How to Calculate ROAS (+4 ROAS Boosters)

how to calculate roas

If you’re just starting eCommerce marketing, you must ensure that your overall strategy is in place. And one important thing to begin with is your ROAS, knowing how to calculate it, and what you can do to increase it!

That’s exactly why I’m going to explain how you can use four strategies for long-term ROAS improvement.

But first, you must begin by understanding: what is ROAS?

Table of Contents

What Is ROAS?

ROAS, which stands for Return On Advertising Spend, is a popular marketing metric in the PPC industry.

It is used to measure the effectiveness of an advertising campaign, and it tells you how much money you make from every dollar spent on your ads.

This isn’t rocket science, it can be used by any advertiser that wishes to take a more proactive approach in their PPC efforts. 

Several platforms, such as Google Ads and Facebook, calculate your ROAS for you. On Google Ads, this is typically displayed as “Conversion Value / Cost.” And on Facebook, it’s displayed as “Purchase ROAS.”

But with a plethora of data at your fingertips, your ROAS is easy to calculate by yourself, and once you do, it will give you a clear idea of the bigger picture!

The ROAS Formula

The process of calculating ROAS is relatively straightforward. It has a pretty simple formula, and it’s easy to understand.

All you have to do is divide the value that you get from your revenue by the money you spend on advertising. To sum this up, you should get a formula that looks like this:

roas formula

The result you get can either be presented as a percentage, ratio or cash amount.

So, the higher the ROAS, the more the company profits from its marketing efforts! 

While this number does have its flaws, the consensus is that the higher the return is, the more effective your digital advertising campaign is.

To explain things in more detail, let’s see this in action.

Let’s say you spent $1,000 on ads in one month and generated $2000 in revenue. This is a 200% return, or 2:1. In other words, you get two dollars for every dollar you put in. 

The same $1000 investment in ad spend returns $5000 the following month; therefore, you now have a 500% return, or 5:1.

The formula is extremely simple, so you don’t need to be an expert to understand it and calculate your ROAS on your own!

ROI VS ROAS Difference

When calculating ROAS, it’s crucial to remember that ROAS and ROI, or return on investment, are not the same thing.

Both ROI and ROAS are numerical profit indicators, making them very similar to each other. But they do function differently and show different things. And, of course, they both require a different formula to calculate!

Using ROAS, advertisers can measure the effectiveness of their digital marketing campaigns. Every dollar spent on advertising is directly compared to the gross revenue generated from it. 

The ROI metric, on the other hand, accounts for expenses, ad costs and other expenditures, as well as what you spend on advertisements. 

ROAS indicates the return on advertising investment, whereas ROI indicates the amount of money invested in a process overall. 

ROI VS ROAS Difference

Here’s a quick tip you can use: your ROI is equal to your ROAS minus one. For instance, a ROI of 4 is equivalent to a ROAS of 5.

These calculations help get a quick understanding of the numbers of dollars made, versus dollars spent. But no ROAS or ROI figure guarantees profitability for everyone’s ad account. 

While ROAS is a simple ratio of earnings and expenses, you may prefer ROI to better understand your earnings after costs. You might wonder, what is the use of knowing your ROAS?

ROAS Importance for Ecommerce Brands

There is a strong correlation between ROAS and ad spend in the world of eCommerce.

Although not a predictor of business trends, ROAS is a crucial metric for marketing teams to assess the effectiveness of advertising campaigns.

Firstly, it creates a great baseline against which you can compare your future ad spending. 

ROAS also provides you with a monetary number that represents the typical performance of your advertising campaigns. Your marketing campaign’s effectiveness is quantified by a precise number.

From this point on, you can use ROAS to support increasing your advertising budget and identify profitable and effective advertising campaigns that you can then duplicate or further enhance.

You must ensure that your advertising campaigns are successful at bringing in sales and that your advertising budget is effectively being used—if you want to run an efficient eCommerce ad campaign and maximize your ROAS. 

You can achieve this by optimizing your campaign settings, targeting the appropriate audience and testing various ad formats. In order to make the necessary adjustments, you should track your results and evaluate what is and what isn’t working for your brand.

A consistently rising ROAS over time is a sign of successful marketing communication! 

Therefore, maintaining a high ROAS to put your eCommerce brand in the best possible position for future growth is crucial.

ROAS Per Platform

An average ROAS for eCommerce is challenging to determine, because it can vary significantly based on the product that you are selling, the target audience, and the competition. 

Typically, the average ROAS is 2.87, which equals a ratio of 2.87:1 and a return on investment of 287%. This varies slightly across industries, so there is no such thing as “good ROAS.”

Higher ROAS, however, indicates that businesses are producing more revenue from their ads than they are spending on them. In contrast, lower ROAS indicates businesses can do more to convert their advertising expenditures into sales.

In other words, it depends on the industry and platform whether a ROAS ratio is good or not. Most industries consider a ROAS target of 3 or 4 reasonable return targets. 

We’ve gathered some data on the average return on interest across several platforms.

  • Average ROAS for Google Ads: 13.76

Google is a highly effective advertising platform. Because of its large number of users and advanced targeting capabilities, it is an ideal place for reaching out to a diverse variety of possible customers. Additionally, it is an affordable choice for businesses on a tight budget, due to its low cost-per-click (CPC) rates.

  • Average ROAS for Facebook Ads: 10.68

Because Facebook is a popular platform with a large population, it can be an extremely effective way to reach out to potential customers. Advertisers can target specific demographics with their campaigns, and Facebook also provides advanced methods for monitoring and analyzing results.

  • Instagram Ads Average ROAS: 8.83

Instagram can be an effective platform for an advertising campaign. You can aim ads at specific demographics on the app, which has over 800 million users. Instagram provides a variety of creative tools which can create powerful advertisements. However, not every business will succeed on Instagram. Research and confirm your target audience uses the platform before an ad campaign.

  • Average ROAS for Twitter Ads: 2.7

Twitter is a successful advertising platform, but it depends on the campaign’s objectives, overall plan and target market. For instance, Twitter might be a good choice if the aim is to raise brand awareness among the general public. However, other platforms might be more successful if the objective is to increase conversions or sales.

  • Average ROAS for TikTok Ads: 2.5

Some marketers think TikTok’s emphasis on user-generated content results in a user base that is more genuine and engaged, which could lead to higher conversion rates. However, others contend that TikTok videos’ brief length makes it difficult to communicate a strong message and that the app’s young users might not have the purchasing power to affect sales figures significantly.

  • Average ROAS for Amazon Ads: 7.95

If the target market includes customers already knowledgeable about Amazon and its offerings, Amazon can be a valuable platform for running advertising campaigns. Amazon has a reasonably large client base, and these users are frequently very active on the website.

How to Track ROAS

ROAS can provide a lot of information for many eCommerce businesses that are expanding and seeking investors.

And whether you choose to monitor sales, conversions, overall revenue, or leads as the other half of the ROAS equation—it’s entirely up to you. Financial income is typically the most significant factor and is relevant to the ROAS formula.

The best option for tracking these metrics is using well-known tools like Google Analytics!

You can get a more precise idea of your ROAS by seeing how much money a particular ad campaign, keyword or ad brought in.

Monitoring your ad spend won’t be difficult, whether you’re advertising on Facebook, Google, Bing or some other platform!

track your roas data

It’s that easy! Now you can find your ROAS by looking at the “Conv value/cost” column.

Now you might be wondering how often you should check your ROAS. There is no right timing; this is entirely up to you and your needs! If you’re looking at a particular ad, you can track and evaluate your ROAS on a weekly, monthly or even daily basis.

4 Tips to Boost ROAS

To increase your ROAS, you must have a clear strategy and make continual adjustments.

However, this does not imply that your eCommerce store must thrive or perish based on ROAS. Many factors influence this number, and you should not allow these fluctuations to shake you up or your business too much.

You can, however, follow these four crucial steps if you’re looking for ways to boost ROAS and ensure that your spending is making you money.

1 | Increase the content quality and use SEO to compensate for your advertising costs.

Paid advertising puts speed and control in your hands, but investing in SEO can help reduce some advertising costs. 

For instance, if a keyword costs you $3 per click, ranking highly enough organically to receive 100 visits per month could enable you to avoid spending $300 per month on advertising. 

Alternatively, you could simply use this to fuel your growth engine even more! 

Having solid technical SEO and a content strategy that informs and delights your clients are two ways to get started with SEO.

Do your product pages’ title tags match how customers search for products? Are they precise and explanatory?

You should take care of these things with a technical SEO and offer unique detailed content that gives your customers all the info they need to decide whether they should buy your product.

By taking this step, you can work on improving the Quality Score of your ads and your ad copy.

In addition to product pages, your content should cover topics that interest your target audience. For example, customers who only get a transactional experience will eventually switch to a brand that understands their emotions better.

Therefore, providing content related to their needs and what you’re trying to sell is essential in building a connection!

2 | Take Advantage of Email Marketing

Today’s emails will generate money tomorrow! Therefore, email marketing is an excellent way to increase your ROAS.

More than 95% of website visitors won’t make a purchase on their first visit. This immediately reduces your ROAS from visitors who found you through paid social or non-brand search.

Through remarketing, you can entice some of these visitors to come back and create another chance for them to make a purchase. But, this is not the only approach.

Popups that ask for email addresses can help you add another 5–15% of visitors to your mailing lists! Although, more subscribers do not necessarily equal more income, and you still need to send out effective emails. 

Gaining subscribers can help you reduce your advertising expenses by bringing in the subscribers to a list you control, expanding a channel where you don’t have to pay for clicks or opens, and having a channel that allows you to engage with clients long-term.

Not everybody will want to make a purchase from you right away. Most people don’t, in fact, but email marketing lets your customers get to know you over time. Even if it doesn’t happen immediately, gradually turning an additional 5 to 15% of your clicks into clients is the correct way to boost your ROAS!

3 | Improve mobile compatibility and loading speed

The functionality of your website and how quickly it loads are additional factors that can help you increase revenue and sales. This is a factor that builds the experience of your potential customers. 

Make sure that your website is mobile-friendly first, because the majority of people use smartphones today. In today’s world, you are aware that you cannot afford to have a clumsy, non-mobile-responsive website.

The same is true for loading speed. A site that loads slowly will—simply put—cost you. Your visitors are more likely to leave your page quickly if it takes longer to load.

Your ROAS value will probably increase once you address these potential problems!

4 | Create Offerings That Encourage Subscriptions, Referrals and Loyalty

Finally, if you only remember one thing from this post, let it be this: you’ll make more money from loyal customers than you will from trying to win over as many new ones as you can.

Subscriptions provide a way to generate more consistent revenue from current clients. And you can create a subscription without selling anything consumable! Although not everyone will register, your most devoted customers will. And this consistent income will grow over time!

Be creative. Reward the loyalty of your customers!

Another excellent way to benefit from your current customers is through referrals. What happens when you have happy customers who are most likely to recommend you to their friends? Attract more potential high-value clients.

Additionally, loyalty programs make regular customers even more eager to do business with you if you’re willing to go the extra mile. Customers say loyalty programs encourage them to stick with a brand, and 66% admitted they would change their spending habits to maximize the rewards.

Conclusion

So, what is ROAS, really? In a word—opportunity. As you implement paid advertising tactics, ensure you have the rest of your strategy in place to get the full advantages out of your spend.

Get to where you want to be, and then keep working at it. 

If your ROAS isn’t where you want it to be, you can look into improving your existing system or refining your marketing strategy as needed!

And if you are ready to take your business to the next level, consider some of the things listed above!

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