Focus on ROAS, not just ROI

 

Why should we focus on ROAS and not just ROI? This is a question that we hear very often nowadays.

Before we hit digital transformation, the ROI metric was used to measure the returns of your offline campaigns, be it television ads, print ads, or radio ads. Since the inception of ROI, advertising has changed drastically. With higher online penetration, digital ads have taken precedence, hence ROAS has become the preferred metric to measure the online campaign metrics.

 

What is ROAS?

ROAS determines the average return on your advertising spend (i.e., the efficiency & profit from your online advertising efforts). Thankfully, there is a simple formula that you can use to calculate ROAS.

For example, if you spent Rs.5000 on your advertising efforts and you achieved an Rs.10,000 profit through that, then your return on ad spend is 2x.

Easy to calculate, right?

 

ROAS vs CPC

A lot of people who run ads online just focus on CPC (cost per conversion) or CPA (cost per acquisition) rather than focusing on the bigger picture.

Say, you run two ad campaigns for a budget of Rs. 2000

 

 

Campaign X

Campaign Y

Ad spend

Rs. 2,000

Rs. 2,000

Conversion

2

2

CPC

Rs.1,000

Rs.1,000

Revenue

Rs. 1000

Rs.1,500

 

So here you can see that even though they had the same number of conversions, the return on ad spend was better for the campaign Y. This shows the effectiveness of the ads.

 

What is ROI?

ROI (return on investment) is a macro metric that measures how a specific ad affected the company’s overall profits.

Formula to calculate ROI: (Revenue – Cost of Ad) / Cost of Ad)

For example, if you have a product that costs Rs.100 and it sells for Rs. 200. You sell 6 of these products after advertising online. Total sales equal Rs.1200, but the cost of your ad is Rs. 200 with production costs of Rs. 600.

ROI = (1200-(600+200))/(600+200)=50%

 

ROAS vs ROI

  1. ROI is a business-centric, strategy-oriented metric that measures how ad expenditures contribute to an organization’s bottom line.
  2. ROI takes earnings into account only after expenses have been deducted.
  3. ROAS is an advertiser-centric metric that measures the effectiveness of a digital advertising campaign.
  4. ROAS solely focuses on ad spend, whereas ROI on the overall investment is made.
  5. ROAS doesn’t worry about the margins of the product you’re selling — ROI does.
  6. ROAS focuses on growing business through incremental conversions and measures gross-revenue against every dollar spent on advertising.
  7. When you calculate your ROAS, you only include the cost of advertising and the profit from advertising. But ROI includes all metrics such as conversion rate, CTR, product margins and cost, and other metrics as well.

 

How to improve ROAS for ad campaigns?

Once you know what a ROAS is and how it is different from ROI, it’s pretty easy to evaluate the effectiveness of your ads and make improvements as per that.

Few points are mentioned below to make changes to your campaigns for better returns:

  • 1. Focus on your target audiences - To achieve optimal results from your ad campaigns, it is important to see which type of audiences are interacting with your content. For this, we recommend you to focus on the demographics.

  • Demographics are important, and your ads should be set to target the exact demographics (gender, age, location, and so on) who are your niche audiences. Also, use audience insights to get a better understanding of how many people you can reach for your budget and target location.
  •  
  • 2. Be precise with your location targeting - You know where your audiences are and how to reach them. But sometimes having a very narrow or broad geographical targeting can also hamper the performance of your campaign. Hence, analyze the traffic which you have received, the number of clicks, impressions, and CTR and if changing the location can help improve your results.
  •  
  • 3. Focus on the right channel -  Analyze where are your audiences spending most of their time online? Do they respond better on social or Google platforms? Do people respond to stories better than feed ads? Do video ads gain more traction?
  • Analyze this behavioural pattern with the help of our reporting and make sure to spend your budget where it matters the most. Sometimes spreading too thin can also hinder the performance.
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  • 4.Optimize your landing page - If your ad is heavily optimized and has been tested to convert, you’ll get visitors to your page. But if your page isn’t consistent with your ad (headline, offer, design elements, etc), then the customer experience is ruined, and it makes conversion a lot trickier. Make sure it is mobile optimized and loads quickly for a smooth experience and to lower your bounce rate.

 

Conclusion

ROAS is a powerful and simple way to measure the success of your ad campaigns. By focusing on your ad spend and ad revenue, you can pinpoint where you need to improve.

Mediaqart helps you with all these tactics and more. You can leave the technicalities to us while focusing your energies on business development and lead nurturing activities.