Return on Ad Spend tells you the revenue you generate based on the amount of money you spend on your campaigns. It’s an essential metric for determining whether you are putting your advertising budget into efforts that give you the return you expect, and whether you need to change your tactics to improve this number.
Your CPA focuses entirely on the cost it takes to acquire a customer, so you end up with a metric that’s very focused on that area. RoAS takes a broader approach that factors in different customer values. You get a big picture view from RoAS that works well when you’re optimizing your advertising strategy and individual campaigns.
You analyze RoAS by looking at two data points: the ad source that new customers are coming from and how much each new customer is worth. Online advertising platforms and analytic solutions often have this report built in and support for budgeting based on the RoAS.
The ROAS calculation is the revenue minus the cost, which is then divided by the cost. One thing to keep in mind when calculating the RoAS is to keep your cost as pure as possible. You only want the expenses directly related to the advertising cost. Indirect and incremental costs, such as shipping, should not factor into this calculation as it can skew the results.
While RoAS typically gets associated with online advertising campaigns, you can also use this metric for offline or integrated efforts as well. It’s more difficult to attribute and track conversions when you have multiple offline channels, but it’s doable. For example, using custom URLs associated with each offline advertising campaign and putting a call tracking solution in place can give you better visibility over those channels.
There’s no “right” answer to this question. Anything higher than a “1.00” puts you above the break-even point.
When you make changes to your advertising campaigns or create a new one, the RoAS gives you a good gauge to see whether you need to make changes. You can find the efforts that give you the best RoAS and begin analyzing the characteristics that lead to their success.
Over time, you learn what a “good” RoAS value is for your organization, so you can continually work on optimizing your advertising campaigns to get more out of your ad spending.
RoAS also promotes experimentation, since you can use it to quickly evaluate whether a new approach is going to generate the necessary results. Expanding to a new advertising channel or using a fresh style for your campaigns are risky, but you can manage it when you have a flexible metric like RoAS to reference.
ROAS provides your company with valuable information to assess the effectiveness of your advertising campaigns. When you sign up with SourceKnowledge, we allow you to set your own target RoAS as well as other key metrics for your shopping campaign.
July 2, 2019
Marketing, Performance, The Winning Curve