In digital marketing, return on ad spend (ROAS), is an essential metric that businesses should prioritize. It aids companies in their decision-making and helps them identify whether a campaign is worth the investment.
This post will focus on the most essential things you need to know about ROAS, why it is so important, and some useful strategies for getting the most out of your ad spend.
What Is Return on Ad Spend
Return on ad spend is a marketing metric that looks at the revenue generated from an advertising campaign in relation to how much was spent on it. It helps to identify whether an ad campaign results in positive returns and indicates how effective advertising efforts are. To calculate ROAS, you divide the total revenue by the total ad spend.
For example, if a company spent $1000 and the ad resulted in $4000 of revenue, their ROAS would be 4:1. This ratio indicates that for every dollar spent on the campaign, they got four dollars in return.
The Value of ROAS for Small Business Growth
The reason ROAS is such a crucial metric is that it helps businesses make informed marketing decisions. Without it, companies essentially have no idea whether their advertising campaigns are bringing in a positive return.
The truth is often a campaign looks successful, but after examination, you find out that is not the case. For instance, consider an online store running an advert that is generating a high amount of sales. At first glance, the company would assume the marketing campaign is a winner due to the large amount of conversions received.
However, after the company conducts a ROAS analysis, they find that it costs them more to get these customers than what they generate from them. If they skipped this step, chances are they would have continued spending capital on a campaign that results in a negative return.
This kind of insight can prevent unnecessary losses and help businesses allocate their budgets more effectively. With companies knowing what adverts are profitable, they can increase their ad spend on the ones actively showing results and cut the ones underperforming.
5 Strategies to Maximize Your Return on Ad Spend
If you are not seeing the return on ad spend that you want, here are some useful strategies you could consider implementing:
- Refine Audience Targeting
One of the best ways to get the most out of your ad spend is to ensure you target the right audience. To help you do this, you can think of it as hosting an event. If you were creating a sports event, you would want sports enthusiasts to show up. In other words, people that share those interests.
You will want to do the exact same thing with your adverts. Trying to market your product to everyone almost always results in disappointing returns. Instead, focus on the individuals who actively buy your goods and go after them. Look at your existing customer data to help you understand demographics, interests, and purchasing behaviors.
Armed with this information, you can create lookalike audiences. Another good idea is to segment your target market based on age, interest, location, and buying habits. Doing so will allow you to tailor your message to each group helping to increase the relevance and effectiveness of your ads.
- Enhance Ad Creative
While targeting the right audience is essential, you also want to ensure that your ad creative resonates with your target market. To help you maximize your ROAS, it’s vital that your advert easily captures the audience’s attention.
Look for ways you can enhance your advertisement — experiment with different formats, headlines and copy until you find something that works. In addition, you will want to optimize your ad message to highlight what it is about and how it can solve your customer’s problems.
Don’t forget to add a strong call to action (CTA). A strong CTA is often the last push a potential prospect needs to go from viewing your ad to purchasing your product. The main idea is to optimize your ad until you find the winning formula and then capitalize on it.
- Optimize Landing Page Experience
In many cases, the problem does not lie with the ad itself but with the landing page. You will want to ensure that your landing page clearly conveys the same message as your advert.
If the ad was about sportswear, the landing page should immediately showcase sportswear products and reflect the same offer as the advertisement. The page should have a user-friendly layout making it easy for visitors to find what they are looking for.
You should consider other components as well such as mobile responsiveness and load speed. A slow or poorly designed landing page can quickly lead to a high bounce rate, resulting in wasted ad spend. Ensure the website you send prospects to causes minimal friction and provides a seamless user experience that encourages visitors to take action.
- Choose Budget Allocation Wisely
You will want to carefully consider where you allocate your marketing budget. The best course of action is to think about where your target audience spends their time online. If that is Facebook, then that is likely the channel you will want to prioritize. Remember to try different formats such as video or carousel ads to help you get an idea of what resonates with your audience.
However, it’s also important that you don’t just limit yourself to one channel. Instead, experiment with different ad platforms and spread your budget out. This will identify the ones that work the best for your business. For instance, you can start with smaller budgets and go after various marketing channels.
If you discover a particular channel outperforms the others, shift more of the budget to it and scale back on the ones that show little results. With thoughtful budget allocation, you can ensure that you only prioritize channels that drive meaningful results helping to maximize your ad spend.
- Fine-Tune Bidding Strategies
Tweaking your bidding strategy and optimizing how much you spend acquiring each conversion can drastically increase your ROAS. The main idea is to first figure out what works and then focus on that.
For instance, if you notice that certain keywords or ads generate more conversions, then strongly consider raising your bids on them. This way, you invest more in what gets you results while also toning back on the ones that perform badly.
Continue experimenting until you find what works best for your business. Don’t be afraid to try different strategies — just set maximum bidding limits to keep them in check and control costs. By continuously refining your bidding strategy, you can ensure that every dollar spent contributes to higher returns, ultimately boosting your overall marketing success.
Make Every Dollar Count
Improving your return on ad spend is about figuring out what is the most effective for your business and then buckling down on it. Whether that is fine-tuning your bidding strategies, redefining your target audience, enhancing your ad creative or all of the above. The objective is to invest more in the ad campaigns that result in positive returns and cut back on the ones that are underperforming.
With a little bit of experimentation and ROAS analysis, you can identify the marketing channels and tactics that drive the most value. With businesses adopting this holistic approach, they can ensure that they make the most out of every dollar.