In a world where 2.64 billion people are online shoppers, digital advertising has become essential for businesses to reach their target audience and drive sales.1 However, measuring the success of digital ad campaigns can be challenging, especially when determining the profitability of your marketing efforts. That’s why businesses are turning to metrics like Return on Ad Spend (ROAS) and Return on Investment (ROI) to gauge the effectiveness of their campaigns. But what exactly are these metrics, and why are they important?
This article will cover these questions and more! We’ll discuss the differences between ROAS and ROI and how they can be used to make your campaigns more profitable. We will also provide tips on improving your ROAS and ROI, and answer some of the most frequently asked questions about these metrics.
But before we dive into the specifics of ROAS and ROI, it’s important to note that every digital campaign needs an effective landing page to achieve maximum ROI and ROAS. That’s why you should partner with Replo to create a high-converting landing page for your campaigns, especially in the highly competitive Shopify space.
At REPLO, we offer a range of pre-built Shopify landing page templates that are designed to improve user experience, increase conversions, and boost ROAS and ROI. Plus, they are easy to customize and can be up and running in minutes!
So, book a demo with us today and let us help you get the most out of your ROAS and ROI!
Let’s get started!
What Is ROAS?
ROAS stands for Return on Advertising Spend. It's a metric that measures the effectiveness of an advertising campaign by calculating how much revenue you earn for every dollar spent on ads.
This metric is expressed as a percentage and is calculated by dividing the total revenue generated by the total cost of the ad campaign.
How To Calculate ROAS
To calculate ROAS, you'll need to know the cost of your ad campaigns and the total revenue generated from that campaign. Once you have this information, divide your total revenue by the cost of the campaign and multiply it by 100 to get your ROAS percentage.
For example, if an ad campaign generated $100 in revenue and cost $50 to run the campaign, then your ROAS would be 200%. ($100/$50) x 100 = 200%.
What Is ROI?
Return on Investment (ROI) is a metric that measures the profitability of an investment over time. In this case, it's used to measure the profitability of an ad campaign.
It's typically expressed as a percentage and is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and multiplying it by 100.
How To Calculate ROI
First, begin by subtracting the initial cost of the ad campaign from its total value (the revenue generated from the campaign). Then, divide this new number by the cost of the campaign, and multiply it by 100 to get your ROI percentage.
For example, if you spent $1000 on an ad campaign and generated $1200 in revenue, your ROI would be 20%. ($1200 - $1000) / $1000 x 100 = 20%.
Ways To Improve Your ROAS And ROI
There are several ways to improve your ROAS and ROI. By following these strategies, you can ensure that your campaigns are profitable and that you are getting the best return on your investment.
Build, test, and iterate on Shopify without the dev time
Replo has hundreds of templates to help you launch and test new landing pages - without writing a line of code.
Leverage Negative Keywords
Negative keywords tell Google what search queries you don’t want your ad to appear for, allowing you to avoid irrelevant searches and unnecessary clicks. This will help you save money on wasted clicks and improve your ROAS.
Lower Labor Costs
Labor costs such as staff wages, recruitment and training, and other expenses can increase quickly and decrease your ROAS and ROI. To reduce labor costs, consider automating certain tasks or outsourcing them to freelancers or agencies. This will help you save money and maximize your profits.
Narrow The Target Audience
By focusing on a smaller, more specific group of people, you can ensure that your ads are reaching the right people and that you're not wasting your budget on irrelevant impressions. You can do this by segmenting your audience according to their age, gender, location, income level, interests, lifestyle, and values. This will help you get more targeted leads and increase your ROAS and ROI.
Probe Into Issues Unrelated To Your Ads
If you're running a successful ad campaign, take the time to investigate other issues that could be affecting your ROAS and ROI.
For example, could there be an issue with your website's loading speed or user experience that is causing people to leave before they can make a purchase? Or, if you’re running a campaign to promote a new product but customers are not responding to your ads, you may need to dig deeper to understand why.
By probing into issues unrelated to your ads, you can better understand why customers are not responding to your ads and make the necessary changes to improve your ROAS and ROI.
Raise Your Quality Score
Google rewards ads with high Quality Scores by raising their ad rank and providing them with a lower cost per click. A higher Quality Score means your ads are more relevant to your customers and, thus, more likely to be clicked on.
To improve your Quality Score, focus on creating relevant and compelling ad copy, using relevant keywords, and improving your landing page experience.
Remember, with Replo’s help; you can create a high-converting landing page that can improve your Quality Score and boost your ROAS and ROI.
So, book a demo with us today and let us help you get the most out of your digital ad campaigns!
Re-Engage High-Value Users
High-value users are those who have already made a purchase or performed another desired action shortly after seeing your ad. By re-engaging these users, you can ensure they remain loyal customers and improve your ROAS and ROI.
You can do this by re-targeting them with relevant ads, offering them discounts and incentives, or creating loyalty programs. You can also send personalized emails to these customers, reminding them of your product or service. This will help you increase your ROI and build a long-term customer base.
Set Benchmarks
Setting specific benchmarks is important to achieving profitability with your ad campaigns. Determine what metrics you need to track, such as CTR, CPA, and ROAS, and set goals for each metric. This will help you stay on track with your campaigns and ensure that they are generating a positive ROI.
For example, if you are selling a product or service that is relatively new to the market, you may want to set a benchmark of a certain percentage of ROAS or ROI. This will help you to track your progress and determine whether or not your campaigns are successful.
If your ROAS or ROI falls below this benchmark, then it may be time to re-evaluate your strategies and make adjustments in order to improve your results.
Test And Optimize
Testing and optimizing your campaigns is one of the most important steps in achieving a high ROAS and ROI. Testing will help you to identify which strategies are working and which are not, allowing you to adjust your campaigns accordingly. By testing different ads, keywords, and audiences, you can determine which combinations will yield the highest ROAS and ROI.
Use RLSA (Remarketing List For Search Ads)
Remarketing Lists for Search Ads (RLSA) is a Google Ad feature that allows you to target users who have already visited your website. This can be a great way of improving your ROI because it helps you re-engage users already familiar with your product or service. By targeting these users with specific ads, you can increase your ROAS and ROI.
Differences Between ROAS And ROI
While ROAS and ROI are important metrics for measuring the success of ad campaigns, there are a few key differences between the two. Let's take a look at these differences:
Purpose
The main purpose of ROAS is to measure the efficiency of ad campaigns. It is a good indicator of how effective the marketing campaign is in terms of generating revenue and can be used to compare the performance of different campaigns.
On the other hand, ROI is an overall measure of profitability. It takes into account the cost of running a campaign as well as any other factors that may influence the results, such as customer retention or loyalty.
Investment Type
ROI stands for Return on Investment and measures the return on investment from the money invested in a business. This includes investments in assets such as equipment, inventory, and employees, as well as investments in marketing and advertising campaigns.
ROAS, on the other hand, stands for Return on Advertising Spend, and it measures the return on investment from the money spent on advertising or marketing campaigns. It is a measure of how much revenue a company receives from its advertising efforts.
Type Of Spending
ROAS is a measure of the return on investment from money spent on advertising or marketing campaigns. This includes spending on ads, promotions, and any other promotional activities. On the other hand, ROI takes into account all investments made in a business, including spending on assets, employees, materials, and other expenses.
Build, test, and iterate on Shopify without the dev time
Replo has hundreds of templates to help you launch and test new landing pages - without writing a line of code.
Profits
Profits are the difference between the revenue generated from a marketing campaign and the costs associated with it.
ROI takes into account not only the revenue generated from a campaign but also the costs associated with it. ROI is calculated by subtracting the total costs incurred from the total revenue generated and then dividing that result by the total costs. This calculation allows marketers to determine how much money they are making on each dollar they invest in a campaign.
ROAS is similar to ROI in that it measures the profitability of a campaign. However, ROAS only takes into account the costs associated with the ad spend, not the other costs involved in the campaign. ROAS is calculated by dividing the total revenue generated by the total ad spend. This calculation allows marketers to determine how much money they are making on each dollar they spend on ads.
Reliability
ROI is more reliable than ROAS, as it takes into account all costs associated with a campaign and not just the ad spend. Additionally, ROI is a good measure of the overall profitability of a campaign and can be used to compare different campaigns. On the other hand, ROAS is more reliable in terms of determining the profitability of an individual ad, as it only takes into account the ad spend.
Results
Another key difference between ROAS and ROI is the results they provide. While both metrics measure profitability, ROI provides an overall picture of the marketing campaign's performance, and ROAS provides a more granular view.
ROI can also be used to determine whether or not a company is profitable, while ROAS is more focused on the performance of individual ads.
Necessity
Necessity is an important factor when considering the use of ROAS and ROI. ROI is necessary for companies looking to measure their campaigns' overall profitability and make decisions about investments. On the other hand, ROAS is necessary for companies that are looking to measure the performance of individual ads or campaigns.
ROI Or ROAS: Which Is Better?
The answer to this question depends on your business goals and what you want to achieve with your advertising campaigns.
If your primary goal is to measure the efficiency of your marketing campaigns and optimize your ad spend, then ROAS may be a better metric to focus on.
On the other hand, if you want to measure the overall profitability of your business, including the impact of your advertising campaigns, then ROI may be a more relevant metric to use.
Ultimately, both metrics provide valuable insights into the effectiveness of your advertising efforts, and it's important to use them in conjunction with other performance indicators to make informed decisions about your marketing strategy.
Final Thoughts
ROAS and ROI are important metrics that businesses can leverage to measure the success and profitability of their advertising campaigns. By understanding these metrics and implementing strategies to improve them, businesses can maximize their return on investment and drive more revenue.
However, it's important to remember that a successful digital campaign requires more than just good metrics. A high-converting landing page is essential for achieving maximum ROI and ROAS, especially in the competitive Shopify space. That's why partnering with Replo can be a game-changer for your campaigns. With our pre-built Shopify landing page templates, businesses can improve their user experience, increase conversions, and boost ROAS and ROI.
So, don't overlook the importance of a well-designed landing page when measuring the effectiveness of your digital campaigns. Invest in REPLO today and take your business to the next level!
FAQs
Is ROAS A KPI?
Yes. ROAS is considered a key performance indicator (KPI) for measuring the success of digital advertising campaigns. It helps businesses understand how effectively their ad spend is contributing to revenue generation and whether their campaigns are profitable.
Is ROAS A Percentage?
Yes. ROAS is often expressed as a percentage and represents the revenue gained from each dollar spent on advertising. However, it's important to note that ROAS can also be expressed as a ratio or dollar value.
Is ROAS The Same As Profit?
No, ROAS is not the same as profit. ROAS measures the revenue generated from each dollar spent on advertising, while profit is the revenue that remains after subtracting all expenses, including the cost of advertising.
What Is A Good ROAS Ratio?
The answer to this question depends on several factors, including the average cost-per-click (CPC), industry, and profit margins. However, a good ROAS ratio is typically considered to be around 4:1 or higher. This means that for every dollar spent on advertising, the campaign generates $4 or more in revenue.
Sources:
- Gaubys, J. (n.d.). How many people shop online in 2023? [updated Feb 2023]. Oberlo. Retrieved from https://www.oberlo.com/statistics/how-many-people-shop-online#:~:text=With%20the%20rise%20of%20ecommerce,33.3%25%20of%20the%20population%20worldwide.