Understanding KPIs: What Is a Good ROAS?

As a business owner, you know that advertising is a crucial component of achieving success. However, with limited resources, it’s important to maximize your advertising budget to ensure you’re getting the most bang for your buck. Enter ROAS – return on advertising spend. ROAS is a metric used to measure the effectiveness of your advertising campaigns by calculating the revenue generated by your ad spend. Understanding and achieving a good ROAS is essential to optimizing your advertising budget and ensuring your business is profitable.

In this article, we’ll explore the ins and outs of ROAS, what a good ROAS looks like, what factors affect your ROAS and what common mistakes you have to avoid. By the end of this article, you’ll have a solid understanding of how to achieve a good ROAS for your business. Ready? Let’s dive in!

What is ROAS and how to calculate it?

ROAS, or return on advertising spend, is a metric that measures the revenue generated by your advertising spend. 

The formula for calculating ROAS is relatively simple:

ROAS = Revenue from Advertising / Cost of Advertising

For example, if you spent $1,000 on advertising and generated $5,000 in revenue from those ads, your ROAS would be 5. This means that for every dollar you spent on advertising, you earned $5 in revenue.

It’s important to note that you need to track both the revenue generated from your advertising efforts and the cost of those efforts. This requires careful tracking and analysis of your advertising campaigns. 

The total revenue generated from an ad campaign includes all revenue, not just direct sales. It should include any increase in brand awareness, website traffic, leads, or any other type of revenue that can be attributed to the ad campaign.

The cost of the ad campaign should include all expenses associated with running the ad, such as the cost of the ad itself, any setup fees, and any other related costs.

Why is ROAS important?

The ROAS metric is important because it helps you understand the effectiveness of your advertising campaigns and whether you’re getting a good return on your investment. Essentially, ROAS allows you to determine how much revenue you’re generating for each dollar spent on advertising.

Monitoring ROAS is crucial because it helps you make informed decisions about your advertising budget. By understanding your ROAS, you can determine which campaigns are generating the most revenue and optimize your budget accordingly. This can help you maximize your advertising budget and increase your overall profitability.

What is a good ROAS?

The answer to this question depends on your industry, business model, and advertising goals. Generally speaking, a good ROAS is one that is higher than your breakeven point. Your breakeven point is the point where your revenue from advertising equals your advertising spend.

For example, if your breakeven point is $3 for every $1 spent on advertising, a good ROAS would be anything above $3. Ideally, you want your ROAS to be as high as possible, but once again, this will depend on your business goals and budget.

If you want to have a good ROAS, you have to benchmark your ROAS against industry standards and adjust your advertising budget accordingly. But at first, make sure you’ve considered the factors that affect ROAS.

Want to know how to tweak other metrics? Check out how to improve your AOV, COGS, Time Between Purchases, and New vs Returning Customers in our expert articles.

Factors that affect ROAS

There are several factors that can affect your ROAS, including:

1. Target audience

Your target audience plays a significant role in determining your ROAS. If you’re targeting the wrong audience, your advertising campaigns will be less effective, and your ROAS will suffer. It’s important to understand your target audience and tailor your advertising campaigns to their needs and preferences.

2. Advertising channel

Different advertising channels have different ROAS benchmarks. For example, Google Ads typically have a higher ROAS than Facebook Ads. Evaluate and understand the strengths and weaknesses of each advertising channel and optimize your budget accordingly.

3. Ad copy and creative

Your ad copy and creative can significantly impact your ROAS. A well-crafted ad that resonates with your target audience can generate higher revenue and increase your ROAS. Test different ad copies and creatives to determine what works best for your audience.

4. Landing page

Your landing page is the first page a user sees after clicking on your ad. A poorly designed landing page can lead to a high bounce rate and low conversion rate, decreasing your ROAS. It’s important to optimize your landing page for conversions to maximize your ROAS.

5. Competition

Your competition can impact your ROAS by increasing the cost of advertising. If your competitors are bidding on the same keywords or targeting the same audience, it can drive up the cost of advertising, decreasing your ROAS. Monitor your competition, adjust your advertising strategy accordingly to make sure you’re using the right marketing techniques to increase your sales.

Common mistakes to avoid when calculating ROAS

When calculating ROAS, there are several common mistakes to avoid, including:

1. Failing to track conversions

Tracking conversions is essential to calculating ROAS. Without accurate conversion tracking, you won’t be able to accurately measure the revenue generated by your advertising campaigns.

2. Not factoring in all costs

When calculating ROAS, it’s important to factor in all costs, including advertising spend, production costs, and other expenses. Failing to do so can lead to an inaccurate ROAS calculation.

3. Not adjusting for seasonality

Seasonality can significantly impact your ROAS. Failing to adjust your ROAS calculation for seasonality can lead to inaccurate results.

4. Setting unrealistic goals

Setting unrealistic ROAS goals can lead to disappointment and frustration. It’s important to set realistic goals based on industry benchmarks and your advertising budget.

5. Failing to optimize campaigns

Optimizing your campaigns is essential to achieving a high ROAS. Failing to optimize your campaigns can lead to a lower ROAS and decreased profitability.

Conclusion and next steps for achieving a good ROAS

Achieving a good ROAS is essential to maximizing your advertising budget and ensuring your business is profitable. Once you understand the factors that affect ROAS, and learn to avoid common mistakes, you can tweak your strategies.

Maximizing your advertising budget with a good ROAS involves understanding your target audience, optimizing your campaigns, and monitoring your metrics. By focusing on these key areas, you can ensure that your advertising campaigns are generating a good return on investment and increasing your overall profitability. How can you do that? The answer is simple – use the right software.

If you’re tired of juggling multiple applications to monitor all key metrics important for your business, try Synder Business Insights – automated analytics tool that connects all your channels in use in one ecosystem and provides you with powerful insights into your sales, product and customer performance. All of it on a single dashboard with useful KPI reports. 

Check out what Synder Business Insights offers out of the box during a 15-day free trial, or book office hours to explore the tool in action with our specialist. Supercharge the growth of your business with automated software!