your campaigns based on ROAS insights, you can drive higher returns and achieve your marketing goals.
Align marketing strategies with business objectives
Savvy marketers align their marketing strategies with their overall business objectives. Tracking ROAS shows the direct revenue impact of your advertising efforts, ensuring your marketing initiatives contribute to the growth and profitability of your business. ROAS allows you to measure the tangible results of your ads, making it easier to justify your marketing investments and demonstrate their value to key stakeholders.
Make data-driven decisions
Gone are the days of relying on guesswork and intuition for making advertising decisions. ROAS empowers you to make informed decisions based on concrete data. Whether it’s adjusting your budget, optimizing your targeting, or exploring new advertising channels, ROAS provides the necessary insights to guide your choices.
By leveraging ROAS data, you can make strategic decisions that are more likely to yield positive results and drive the success of your marketing campaigns. However, tracking ROAS for the sake of doing so isn’t enough.
Without the right technology, it’s tough to pinpoint what to do with the data to make things better.
“Tracking and attribution need to be watertight,” advises Yadegar. “A healthy analytics tracking set up that measures all meaningful interactions throughout the entire user journey will help understand what actions are driving revenue and why aren’t.”
ConversionIQ does this for every campaign we manage for our clients.
What factors can hurt your ROAS potential?
We see businesses make mistakes that hurt their ad campaign’s revenue potential.
“Sometimes we see advertisers bidding on their own brand name and measuring a return on branded keywords, which skews results,” shares Yadegar. “A more true measure of ROAS should come from non-branded traffic. Advertisers should also consider the costs of managing/running the campaigns and not just the cost for the paid media.”
Here’s an overview of 6 other mistakes you should avoid.
1. Neglecting audience research
Failing to conduct thorough audience research makes it tougher to build ads that convert. Understanding your target audience isn’t optional if you want effective ad targeting and messaging.
Without a deep understanding of your audience’s demographics, interests, and pain points, your ads may fall flat and fail to resonate. Invest time in audience research to ensure your ads reach the right people and drive higher ROAS.
2. Poorly defined goals and KPIs
Not setting clear goals and Key Performance Indicators (KPIs) presents another challenge: an inability to track and optimize abysmal ROAS. Unfortunately, some businesses run ad campaigns without a specific objective or measurable targets to find their ad budgets wasted.
So, define your goals, whether it’s increasing sales, generating leads, or boosting brand awareness, and establish KPIs that align with those goals. This clarity will guide your advertising strategy and enable you to measure ROAS accurately.
3. Inadequate ad tracking and analytics
Neglecting to set up proper tracking mechanisms or not analyzing data effectively — another problem for businesses. Ensure you have robust ad tracking and analytics tools in place (like ConversionIQ) to measure key metrics, such as click-through rates, conversion rates, and revenue generated.
Then, plan to regularly review and analyze this data to identify areas for data-driven improvement.
4. Lack of ad testing and optimization
A common mistake that hampers ROAS is the failure to test and optimize ads. Businesses that stick to a single ad creative or messaging without experimenting with different variations are hurting their ROAS potential.
By conducting A/B tests and optimizing your ads based on performance, you can uncover what resonates best with your audience and drive higher conversions. Continuously test and refine your ads to maximize their impact and improve ROAS.
5. Poor landing page experience
Your ads may be driving traffic, but if your landing page experience is subpar, it can significantly impact ROAS. Your landing pages should be user-friendly, visually appealing, and aligned with your ad messaging.
A seamless transition from ad to landing page and persuasive and relevant content can boost conversions and improve ROAS. Guess what else — we have experts at HawkSEM that specialize in conversion rate optimization and landing page design.
6. Ignoring data insights
Data holds a goldmine of insights that can help optimize your advertising efforts. But only if you know how to dig and pinpoint those trends. The reality: most ignore or misinterpret their data. So even if you regularly review your ad performance data, analyzing trends and identifying patterns isn’t simple.
Leverage experts and tools that can pull these insights to help you make informed decisions about adjustments to your ad campaigns.
Pro tip: Use negative keywords to prevent spending money on irrelevant clicks that don’t convert. For example, if you sell men’s shoes only, then negative keywords may be “kids shoes” and “women shoes” if your ads appear in those search results.
How to improve ROAS for your ad campaigns
Your ad campaign revenue isn’t near what you expected it to be. What should you do?
One strategy is to build hyper-specific campaigns.
Generic gets you nowhere fast in business advertising. Sure, you’ll get plenty of clicks, but conversions and revenue will suffer. To maximize ROAS, you should create laser-focused ad campaigns.
“To maximize ROAS, advertisers should create hyper-specific campaigns, where their customers are with messaging that matches exactly what they’re looking for. Also, avoid advertising in regions where they don’t have the best results.”
For example, your ads may fare better in Europe and North America than in South America and Asia.
Here are other strategies you can use to boost your ROAS:
- Use manual bidding: Allows you more control over your ads and can increase visibility while lowering costs. Focus on one campaign at a time, adjust bids for better-performing keywords, and monitor the results closely. Give it a couple of weeks to see if it improves your ad performance.
- Add remarketing ads: Remarketing allows you to re-engage potential customers who’ve previously interacted with your website or clicked on your ads. It serves as a gentle reminder, nudging them towards taking the desired action on your site. By strategically placing your ads in front of these prospects, you can increase conversions and maximize the effectiveness of your PPC efforts.
- Try responsive search ads (RSAs): RSAs create a diverse set of headlines and descriptions for your ads for better personalization. It helps businesses find the most effective combinations that resonate with their target audience. This can lead to higher click-through rates, improved ad relevance, and better ROAS.
- Explore PMax campaigns: Boost your Return on Ad Spend (ROAS) by leveraging Performance Max (PMax) campaigns on Google ads. It uses automation and machine learning to optimize targeting and bidding strategies to reach your ideal audience across multiple platforms. PMax saves time and maximizes conversions with this powerful tool.
Improving your ad campaigns requires careful tracking, analyzing, and optimization to hit good-to-great ROAS numbers. Using the strategies we provided and avoiding common mistakes, you can improve your odds of reaching higher targets.
However, if you feel it’s a lot of work and would rather focus on your business or other marketing initiatives, then consider partnering with an agency.
HawkSEM is ready and available to help your company plan and execute PPC campaigns that drive sales. Reach out to our digital marketing team today for a free consultation.