One of the best ways to improve your advertising performance is to know what metrics to track. Some metrics only tell you when your ad copy is driving awareness. Others tell you about traffic to your website. But the most important metric you can track is return on ad spend.
This metric tells you how successful your campaign really is. It tells you how much money your campaigns generate.
Return on ad spend is a better metric than cost per conversion because it looks at the total value of a customer and not just the value of their first order from the ad.
What is Return on Ad Spend (ROAS)?
Calculating return on ad spend will tell you the value that a specific ad or campaign brings in for you. Generally, marketers use a ratio for describing return on ad spend, such as 5:1. In this example, your company earned $5 for every $1 you spent on ads.
There’s some flexibility in how you calculate return on investment. You can include several ads, one ad or multiple ad campaigns in your calculation.
For example, you might measure a new blogging partnership that includes multiple sponsored posts. But the return on ad spend doesn’t look at all blogging partnerships. It’s looking at one specific one.
One of the great aspects of return on ad spend is that it is holistic over time and not just the initial order from a customer.
How to Calculate Return on Ad Spend
To calculate return on ad spend, you simply divide the campaign’s total revenue by the money you spent on the ad campaign.
For example, if you spent $500 on ads and generated $1,000, your return on investment would be 2:1.
Before completing this calculation, you need to know the total cost of the campaign. Don’t forget the expenses outside of what you spent to get traffic to your website. Here’s a look at some of the expenses that you should factor into your return on ad spend calculation.
- Vendor expenses: such as designers, writers, etc.
- Salary: in-house employees who run your campaigns
- Commissions: some advertisers pay affiliate commissions to earn traffic
- Overhead: the cost of equipment your marketing team uses
How Do I Know What a Good Ratio Is?
Good return on ad spend will vary based on your campaign. And be careful comparing your ratio to that of other businesses because the return on ad spend will differ from business to business.
If your goal in advertising is awareness, you might see a low ratio. But the big goal for your ratio is 4:1. However, know that a 2:1 ratio is considered average.
Keep in mind that return on ad spend is not a metric you can use on its own. You should consider all statistics available to you to optimize your marketing budget.
Ways to Improve Your Return on Ad Spend
All ad campaigns need regular optimization. You cannot set up an ad and then just leave it. Instead, you need to be sure you’re constantly optimizing it. If you’re not happy with an ad’s results, here are ways to improve your return on investment instead of just scrapping the entire campaign.
- Change ad placement: different ad placements can perform differently based on the ad and the ad goals.
- Adjust your audience targeting: get as specific and local in your marketing as you can. This will help you reach your specific audience.
- Refine keywords: don’t go too broad in your keywords and terms for your ad. Instead, get really focused to improve your conversions and return on ad spend.
- Consider outside factors: sometimes the ad isn’t the problem. Perhaps your website is causing visitors to bounce quickly. Or, your product is priced too low to where it has no customer acquisition costs built in. Review metrics like cart abandonment and other outside metrics to look for opportunities.
Expert PPC Agency Assistance
On the surface, it looks easy and simple to manage ad campaigns. But in reality, getting the most out of them means bringing in the experts. We won’t allow you to be fooled by vanity metrics that don’t tell the whole story. New Light Digital is a PPC agency that helps you increase conversions while decreasing expenses. Get a free quote for more information.