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What is ROAS? Understanding Return on Ad Spend
Return on ad spend is a key marketing metric for marketers working across paid channels. We share what ROAS is and how to use it to maximise your marketing impact.
We found that 28% of marketers using ROAS as a key marketing metric, struggled to accurately track and measure it.
And it’s no surprise.
With B2B marketers having to deal with long customer journeys, offline conversions and privacy updates, it’s likely you’re struggling to connect the dots between your sales and your marketing.
In this blog we’ll go through:
So, let’s get stuck in!
ROAS, or return on ad spend, is a metric used to understand how your paid advertising is driving sales for your business.
Simply speaking, ROAS is a calculation that divides the amount of revenue generated by ads by the amount spent on advertising.
Return on ad spend is crucial when measuring your paid advertising campaigns as it gives you a definitive value when it comes to understanding how much revenue your marketing is generating.
If your ROAS is low, then you need to look into the effectiveness of your paid advertising. If your ROAS is high, then it could be a good opportunity to invest into and drive more business.
⚡️ Pro Tip
Want to improve your ROAS but not sure how? We’ve helped marketers improve the effectiveness of their paid advertising through marketing attribution. Read how Totalmobile increased their ROAS by 23%, or see how Ruler can help you improve your own ROAS.
On the surface, return on ad spend and return on investment (ROI) seem like identical metrics. Both measure the amount of revenue generated from a specific allocation of funds.
Related: How to measure the ROI of PPC ads
But what’s the difference?
Most ad campaigns are costs—not investments.
Look at it this way. An advert is a cost. A tool you use to schedule your marketing messages is an investment. The salaries you pay your employees is also an investment.
Content marketing is a great example. Publishing content to your company’s blog may drive traffic and revenue to your business for as long as the site and content exist online.
Advertising, on the other hand, typically intends to drive traffic and revenue temporarily. Of course, you could gain more social followers or newsletter subscribers from ads, but most of the time, the goal of an advertising campaign is to increase revenue while the ad is running.
So, remember, you could, in fact, measure both the ROAS and ROI of your advertising campaigns.
One would consider the amount of budget put into the ads. The other would count that cost, plus any other costs surrounding tools, paying for creative etc.
Related: How to definitively prove marketing ROI
Today’s marketing best practices are all about data. Metrics like increased traffic, followers, and visibility are no longer enough.
Related: Vanity metrics vs actionable metrics
Company leaders want to know exactly how much revenue marketing and advertising campaigns generate.
ROAS lets you produce reports showing exactly how much revenue your ad campaigns generate for the business.
🚀 Pro Tip
Remember, it’s not easy to track ROAS effectively if you deal with long customer journeys due to the data mismatch you likely face.
Learn how to track every marketing touchpoint within a user journey.
Additionally, it allows you to determine which ad campaigns are most and least successful—and if running ads is even worth the cost—which helps you continuously refine your spend to eventually generate the most revenue for the least costs.
If you know exactly what you spent on an advertising campaign and exactly how much revenue that campaign generated, calculating ROAS is simple.
Just divide the revenue by the cost:
We have a handy little ROAS calculator you can use to take the maths out of it, if you prefer.
But, let’s use this example.
Your company spends £200 on an advertising campaign. From that paid campaign, you generate £1,000 in revenue.
Your ROAS is 5:1—you earned £5 for every £1 you spent on advertising.
Sometimes though, calculating your ROAS isn’t quite so simple. What if you can’t identify exactly how much revenue you generated from your advert?
This is a fairly common problem for B2B marketers. But don’t worry, we’re on hand to help.
Return on ad spend isn’t always an open and shut case. Sometimes, it’s hard to track ROAS due to data disconnection and discrepancies.
Let’s go through common issues marketers face when it comes to tracking return on ad spend. We’ll show you exactly how to break down each of these barriers so you can more effectively track the impact of your paid ads.
These barriers include:
Let’s get stuck in.
No matter if you work in B2B or B2C, sometimes, users take their time to convert.
A user isn’t always going to land on your site for the first time and convert. If only they would!
They usually go through a long customer journey, moving stage to stage as they consider their options.
But even if their customer journey is just two marketing touchpoints, the key difficulty here is time.
Most analytics tools have a specific lookback window leaving you stuck when it comes to attributing a customer that converted into a sale in June but first engaged with your ad way back in January.
Related: How to connect your lead source to your CRM
How do you connect the dots when there’s so much time in between?
By tracking full customer journeys, and updating your CRM (or wherever you keep you lead data) with lead data, you can accurately attribute new sales as and when they come in.
Marketing attribution tools allow you to connect the dots between anonymous website visitors and your CRM, meaning you can get a full customer journey view end to end.
This means that if a lead comes in and converts in 2 months, 6 months, or even 2 years, you can still accurately attribute them to the corresponding source, campaign and even keyword.
iOS has really done a number on paid marketers.
Now more than ever, they’re battling to see impact from paid ads as they struggle to connect the dots between leads generated and clicks via their chosen ad platform.
Related: How to best prepare for iOS as a marketer
But there are workarounds.
You can still track users and recover their lead source by moving from third-party cookies to first-party cookies.
By using first-party cookies, hosted on your own site, you can continue to send and receive key data from users on your site.
Related: What are first and third-party cookies?
Ever noticed the data in Google Ads or Meta Business Manager is significantly different to what you see in Google Analytics?
You’re not alone on that.
There are key data discrepancies which can make tracking ROAS tricky.
💡 Pro Tip
Remove the data discrepancies you’re facing by reading our complete guides:
– How to minimise data discrepancies between Google Ads and Google Analytics
– How to minimise data discrepancies between Facebook and Google Analytics
By removing these data discrepancies, you can have better control over the data you have access to.
And with that, you can draw more valuable insights that can impact your marketing results.
This is a less obvious one, but many paid marketers struggle with the first hurdle.
While you can track volume of forms or volume of calls, you’re likely going to struggle to prove where those calls and form fills came from.
And when that’s a problem, you’re not going to have a full view of how your paid ads are driving new leads, and as a result, new customers.
⚡️ Pro Tip
Not sure how to track leads through the full customer journey? Go beyond lead volume and start tracking lead source and quality.
Here’s how to:
– Track form submissions
– Record and track phone calls
– Track live chat conversations and conversions
When you can’t link your closed sales back to marketing conversions, you’re stuck in a data silo.
The only remedy for this is implementing better tracking. This can be achieved with marketing attribution.
A marketing attribution tool will automatically track every single website visitor including their touchpoints and conversions.
When that user closes into a sale, your attribution tool can link that revenue back to the influencing touchpoints and conversions. This means clear, undeniable proof of the impact of your marketing.
🚀 Pro Tip
Book a demo of Ruler to see how you can definitively prove your ROAS. Still not convinced? Here’s how Ruler attributes revenue back to your marketing so you can prove your effectiveness.
Ad impressions and click-throughs aren’t always the best indicators of campaign effectiveness. Consider this example:
Considering only impression, click-through, and ad cost data, ad campaign 1 is the obvious top performer. For the same cost as the other two campaigns, it drove 100 times more click-throughs than campaign 3.
Related: How Ruler affects your paid advertising strategy
However, that result changes when we add revenue and ROAS data to the picture:
By adding revenue and ROAS data, we can now see that although ad campaign 1 drove the most traffic, ad campaign 3 generated the most revenue.
This paints an entirely different picture of ad campaign performance—one that can be used to make more informed decisions.
For example, if your goal is to increase awareness, ad campaign 1 is the best performer. But if your goal is to increase revenue, you need to focus more on ad campaign 3. Access to this data allows you to make decisions that help you reach your top marketing goals.
Related: Simple guide to sales and marketing KPIs
If you run paid ads as part of your marketing initiatives, you need to track your return on ad spend.
It’s the best indicator for determining whether or not your campaigns are doing what they’re supposed to do: generating revenue for the business.
Ruler Analytics makes it easy to track the ROAS of your advertising campaigns—and all of your other marketing campaigns for that matter.
Learn exactly how Ruler works, or book a demo to see the data in action.
