The No-nonsense Guide to Increasing Your ROAS
As businesses of all sizes are resorting to running online campaigns to grow their revenue, it has become more important than ever to ensure that your advertising campaigns are generating a positive return on investment.
Return on Ad Spend (ROAS) is a key metric used to measure the effectiveness of digital advertising campaigns, and a higher ROAS indicates that your advertising efforts are generating more revenue than the cost of running the campaign.
In this guide, we will explore what ROAS is, why it's important, and 7 proven strategies to improve your ROAS and maximize the effectiveness of your digital advertising campaigns.
What is ROAS?
Return on Ad Spend (ROAS) is a crucial metric in marketing that helps businesses determine the effectiveness of their advertising campaigns.
ROAS is similar to ROI, but instead of measuring overall returns, it focuses specifically on returns from advertising expenditures. It helps businesses assess their advertising campaigns' success and allocate their resources more effectively.
A higher ROAS indicates that the advertising campaign is generating more revenue than the money spent on it, whereas a lower ROAS indicates that the advertising campaign may need to be adjusted or improved.
By calculating ROAS at each level, businesses can gain insights into which campaigns are performing well and which ones need improvement. This helps businesses to optimize their advertising efforts, allocate their resources more effectively, and achieve better returns on their investment.
How do you calculate ROAS?
To calculate ROAS (Return on Ad Spend), you need to divide the revenue generated by the advertising campaign by the amount spent on the campaign. The formula for calculating ROAS is as follows:
ROAS = Revenue generated from advertising campaign / Cost of an advertising campaign
For example, if you spend $500 on an advertising campaign and it generates $2,000 in revenue from that campaign, the ROAS would be calculated as:
ROAS = $2,000 / $500
ROAS = 4:1
This means that for every dollar spent on the advertising campaign, you earned four dollars in revenue.
What is a good ROAS?
Several factors determine what constitutes a good ROAS, including the advertising goals set by a business. In cases where brand awareness is the objective, the ROAS is typically low since it does not necessarily drive immediate conversions.
ROAS benchmarks can also vary among different industries, as some require higher ROAS to make advertising spend worthwhile. For instance, industries with a low customer lifetime value (CLV) may demand higher ROAS.
Let's say you run an online store that sells low-cost, disposable products like phone cases or lighters. The typical customer may only make a purchase a few times a year, resulting in a low customer lifetime value.
In this case, your business would likely aim for a higher ROAS since generating more revenue upfront from each customer can help offset the low CLV.
On the other hand, consider a business that sells high-end luxury watches. In this industry, the customer lifetime value is relatively high since customers typically make expensive purchases and may remain loyal to the brand for many years.
Consequently, a lower ROAS may be acceptable since the business can expect to generate revenue from these customers for a more extended period.
So, some industries with a low customer lifetime value and higher ROAS might include businesses that sell low-priced, disposable products or services, such as fast food, convenience stores, or online marketplaces for cheap goods.
In contrast, industries with high customer lifetime values and lower ROAS might include luxury products like high-end watches, designer clothing, or luxury cars.
7 strategies to improve ROAS
Here are some proven strategies to improve your ROAS.
1. Optimize your ad copy and creatives
Optimizing ad copy and creatives is one of the most effective strategies for improving ROAS.
By testing different versions of your ad copy and visuals, you can identify the messaging and visuals that resonate best with your target audience and drive the most conversions.
Creative intelligence tools are extremely helpful in this process. They use AI and machine learning algorithms to analyze the performance of your ad creatives and provide insights on how to optimize them for better performance.
For example, AI-based tools like Artwork Flow analyze the colors, font styles, and imagery used in your ads to determine which elements are most effective at driving conversions.
In addition to using creative intelligence tools, there are a few best practices you can follow to optimize your ad copy and creatives:
- Make sure your messaging is clear and concise, and that it highlights the key benefits of your product or service.
- Use eye-catching visuals and high-quality images that are relevant to your target audience.
- Test different variations of your ad copy and visuals to see what performs best, and use A/B testing to compare different versions of your ads.
2. Identify the right audience
Identifying the right target audience is crucial to improving ROAS because it ensures that your ads are being seen by the people who are most likely to be interested in your product or service.
Consequently, conversion rates improve and you don’t have to waste ad spend on people who are unlikely to convert.
To identify the right audience, start by analyzing data from previous campaigns and identifying patterns in the demographics and behavior of people who have engaged with your ads.
You can also look at existing customer data to gain insights into the demographics, interests, and behaviors of your existing customers by looking at age, gender, location, purchase history, and more.
Once you have a better understanding of your target audience, use language and imagery that highlight the benefits of your product or service that are most relevant to them.
For example, if you’re targeting young adults, you may want to use a more casual tone to highlight the benefits of your product.
3. Pay attention to the ad placement
By targeting your ads to relevant platforms, you can increase the chances of reaching potential customers who are already interested in your product, leading to higher conversion rates and better ROAS.
For instance, if you are promoting a new line of skincare products for women aged 25-40, placing the ad on lifestyle websites and blogs that cater to the same demographic can be more effective than placing it on a general news website or social media platform.
In addition, you can consider placing the ad on skincare and beauty-related communities, as this can help to reach a highly engaged audience that is more likely to convert into customers.
4. Use the right ad-targeting options
Using the right targeting options can help advertisers optimize their ad delivery by showing ads to users who are most likely to take a specific action, such as making a purchase or signing up for a newsletter. This can help improve the overall performance of an ad campaign and increase ROAS.
For example, if an advertiser sells luxury goods, targeting users with high incomes and interests in luxury brands can help ensure that their ads are shown to the right people who are more likely to make a purchase.
Targeting options also help advertisers avoid wasting ad spend on irrelevant clicks or impressions.
For instance, a local restaurant can use location targeting to limit their ad reach to people who live or work in their area. This way, they can avoid showing their ads to people who are unlikely to visit their restaurant, such as those who live outside of their delivery range.
5. Run retargeting campaigns
Retargeting, also known as remarketing, is a digital advertising strategy that involves targeting people who have interacted with your brand or products before. This could be anyone who has visited your website, added products to their cart, or even just engaged with your social media profiles.
Retargeting helps to improve ROAS by targeting people who have already shown interest in your brand or products, making them more likely to convert into customers. By focusing your advertising efforts on people who are already familiar with your brand, you can achieve higher conversion rates and ultimately a higher return on ad spend.
It also helps to keep your brand top of mind for potential customers who may have been interested in your products but didn't convert right away. By reminding them of your brand through targeted ads, you increase the chances of them returning to make a purchase, further improving your ROAS.
6. Experiment with different ad formats
Experimenting with different ad formats can help increase ROAS by providing insights into what type of ad format works best for a specific target audience.
Different ad formats have different strengths and weaknesses, and testing them out can help marketers determine which ones are most effective for achieving their specific advertising goals.
Image source: Marketing Mind
For example, an e-commerce beauty store might experiment with carousel ads that allow them to showcase multiple products in a single ad, or video ads that give customers a better view of products in action. By testing out different ad formats, they can see which ones lead to more conversions and higher ROAS.
Similarly, a B2B company may experiment with LinkedIn-sponsored content ads, InMail ads, and text ads to determine which ones are most effective at driving leads and generating sales. By testing out different formats, they can optimize their ad spend to focus on the formats that are delivering the highest return on investment.
7. Schedule your ads
Ad scheduling, also known as dayparting, refers to the practice of showing ads at specific times of the day or days of the week to reach your target audience when they are most likely to convert.
By using ad scheduling, you can make sure that your ads are only shown during the most profitable times, reducing the amount of ad spend wasted on low-converting times.
Image source: AdEspresso
For example, if you're running an e-commerce store selling products primarily to working professionals, you may find that your audience is most active and likely to convert during weekdays between 6 pm and 10 pm, when they are back home after work.
By using ad scheduling, you can set your ads to only show during these hours, which can help to improve your ROAS by making sure your ads are being seen by the right people at the right time.
Similarly, if you're running ads for a local restaurant, you may find that your audience is most active during lunch and dinner times. So, you can set your ads to only show during these times, making sure that you are targeting people who are likely to be hungry and looking for a place to eat.
This helps increase your ROAS by ensuring that your ads are only shown when they are most likely to drive conversions.
How creatives improve ROAS
The role of creatives in advertising cannot be emphasized more, especially when it comes to improving return on ad spend (ROAS). Creatives are the visual and textual components of an advertising campaign that are designed to catch the attention of the target audience, create a connection with them, and ultimately inspire action.
By crafting compelling and effective creatives, brands can increase engagement rates, improve conversion rates, and ultimately achieve better ROAS. Here’s how.
1. Improves brand awareness
Creatives that effectively convey your brand’s message, values, and unique selling point to your target’s audience effectively improve your brand awareness, which in turn improves your ROAS in the following ways:
- Increases trust and credibility: When your brand is well-known and easily recognized by your target audience, it increases their trust and confidence in your brand. This can make them more likely to engage with your ads, click through to your website, and ultimately convert, leading to a higher ROAS.
- Enhances brand recall: When your target audience is familiar with your brand and its offerings, they’re more likely to remember your brand when they’re shopping for products or services similar to yours. This improves the likelihood of them clicking through to your website and converting, leading to a higher ROAS.
- Builds brand equity: Brand equity refers to the value that your brand holds beyond its tangible assets, such as its reputation, image, and customer loyalty. Brands with high equity are often perceived as having high value. So, customers are more likely to engage with ads from the brand and convert which improves the ROAS.
2. Creates engaging and relevant experiences
Tailoring creative content and messaging to the interests, preferences, and behaviors of each user significantly increases the likelihood of conversions and drives higher ROAS as it helps create relevant experiences for users. And the best way to do this is by personalizing the content and creatives for individual users.
Personalized creatives can also increase customer loyalty and lifetime value. By showing users that the brand understands their individual needs and preferences, personalized creatives can help to build trust and establish a stronger relationship between the brand and the user.
This leads to repeat business, higher average order value, and increased customer lifetime value, all of which contribute to higher ROAS.
Moreover, personalized creatives can help a brand differentiate itself in a crowded market. By creating a unique and personalized ad experience, brands can stand out from competitors and increase their chances of success.
This is especially important in highly competitive markets where users are inundated with countless ads and messages.
3. Helps brands stand out from the competition
When users see an ad that highlights a unique aspect of a product or service that sets it apart from the competition, it can pique their interest and encourage them to learn more about the brand. This increases the brands’ chances of success and improves its ROAS.
Creatives that highlight the USP of a product or service always help achieve the intended result as it creates an emotional connection with the audience.
Firstly, a USP taps into the specific needs and desires of the target audience and helps them identify with the brand and feel that it’s speaking directly to them.
For instance, this Volkswagen precision parking ad highlights how the company prioritizes the safety of their customers.
A USP also helps brands connect to the values and beliefs of the target audience. By highlighting a USP that aligns with the audience's values, it can create a deeper sense of resonance and engagement.
For example, if a brand's USP is that it offers ethically sourced products, emphasizing this in its advertising creatives can create an emotional connection with users who prioritize ethical consumption.
4. Evokes emotions
Emotions are powerful drivers of behavior and when brands are able to tap into the right emotions, they can inspire their audience to engage with their ads and make a purchase.
So, evoking emotion through creatives improves brand recognition and recall by creating a memorable and emotional connection with the audience.
For example, this WWF ad invokes serious emotions about extinction to get the message of wildlife conservation across to the audience.
When an audience engages with an ad that evokes positive emotions such as happiness or excitement, they are more likely to remember the brand associated with that ad.
In addition, when an audience feels emotionally connected to a brand, they are more likely to share the ad with their network, further increasing brand recognition and recall.
How Artwork Flow helps improve your ROAS
Artwork Flow is a creative intelligence tool that leverages the power of AI to help brands craft advertising campaigns that achieve better return on ad spend (ROAS).
It enables creators to evaluate ads with AI-driven insights, helping them make data-backed decisions on their campaign assets. Here are some key features of Artwork Flow's creative intelligence tool:
- Data-driven insights: Obtain data-backed insights on what is working and what is not, and create the best visuals for your campaign.
- Historical data analysis: Access historical data on your campaigns to inform decisions on future campaigns.
- Conversion optimization: Get in-depth insights into how customers respond to different creatives, identify the most effective ones and adjust your advertising strategy accordingly.