What Is a Good ROAS?
In my last post, I wrote about impressions, which is one of the terms we digital marketers throw around without recognizing that sometimes people have no idea what we’re talking about.
…And I’m back with another: ROAS, or return on ad spend, which is just one of a handful of acronyms digital marketers use with reckless abandon and utter disregard, verging on mild contempt, for audiences, such as CTR, CTA, ROI, CTC, CPA, CLV, and so on and so forth.
Putting aside all jest, in this post I’ll break down what ROAS is and why it matters. I’ll also attempt to estimate an answer to the question, “What is a good ROAS?” and provide some ideas on what you can do to improve it.
First, What Is ROAS?
Before I can talk about why ROAS matters, first let’s talk about what it is and how to calculate it.
First, as I have stated, ROAS stands for return on ad spend. It is one of the most important metrics for you to track for your eCommerce PPC campaigns.
Fortunately, calculating ROAS is actually quite easy. To do so, you need only two numbers. These are revenue from the campaign (what the campaign is making for you) and the total cost you’re putting into the campaign.
Simply put, ROAS = Revenue/Cost.
So let’s say you’re putting $1,000 per month into the campaign, and the campaign has generated $1,200 in revenue. To generate ROAS, divide 1,200 by 1,000, which gives you 1.2. In this instance, the return from the campaign covers all costs and turns a profit of $200.
It should be relatively apparent (not to mention straightforward) why this is an important figure, but to be clear, it shows not only whether you’re covering the costs of the campaign, but how much you’re making (and by what margin) as a percentage.
If you know no other metric associated with your campaign, learn and follow your ROAS. It tells you what you need to know.
So, What Is a Good ROAS?
Frankly, any ROAS over 1 is good. If the ROAS is 1, your campaign is breaking even, which is not great, but once you’ve crossed that threshold, you’re in the black and the campaign is making money.
However, an ROAS of 1.1 is nothing to scream about, nor is an ROAS of 1.2. So what are some better-than-good ROAS figures?
Honestly, there’s no single answer to this. It will vary by industry, what audiences you are targeting, what you sell, and a whole bunch of other factors.
What I can say is this: average ROAS across all industries (according to what I have read and researched) is about 2. If your campaign is covering its costs and earning that much over again in revenue, you’re in a decent spot.
In other words, you’d be making twice what you’re spending on that campaign. Since that’s just average, we can say that an ROAS of 3 or 4 is pretty good, and an ROAS of greater than 4 is abnormally good, even excellent.
The only thing I can say, given the number of moving pieces, is that as long as your ROAS is higher than 1, you’re making money. Anything over 2, which beats the average, is good or better.
Ways to Maximize ROAS
Given what we now know, let’s talk about some things you can do to improve your eCommerce PPC campaign’s ROAS score.
Lower the Overall Ad Cost
Lowering the ad cost is one of the simplest (mathematically, at least) ways to improve ROAS, but I have to say this with a caveat. If you lower the ad cost, ROAS will go up, but you’re not actually making more money. You’re just making more as a percentage of what you spend. So in the long term, this may not be the best way to improve ROAS.
Anyway, some effective ways to lower ad cost are to review your campaign’s keyword list and remove keywords that are costing too much and dragging down your ROAS. You can also try adding new keywords with high volume and low difficulty (and hence low bidding prices), or try to improve your overall quality score.
Optimize Ads and Landing Pages
A better way to improve ROAS is to enhance the performance of the campaign itself by optimizing the ads and landing pages.
Perhaps your ads aren’t converting because ad copy is stale or irrelevant. It has to get attention to get clicks, you know. An ad copy refresh paired with A/B testing may show you where improvements need to be made.
Maybe ad spend is too high as a component of ROAS because you’re paying for clicks that don’t get conversions. Landing pages that are confusing and don’t funnel the user towards the desired action of buying present roadblocks to converting that affect your bottom line. They should be easy to navigate and the checkout button should be easily visible from the moment the page lands without requiring any additional action from the user.
A/B testing, in which you test two sets of ads or strategies concurrently and track results, gives you an ongoing avenue to continuously improve your ad campaign by weeding out underperforming campaigns and variants.
It is one of the most effective ways to improve ROAS because it allows you to catch inefficiencies and filter them out, in the only way possible – through live testing.
Hire a Proven Expert for eCommerce PPC Management Services
Last but not least, you can probably improve ROAS by hiring an eCommerce PPC management services provider with a history of producing results for its clients.
This is especially true if you’re not familiar with PPC and how these metrics all work. Digital marketing experts do. They spend their entire careers poring over these metrics and testing different methods for improving ROAS.
They can likely do it for your business.