In the world of digital marketing, there are countless ways to measure ad spend. For example, many brands focus on return on investment (ROI) or cost per action (CPA) as a gauge of how well their campaigns are working, but are these metrics really the best ones? In the place of these and other approaches, there’s been an increased focus on measuring return on ad spend (RoAS) as a means of getting to the core of a campaign’s success.
Before diving into the logistics of applying RoAS, it’s important to understand how it differs from other measurements. On the surface, calculating RoAS is simple – you just divide revenue by total advertising costs. This is a quick way of determining whether the money and, by extension the effort, committed to a campaign is generating the hoped-for results. It’s important for businesses to look at this metric early on in a campaign’s cycle because you don’t want to continue committing funding to a strategy that isn’t working.
Of all the metrics available to companies for evaluating campaign effectiveness, RoAS is the most similar to ROI. While ROI represents the value of any type of investment, RoAS is only a measure of ad spend. And so, while a good ROI will vary depending on the type of investment in play and maybe as low as 5-20% – essentially making any profit – a good RoAS is typically around 400%. Business that want to maximize RoAS, then, might use this value as a guideline for evaluating a given campaign, but ultimately it’s important to set goals that make sense for your company and each individual project.
One of the major advantages of RoAS compared to other metrics is that it excludes less productive aspects of a campaign in favour of income-generating engagement. So, for example, it ignores non-converting clicks which, though they may indicate interest, don’t actually yield financial benefits. In this way, RoAS offers a reality check, weeding out campaigns that make good funnels or only produce irrelevant clicks.
Optimizing For RoAS
It’s important to measure a range of KPIs to get a clear picture of what campaigns are performing most effectively, but if your goal is to get the most out of an ad campaign based on RoAS, then there are several steps you should take.
First, it’s important to consider where you’re advertising and what the costs associated with those venues are. Businesses that choose to advertise on Facebook need to consider that any proposed campaign must go through the platform’s ad auction process, which can make it a more expensive venue. That being said, Facebook also offers a large, vital audience, so even if it’s more expensive, it may generate a higher RoAS than a smaller, less vibrant platform.
Another way to optimize your RoAS campaigns is by choosing the right advertising style. Video ads may cost more to produce than other ad styles, they also generate more shares and sales than text- or image-based ads. Even if it seems out of reach, small businesses can benefit from committing a significant portion of their ad budget to video product.
One of the biggest challenges facing businesses today is that they don’t target or measure ad campaigns effectively. This drives down RoAS and leaves businesses in a precarious position. By learning to calculate and interpret campaign KPIs more effectively companies can drive profits and see results well beyond current levels – and it all starts with making sense of those numbers.