What is return on ad spend (ROAS)?

Have you ever wondered how much bang you're getting for your buck with advertising? That's where return on ad spend, or ROAS, comes in. It's a handy way for marketers to measure how much revenue their advertising campaigns are generating.

How to calculate return on ad spend

ROAS tells you how much money you're making for every dollar you spend on ads. So, if you spend $100 on an ad campaign and it brings in $200 in sales, you'd have a ROAS of 2.

It’s important to remember that ROAS should not be confused with ROI, which is the ratio between your net income and your total investment. Here’s how to calculate both ROAS and ROI:

What is a good ROAS?

While a 4:1 ROAS is often considered a benchmark, meaning you earn $4 for every $1 spent on advertising, the ideal ROAS actually depends on your business. Some companies can thrive with a lower return, while others might need a higher ratio to cover their costs and make a profit. The average ROAS across industries sits around 2:1, which translates to $2 in revenue for every $1 spent on ads.

Interested in the average ROAS by channel? You can find a full overview here.

6 strategies to optimize your return on ad spend

No matter where you advertise, from Facebook or Instagram to Google's platforms, the key to boosting your ROAS is crafting high-performing ads. The more compelling your ads are, the more likely they are to convert and drive revenue.

Here are 6 ways you can improve your ROAS:

1. Promote discounts and incentives in your ads

By showcasing a clear discount (such as "10% off" or "Buy One, Get One Free") you immediately address price concerns, a common hurdle in the buying journey. This makes your product more attractive and entices potential customers to purchase.

Promoting incentives like "Free Shipping" or "Free Returns" also help to eliminate potential roadblocks and add perceived value to your product. Customers are more likely to convert when they feel they're getting a good deal and minimizing risk. By including promotions and incentives into your ad creatives, you can significantly increase your ad's effectiveness, drive conversions, and ultimately optimize your return on ad spend.

2. Think mobile first

In the age of smartphones, neglecting mobile shoppers is like leaving money on the table – literally. That’s because over half of global web traffic is from mobile devices. Your mobile site should have clear, intuitive navigation, lightning-fast loading speeds, and high-quality product images with close-ups and even 360° product views.

Additionally, make sure that your checkout process on mobile is as seamless as possible. Minimize form fields by collecting only essential information. Offer guest checkout options for speed and convenience, and integrate popular mobile wallets like Apple Pay and Google Pay. Streamlining the entire process from product selection to purchase can go a long way to boosting your ROAS.

3. Use negative keywords

Negative keywords act as filters, preventing your ads from appearing in searches that are irrelevant to your products. By excluding irrelevant searches, you avoid spending your budget on clicks that won't convert.

Negative keywords also allow your ads to appear for more targeted searches, increasing their relevance to potential customers. This leads to a higher click-through rate (CTR) as your ads resonate more with viewers.

4. Tailor your landing page to your ads

Clicking on your PPC ad is just the first step in the customer journey. The landing page is where you'll seal the deal and convert that potential customer into a paying customer. If your ad features running shoes, direct people to the product page. If you’re promoting a sale, make sure to send visitors to a landing page with details about the sale.

While there's no one-size-fits-all approach to creating a great landing page, there are certain elements that consistently resonate with potential customers. Make sure that your landing page is relevant to the ad’s messaging, keep it simple with high-quality imagery, and include social proof and a clear call to action.

5. Run dynamic ad campaigns

Dynamic ads, also known as dynamic banners or dynamic creatives, are ads that automatically tailor your ad content to each individual shopper. Google’s Dynamic Search Ads automatically generate ads based on the content of your website and the user’s search query. Meta’s Dynamic Product Ads display products from your catalog based on a user's browsing behavior, interests, and demographics.

Dynamic ads deliver the most relevant and personalized messaging to interested shoppers. As this increases the relevance of the ad, it’s more likely to capture attention and drive conversions, ultimately squeezing more value out of every advertising dollar spent.

6. Improve your ad quality score

Both Google Ads and Meta Ads offer valuable insights into your ad quality score. This score indicates how relevant your ad is to a user's search query and predicts how likely they are to click on it. A higher quality score leads to increased ad visibility, enhanced click-through rates, and allows you to maximize your return on ad spend.

Google considers factors like ad relevance to keywords, landing page relevance, and your historical click-through rate (CTR). Meta focuses on relevance between your ad, audience targeting, and the overall user experience, including potential landing page engagement.

Conclusion

ROAS is one of the most important metrics for any advertiser. Instead of relying on hunches or vague metrics, ROAS gives you a clear picture of your advertising performance. You can see exactly how much revenue each ad dollar generates, eliminating the guesswork and helping you focus on what's truly working for your campaigns.

Now you should be well equipped with the knowledge to calculate your ROAS and put these 7 strategies into action. Remember, optimizing your campaigns is an ongoing process. Keep testing, analyzing, and refining your approach to see those ROAS numbers climb.