by James Hickson | January 25, 2022 | 8 min read
How to optimise and increase ROASGet funded
Last updated: May 20, 2022
Several digital advertising channels offer businesses many opportunities to expand and increase revenue. However, these opportunities might lead advertisers to lose money if used recklessly to see quick returns. As an advertiser, it is crucial that you choose an advertising channel and strategy that offers the best return on ad spend or ROAS while improving performance.
Table of contents
What is ROAS?
As an advertiser, whenever you put out a new ad campaign, you'll track it to see how it performs using key performance indicators that measure the ad campaign's effectiveness. You'll then use the data from the indicators to make adjustments.
Most advertisers use click-through rates, conversation rates and cost per conversion as their preferred advertising Key Performance Indicators (KPIs). Although such indicators can have a meaningful impact on the return, they won't be able to offer you the relevant data regarding your ad campaign's monetary success if used individually.
This is where ROAS comes in. ROAS is a marketing indicator that weighs the revenue generated for every pound dollar spent on an advertising campaign. It is the marketing metric used to determine how much money your ad has generated against the amount you spent on the advertising campaign.
Using ROAS to track your advertising campaign gives you a complete big picture of whether your ad is paying off or not. ROAS calculation is straightforward and is usually expressed as a ratio.
To calculate it, the ROAS formula is the revenue generated from a campaign divided by the cost of the campaign.
For instance, if you used £$1,000 to run an ad campaign for a business and the campaign brought in £$2,000 in revenue, then the ROAS would be 2:1, representing £$2 for every £$1 you spent. Although the return on ad spend (ROAS) is similar to (ROI) return on investment, ROAS targets the monetary return from a specific campaign against ROI, which measures a more considerable investment.
This may include advertising campaigns and other marketing expenses, including hiring web developers or partnering with an influencer to help put the word out. If your campaign is effective, you'll earn more revenue from every pound dollar spent on the campaign, so the higher the ROAS, the better.
Why calculating ROAS is important
As outlined above, there are several essential metrics you can use to optimise your advertising and marketing efforts. Although ROAS calculations are easy, some advertisers prefer to use other tracking conversions for their advertising campaigns.
Using ROAS isn't necessary for monetary success in ad campaigns, but without tracking ROAS, you may end up with limited information, which may lead to sub-optimal decisions.
ROAS comes in handy if you're not focused on raising your brand awareness. It allows you to analyse how your ad campaigns are doing in terms of revenue generated over time. This way, you can see whether your strategy is unfolding as expected or not. If your ad is not doing well, you'll be able to make an informed decision on whether to pull the plug to avoid more wastage of resources or take a different direction.
How to optimise target ROAS
Enhancing your return on ad spend is about breaking down the underlying necessities of the campaign and creating efficiencies for every element. When broken down, digital marketing campaigns are the product of:
Revenue per conversion
Here's an example of how it works:
Say, your cost per click is £$2. If you convert 4% of your paid traffic, it means that you require 25 clicks to get one conversion. In this example, every conversion will cost you £$50. This is the amount of money you spend to attract a new customer. Therefore, your average order value has to be above £$50 for your campaign to break even, but the order value may need to be twice or four times more for the campaign to be actually profitable.
For this scenario, if you want to optimise your ROAS, you'll need to
Reduce your cost per click
Increase your revenue for every conversion
Enhance your post-click conversion rate
Enhancing your ROAS has plenty of benefits, such as increasing revenue and building a loyal consumer base. But it's not an easy task, and most businesses struggle to improve their ROAS. The following techniques are tried and tested and can help you improve your ROAS.
Target the right digital advertising audience
Not all advertising audiences are equal, and most times, marketing channels have discrepancies within the audiences. Targeting the right audience will help you cut down the time you'll need to convince people to buy and help you convert and increase your profit margins. For instance, if you're advertising a product meant for the 50-80 age group, you might not want to go to social media channels like TikTok and Instagram.
The major players in digital advertising include Facebook advertising and Google Ads, but they aren't the only marketing channels that advertisers use to reach more people. This might be news to anyone new to online advertising, but it's important to remember if you want to increase your ROAS.
The first step to choosing an advertising channel is to research the platform's demographic and test how they relate. Next, you'll need to outline what's more important by narrowing the list down to items such as location, age, or gender. After you've narrowed the list down, you can set up a campaign on the platforms.
Make your ads appealing
This might seem like a no-brainer, but advertisers often overlook the appeal side of paid ad campaigns when focusing on the technical aspects of optimising and testing ROAS. Choosing the proper channels is important but how your ad looks and feels is equally crucial.
Make a compelling and consistent ad campaign that will help you pull in more customers. For instance, instead of claiming you have the best product, try using some of your customers’ reviews to authenticate your claims. You can also put in some sense of urgency or gratitude to help the customer feel appreciated.
Additionally, keep the design simple to avoid overwhelming your consumers. Ensure the site loads quickly. Loading times contribute to higher conversion rates, so it's of utmost importance that your site loads as quickly as possible.
Track your conversions
Tracking your conversions is vital in enhancing your ROAS. However, it's best to analyse conversions by ad channel instead of monitoring a general conversion. Nowadays, many online advertising platforms allow consumers the ability to conduct in-app purchases. This feature makes it easier to track where the conversions are coming from and pinpoint the specific conversion.
Testing channels and tracking conversions go hand-in-hand. Therefore, conversion tracking needs to be a continuous process. If you want to dive deeper into the data, you can organise a monthly comparison of ROAS by campaign and platform. In this review, you can assess which platform is providing high conversions and which campaign has a good ROAS.
Track other non-ad related issues
If one platform provides a high conversion rate but has a low ROAS, it could mean that it brings low-value customers or you need to find a way to incentivise larger purchases. It could also mean that the landing page design is poor or the checkout process is complicated or lengthy. Aside from tracking conversions and focusing on your
ads, you might want to probe other issues such as the ad copy, checkout process or landing page experience to improve your ROAS.
Utilise CRO strategies
Sometimes a consumer will place a product in the cart and fail to check out. Studies show that the global cart abandonment rate is 75%. If you want to increase ROAS, you need to ensure that your site visitors convert into customers to capture lost revenues.
One conversion rate optimisation (CRO) strategy is increasing every consumer's Average Order Value (AOV) by offering an incentive such as free shipping.
In this case, the catch can be on a minimum purchase amount or a large order. This will help motivate site visitors to purchase more to knock off the shipping price. You can also upsell by offering your consumers bundle deals. Fast food chains usually employ this technique by asking you if you want your meal single, or double with fries on the house.
Selling to a current customer is also much easier than to a new one. This then means that if you want to increase your ROAS through a returning customer, you'll need to increase your Customer Lifetime Value (CLV) by:
Offering coupons and discounts
Creating loyalty programs
Excellent customer service
Providing high-quality products and services
Once you've locked in your target audience, it's time to use the right searches to ensure the audience turns into buyers. You can use negative keywords to avoid clicks and impressions that affect your quality score. Use long-tail keywords to minimise competition and cost.
Such keywords also provide a higher post-click conversion rate. For example, someone looking to buy shoes using the keywords "blue size six tennis shoes" is more likely to buy the pair than someone looking for "tennis shoes."
Maximise your ROAS
Optimising and increasing your ROAS isn't an activity you'll do once. It is an ongoing activity that involves testing and optimising during every phase of the advertising journey. By providing a personalised experience and creating targeted ad campaigns, you can make an impressive improvement to your return on ad spend.
James Hickson is the CEO and Founder of Bloom Financial Group, the winner of numerous industry awards – most recently recognized as FinTech CEO of the year as well as Payment Service of the year by AI Global Media.
Bloom is a European Fintech company focused on small to medium business lending. With their proprietary technology, Bloom offers e-commerce and retail brands access to revenue based funding (between 25,000 EUR and 3M EUR).