How to optimize your advertising budget and improve ROAS
January 07, 2022
You’re putting money into your digital advertising — and that’s great — but are you spending smartly or just throwing money at your ads in hopes of seeing a return? If you’re not sure what your return on ad spend (ROAS) is and how it’s been trending for your business, we can help!
What is ROAS?
If you’re not yet tracking the ROAS of your digital marketing, it’s a key measure of the effectiveness of your digital advertising campaigns. ROAS, simply put, is the measure of how much money you earned on a digital advertising campaign vs. how much money you spent on that same campaign — or, revenue divided by cost. Because a higher ROAS means you’re earning more money on every dollar spent on advertising, the higher the ROAS, the better.
ROAS = total campaign revenue/total campaign cost
If you’re already tracking ROAS or just getting started, you might be wondering what a “good” ROAS is. There’s not one answer for every company, and average ROAS can vary widely by industry, but as a rule of thumb, 3:1 to 5:1 is considered a good ROAS. In e-commerce, however, a better benchmark might be 4:1, meaning that you generate $4 in revenue from every $1 you spend on advertising.
If you’ve already run a couple of digital marketing campaigns for your business, you can take a look at the results you’ve seen to give yourself an internal benchmark. If you see the ROAS of your campaigns going up over time, this is a great sign that you’re already optimizing your campaigns and choosing the right advertising platforms. If, however, you’re seeing ROAS decrease over time, then you’ll want to look at improving your ROAS — after all, the higher the ROAS, the more money to your bottom line. So, let’s get to it — how can you improve your ROAS performance?
How to improve your ROAS
Improving your ROAS has innumerable benefits, from making more money to justifying your advertising budgets to building a more loyal customer base. But increasing ROAS is easier said than done, and this is why so many companies struggle to streamline their advertising and increase their ROAS. There are a few tried and true techniques to improving your ROAS, which can be broken down into three categories: channels, conversions, and the ads themselves.
Test your digital advertising channels
Not all advertising channels are created equal, and you’ll often find discrepancies within the audience of each channel. If you’re selling a product targeted at those aged 50-75, you might not want to advertise on a platform more popular with young people, like TikTok. Choosing the right advertising channels is absolutely crucial to the success of your digital marketing campaigns, and this can become a difficult task due to the number of channels available to you. But it’s important to remember that online advertising isn’t a “set it and forget it” channel, so if you plan to run successful campaigns, you should be prepared to be continuously testing and tweaking your campaigns.
We all know about the big players in the market like Google Ads and Facebook, but if you’re new to online advertising, you might not know about the other platforms that could be the key to increasing your ROAS. The first step to choosing a platform is to research the demographic data of a few platforms’ users and see how they relate to your target audience. What’s most important to your company? Is it, for example, age and gender or maybe location and race? Using this information, narrow down your list of platforms based on their user types. Depending on your budget, select 2 or 3 platforms to test, make sure you’ve got analytics set up, and then run a campaign on those platforms.
Once your campaign is complete, it’s time to look at how those ads performed by platform. Vanity metrics such as “likes” or “comments” can be considered, but more importantly, you’ll want to look at the number of conversions from your ads, and how much it cost you to display the ad on that platform. Now you can calculate your ROAS (remember, it’s revenue divided by cost) and take note of which platform provided you the highest ROAS. into those that give you a high ROAS. As you do this, you can also test apps and platforms that are similar to those where you’re seeing success.
Track your conversions
Tracking conversions is paramount to improving your ROAS, but it’s important to look at conversions by ad channel. If you’re just tracking overall conversions regardless of which channel they came from, you’re only really getting a macro look at how your advertising is performing. It’s great if your ROAS is 5:1, but what if we zoom in and you’re just seeing ROAS of 1:1 on some platforms and up to 7:1 on others?
This is where it becomes important to track conversions by platform. The good news is that most online advertising platforms allow in-app purchases, which makes it even easier to track which conversions came from where. The truth is that tracking conversions and testing channels go hand in hand, so conversion tracking should be an ongoing process for your marketing team.
You’ll want to track conversions not only on a campaign basis, but also overall by platform. You should consider having a monthly or quarterly review where you compare ROAS by platform and campaign. This will help to keep ROAS top of mind and can be a chance to dive deeper into the data. If one platform is seeing high conversion but low ROAS, it might be a sign that this platform is bringing you lower-value customers, that is, customers that bring down your AOV.
As I said, testing channels and tracking conversions isn’t a one-time thing, but something that should be constantly evolving. Don’t be discouraged if your first few tactics fall flat — the more you test and try, the more successful you’ll be.
Make your ads better
This seems like an obvious one, but it’s easy to overlook your ads themselves when focusing on the more technical aspects of testing and optimizing for conversion and ROAS. Choosing the right channels and optimizing for conversions are very important, but so is the look and feel of your ads. Compelling, consistent copy, great design, and a mobile-first approach are a few of the key elements to consider while optimizing your ads.
Craft compelling copy
You want your copy to be both compelling and consistent, meaning that your ad copy itself should be eye-catching and the messaging you use on your ads should be consistent along the customer journey. You can employ customer reviews or any media coverage you may have received in order to draw users’ attention to your ads. For example, instead of saying:
- “We have the best socks on the market.”
- “You’ll love these socks!”
Try using a customer review or a media quote to add more weight to your claims:
- “These are the best socks I’ve ever owned!” — Mark G.
- “The best sock brand you haven’t heard of yet.” — Fast Company
You can also play with different emotions in your ad copy, for example testing urgency or gratitude for a sale:
- “Only 24 hours until this sale ends forever.”
- “25% off is just our way of saying thanks.”
As for the consistency of your copy, you want to make sure the copy you’re testing in your ads is reflective of the copy you’re using on your website and landing pages. If your ad says, “The best sale of the year”, but your landing page says, “Cyber Monday Sale”, your customers may feel confused and become more likely to bounce. If you plan to test new copy on your ads, make sure this copy is reflected in your landing page to avoid this scenario.
Double down on design
The same can be said for the design of your ads — keep them consistent with your brand. A customer will also be more likely to bounce if your ad looks completely different from your landing page or website. Keep your advertising on-brand to ensure you don’t alienate your customer base with your advertising.
As for the best designs? Keep it simple as to not overwhelm your audience. Stick to your brand colors and use similar imagery or iconography across your ads and landing pages to ensure a seamless customer experience. As with copy, testing designs is important, so feel free to test different designs, images, and styles to see what best resonates with your audience.
Fine-tune the tech
In terms of technology, you want to ensure that your website is optimized for mobile and has a quick load time. If you’re unsure of where your website stands in terms of mobile optimization, Google’s Mobile-Friendly Test is a great resource that can be used for specific landing pages.
In addition to ensuring that your pages are mobile-friendly, you want to ensure that your site loads quickly. Website loading times are one contributor to your conversion rate, so it’s important your website loads as quickly as possible. If your loading time goes from 1 second to 3, the probability of a user bouncing goes up by 32%, and if it goes from 1 to 5 seconds, that probability shoots to 90%.
Optimizing imagery, enabling compression, and reducing redirects are all great starting points in your journey to reduce your loading time. This useful guide from Moz includes a deeper dive into how to improve your site loading speed.
Go forth and test, test, test
Now that you’ve got a plan of attack for improving your ROAS, it’s time to employ some of these tactics. Improving ROAS isn’t a one-and-done project, but something you’ll be constantly tweaking and working on over the lifetime of your business. Look at this journey as an ongoing test to improve your ROAS. Test each individual element — from copy and design to which channels you’re using and how your site is run for improved site performance. With these key factors in mind, you’ll be well on your way to improving your ROAS and running your most successful advertising campaigns yet.
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