Return on Ad Spend or ROAS is one of the key metrics that has been underused by marketers since its conception. This could be a costly mistake in 2024. In this comprehensive guide, we will explain what ROAS is, its importance in the current marketing landscape and why you cannot afford to ignore it in 2024.
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What Is ROAS?
ROAS is a significant key performance indicator (KPI) in digital marketing. It denotes the revenue earned for every dollar spent on a marketing campaign. Based on the principle of return on investment (ROI), it highlights the profit earned for each ad expense and can be effectively measured on a high as well as on a minute level.
ROAS is a crucial marketing measure for mobile applications to determine the strategic success in advertising in terms of a whole marketing strategy or to simply track the performance of a specific ad campaign.
How To Calculate ROAS?
The main formula for calculating return on ad spend is:
ROAS = revenue (total income from ad) / Cost (total ads spend).
ROAS is shown as a ratio; the higher the ratio, the better the ad campaigns perform.
Example: Say you invested $1000 in ad spend for a said marketing campaign that resulted in $4000 in revenue for your mobile application. Your ROAS would be 4: 1 meaning for every dollar you spent, you made $4 in overall revenue. Your calculation should be as follows:
$4000 (revenue)/$1000 (ad spend) = $4 or 4: 1 (ROAS)
Why Is ROAS Important For Your Business?
ROAS comes in very handy for business owners and marketers who need to keep track of every dollar spent on ad marketing campaigns. ROAS provides you with a shortcut method to track the success or failure of your ad campaign.
It is not an easy task to keep track of which channels are performing better using your marketing efforts. By tracking your ROAS metrics across different digital channels such as Google and social media, businesses can track their efforts within minutes.
You can also track if you are losing or making money and whether your marketing efforts are reaching the right audience. You can then focus on key areas of improvement and boost your success.
Best Practices To Improve Your ROAS
A marketer’s main goal is to boost conversions and increase revenues. Let’s check out how you can improve your overall ROAS:
(i) Set Benchmarks
Find out what qualifies as good ROAS and then set a benchmark. Knowing your baseline for each marketing channel and ad campaign can showcase where you have been successful and areas for improvement. Successful ad campaigns can also act as a model for future successful campaigns.
(ii) Try, Test, Learn
Achieving a good ROAS depends on varying factors. Hence, testing which creatives, campaigns, and channels deliver the best results from the most valuable users is key.
The best way to test and learn the success of your ad campaigns is by using A/B testing to experiment with different placements, targeting strategies, and creatives.
(iii) Optimize Your Landing Pages
Noticing that your ads are getting plenty of clicks, but the overall ROAS remains incredibly low? This might be due to not having your landing pages optimized for a seamless user experience.
As a business, look at your landing page. Is your website landing page crisp, clear, and engaging for your users? Is the look and feel of your page aligned with your ad efforts? Does your page load fast? Do you have clear calls to action plans?
There are many ways you can keep your users engaged and help them move smoothly through their purchasing journey.
(iv) Lower The Cost Of Your Advertisement
One obvious but important point marketers need to remember is to get more return on your overall ad spend, you need to reduce the expenditure of your ad spend. This can be done by improving your quality score. A better-quality score results in higher-ranking ads and hence attributes to a lower cost per click.
Keywords are also known to affect total Cost. Instead of primarily aiming for popular terms, look for relevant long-tail keywords related to the targeted niche.
Negative keywords can also be introduced to help exclude users looking for similar items but not the exact ones.
For instance, if your shopping app has a summer deal for sunglasses. You can exclude users who are searching for summer scarves, as they are likely to ignore your ad and dwindle your CTR. Worse, users can click on your ad and bounce after they realize the product is not relevant to them. This would in turn cost you more money for the click and leave you with no cost in return.
(v) Know Your Audience
Carry out intense customer research to understand who your ideal customers are, what they are interested in, and when they are online.
For example, if you know adults who follow food content on Facebook, they would be interested in your recipe app. By intricately aligning your brand’s message to your audience, you’ll have better conversions and will not waste time on the wrong channels.
(vi) Use Predictive Analysis
In ROAS optimization, knowing how your users monetize throughout their lives using your app can be a game changer. By correlating early actions in the funnel with future monetization tactics, you can effectively improve your ROAS.
For instance, if you find that users who have completed level 15 of your game within the first 24 hours are likely to make in-app purchases, you can use this information to effectively optimize your ad campaign after a day. This can be done smoothly without waiting for more signals later in the funnel. This way, you can meet your revenue targets and cut waste.
Concluding Remarks
ROAS is amongst the key metrics for marketers. Having high-value users is of no use if you paid more to acquire them than the amount, they spent in your app. Good ROAS depends on your business and the platform you are using, however, with the right tricks you can master the ROAS game. So, unleash the power of ROAS in your marketing efforts and watch your business thrive.
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