What is ROAS & What is a Good ROAS in Digital Marketing?

Summary Return on ad spend (ROAS) is one of the most important digital marketing metrics that enable businesses to know how effective their ad campaigns are. It shows the amount of money a business makes for each dollar spent on advertising. The what is ROAS and how to improve it can decide the fate of your marketing.

The Basics of ROAS in Digital Marketing

What is ROAS in digital marketing? ROAS or Return on Ad Spend is a Key Performance Indicator (KPI) and a digital marketing metric that is used to measure the efficiency of your ad spending. It is calculated as in this formula.

For instance, if you invest $1000 into ads and get $5000 back in revenue, your ROAS is 5:1, or a return of $5 for every $1 spent in advertising.

The Importance of ROAS in Digital Marketing

The Role of ROAS: If you are going to spend money on ads (or any marketing channel for that matter), you will need to get a positive ROI. The higher the ROAS, the better the campaign performs; the lower it is, the more you need to optimize. In order to evaluate their ad strategies and budget, companies utilize the optimized digital marketing measure ROAS.

What Is a Good ROAS?

The answer to one of the most popular marketer’s questions — what is a good ROAS? There is no one-size-fits-all answer, as it is influenced by factors such as industry, business model and ad platform. Yet, this is what you could consider as a general guide for ROAS:

• 1:1 ROAS – Cost-neutral (not profitable)

• ROAS lower than 2:1 — the bare minimum to pay costs and overheads.

• 3:1 ROAS – A good return for many businesses;

• 4:1 ROAS and Above – Great profitability with low ad spend cost

Factors That Influence ROAS

Here are a few things that can influence your ROAS:

• Competitive Landscape

A higher ROAS than is needed for profitability may be required in highly competitive industries.If an ad is well-targeted, you will notice better results in terms of Ad Quality & Relevance.

• Landing Page Experience

A well optimised landing page can help you in achieving better conversion rates which means higher ROAS.

• High CLV

Lower first ROAS that your business can tolerate

• Ad Platform and Bidding Strategy

Different platforms for ads (Google and others) provide diversified return on an investment.

Enhancing ROAS in your Digital Marketing

If you want to optimize your digital marketing to maximize your ROAS, here are a few tactics you could employ:

• Optimize Ad Targeting

You could just make ads better fit for the audience so ads will reach the right people & conversion rates & ROAS will increase.

• Improve Ad Copy and Creatives

Compelling ads get more users to act, increasing ROAS.

• Utilize A/B Testing

Testing different ad copy, headlines and CTAs to see what works best.

• Prioritize Top-Performing Channels

Instead, use data to help you decide how to allocate your budget across the advertising channels that will deliver the best results.

• Improve your Landing Page Experience

Optimizing for speed and usability with simple CTAs can go a long way in increasing conversions.

• Adjust Bidding Strategies

Smart bidding strategies such as Target ROAS in Google Ads need to be used to optimize your ad spend per each channel.

ROAS and ROI: The Difference Explained

Digital marketing uses ROAS to highlight the money made from advertising costs, whereas ROI factors in all costs associated with business such as overhead, and product price points. Although ROI indicates overall profitability, ROAS specifically gauges ad efficiency.

Conclusion: What Is ROAS & What Is a Good ROAS in Digital Marketing?

Read on for the importance of ROAS for your business and how to get ROAS as high as possible in your online marketing. Although what constitutes a good ROAS in an industry varies, the goal is always to achieve a high ROAS to be profitable in ad spend. With this information, businesses can adjust their targeting to enhance their ROAS, optimizing ad creatives and creating better landing page experiences.