What is ROAS?
ROAS, which stands for Return On Ad Spend, is one of the key metrics in every business that moves the revenue needle and needs to be tracked down to the cent in order to continue scaling profitably. Especially for affiliates whose core focus is performance.
ROAS is a digital marketing metric that measures how much revenue is generated for every dollar that is spent on advertising.
Now you might be thinking “Isn’t that the same as ROI?” and you’d be right.
ROI, Return on Investment, is the return we get from any investment we make. Not only monetary investments, but time and energy investments also.
ROAS measures the effectiveness of your advertising campaigns. It tells you how much revenue you’re generating from your ad spend.
When you have the trifecta of:
- The right message
- The right audience
- The right medium
Then your ROAS has the potential to be significantly higher.
A high ROAS is what we’re aiming for here.
At the end of the day, it’s not just about turning a profit from your ad spend, but turning a big enough profit with healthy margins to cover operating expenses.
So the higher your ROAS, the better.
What is ROAS in Digital Marketing?
ROAS for digital marketers is essentially the same thing. Because whether you’re an affiliate or performance marketer running ads to your offers, or you’re part of a media buying team in a company, ROAS is the metric you should be watching like a hawk.
PPC is a volatile and competitive landscape. Therefore, being able to measure how much profits you’re generating for every dollar spent is absolutely crucial so you can scale your campaigns and increase profits.
ROAS is also a dynamic metric that will change depending on the PPC landscape your business is in.
You may also find your ROAS changing as you scale up your campaigns. The nature of digital advertising is very competitive and the prices constantly fluctuate.
Data-driven marketers enjoy near endless profits, and the rest are left fighting for scraps.
So how do you prevent that from happening?
The first step is to gear up with the marketing tools that enable you to measure all your performances, and give you true actionable insights needed to act swiftly.
This is critical so you’ll know early on how to adjust your campaigns settings, budgets, etc.
As I mentioned earlier, performance driven ad networks like Google Ads imply a high level of competition which can affect your position in the ad auction. Therefore, actionable signals will give you the ability to quickly seize opportunities, or let go of unprofitable traffic segments.
The first step is to calculate your ROAS.
How to calculate ROAS?
(Photo credit: Segment)
As you can see from the image above, finding and calculating your ROAS is very simple.
You divide your revenue by your costs.
In the image above, you can see the advertiser makes $5 for every $1 spent (win!).
You can then multiply that figure by 100 to calculate the ROAS percentage. Using the same example, the ROAS percentage would be 500%.
Once you calculate your ROAS, you become a smarter marketer. You’ll know exactly how much you’re making for every dollar invested in your ads, and you’ll also know what numbers you need to hit to break-even.
Good marketing strategy will help you maximize your ad spend so you have healthy margins.
Advanced marketers will use high level strategies like leveraging existing SEO data to run highly relevant retargeting campaigns and combining native ads with Google remarketing.
What is a good ROAS?
There’s no definitive answer here.
ROAS is one of the most difficult metrics to measure as a benchmark for other marketers because it requires business owners to show how much they’re spending on ads and how much they’re making.
Most business owners would never share this type of information. They’d essentially be inviting their competition into their homes to come eat their lunch.
ROAS also depends on the industry you’re in, the average CPC’s (cost-per-click), your business costs, and your profit margins.
However, Google is able to share some metrics that are publicly available.
Your best bet is factoring in your CPA from the offers you’re promoting. Then from there, do everything you can to spend less in paid media than the CPA to acquire a sale.
Another point to make here is that if you’re promoting offers with recurring commissions, then it’s ok to have an initial negative ROAS because your ROAS will increase over time as your commissions accumulate. Choosing the right affiliate program is key here.
What is a good ROAS for Google Ads?
On Google Ads, most businesses aim for a 200% ROAS, or 2:1 ratio. Every $1 spent on ads ideally should yield $2.
If you’re focusing on the search network, it should be a 8:1 ratio. So every $1 spent should yield on average $8.
However, for performance marketers it’s a bit more complicated than that.
When you’re running paid ads to your offers, you’re only capturing a percentage of the sale value because you’re being paid a commission, not the full value of the sale. That further reduces your profit margins.
You also need to factor in how good your offer, ads, targeting, and landing pages are. Not even taking into account your competitors, which will only raise your advertising costs by bidding on the same keywords as you.
On the plus side, Google’s smart bidding features are making it easier for performance marketers to leverage Google’s machine learning capabilities to run smart campaigns.
One of the bidding strategies you can select is Target ROAS, so you can bid based on a target return on ad spend. There are also many other automated bidding strategies you can try.
It’s important to note here that in order for automated bidding strategies to work their magic, you’ll need to accumulate enough conversion data first. Most campaign types need at least 20 conversions in the past 45 days. Search campaigns are different where they need at least 15 conversions in the past 30 days.
If you’re running paid media campaigns to your offers, I would recommend testing Target ROAS against some of the other automated bidding strategies like Target CPA.
You can even do manual bidding strategies. Manual bidding worked very well for me and gave me more control. However, when I wanted to scale my campaigns, automated bidding strategies like Target ROAS was a more suitable choice.
As with everything in digital marketing, you need to experiment and see what works for you.
That’s why staying up to date on best marketing practices and getting creative with your offers is so important.
What is a good ROAS for Facebook Ads?
Like Google, your Facebook ad’s ROAS will depend on the same factors.
In general, if you’re reaching a minimum ROAS of 2:1 then I would consider that to be a good return. It’s not uncommon to have significantly higher ROAS depending on how good your offer is.
You hear about it all the time with eCommerce. Companies are selling products with mass appeal and are absolutely crushing it on Facebook Ads.
But you have to remember, Facebook Ads is a completely different ad platform than Google.
When you advertise on Google, you’re targeting based on keywords your target audience uses. I would say Google Ads is more “problem solving” focused.
A user types in a query and is searching for the answer.
On Facebook however, your potential customers are not really in a buying mood. That’s why your content and offer need to stand out.
With Facebook’s targeting features, you can build the perfect buyer persona and reach them. Facebook also has campaign considerations & automated bidding strategies.
For example, if you’re testing Facebook ads for a few of your offers, be sure to test “Conversions” as your consideration and optimization for ad delivery and see what happens.
When comparing Google’s Ad platform to Facebook, there’s clear pros and cons to each. I’ve tested both and even combined the two for maximum effect.
Putting it together
ROAS is quite possibly the most important metric for business owners and performance marketers alike. It’s our “north star” that lets us know if we are on the right track or not with our PPC campaigns.
Often times in the beginning of a new campaign you’ll be operating in the red, and that’s actually normal for 99% of marketers starting a new campaign.
But once your campaigns accumulate enough data, you’ll be able to optimize your campaigns and hopefully scale profitably.
It’s hard enough to get a high ROAS for performance marketers, which only gets more complicated when the conversions are happening off of your website and you’re unable to get access to the data in a convenient and accurate way.
But thankfully, with AnyTrack, you get your affiliate conversion data synced in real time with Google Analytics, Google Ads, Facebook Ads, and more. So your ROAS data becomes usable and you can be a lot more agile with your marketing.
Before AnyTrack, most performance marketers had to use time consuming workarounds to get maybe 80% accuracy.
Those days are over.
Once you have access to your ROAS data and it lives in your ad dashboards, it gives you the actionable insights to double down on what’s working and grow with confidence.
That’s what data driven marketing is all about.