How do I get a better return on ad spend? This is a question that we hear hundreds of times a day.
Maybe you’re currently running ads on Facebook and Google. Perhaps you’ve tried it and found the ROI unimpressive. Or maybe you just want to get started
Whatever your current status, the truth is, running Facebook and Google ads is a key part of building a winning digital marketing strategy. Fun fact for all marketers: by the end of 2018, ad price decreased 2%, while ad impressions were up 34%.
But sometimes the problem is you aren’t measuring success correctly, or at all.
To truly test your company’s PPC campaigns, you need to know, track, and improve your Return on Ad Spend (ROAS).
In this article, we will cover what exactly is ROAS, what’s a good ROAS, and how you can track it.
We also cover five proven tactics to get a better return on ad spend.
What is ROAS?
Sometimes ROAS is confused with ROI (return on investment) or metrics such as cost-per-click or cost per conversion.
But ROAS is one of the simplest equations in marketing.
It’s the profit from your ads divided by the cost of your ads:
Say your latest ad campaign brought in $8,000 and cost you $4,000 to create and run. This gives you an ROAS of 2x.
But wait. . .
. . .what is a 2x return on ad spend?
A 2x ROAS means you get $2.00 back for every dollar you spend. That’s a 200% (or 2x) return.
Return on Ad Spend vs Cost Per Conversion
Most marketers talk about their Cost Per Acquisition (CPA) or Cost per Conversion (CPC) but struggle to speak to their ROAS.
Here is why that’s a mistake: your CPA isn’t factoring in the revenue from the transaction. If you have two ad campaigns with the same CPA, but one has a lower ROAS, then you could be wasting money by distributing budgets evenly between the two campaigns.
Let’s break that down:
|Campaign A||Campaign B|
Both Campaigns have a CPA of $1,000, but Campaign B has a much stronger ROAS.
ROAS vs. ROI (Return on Ad Spend vs. Return on Investment)
The key difference is in the name: ad spend vs. investment.
ROAS focuses exclusively on ad spend. When you calculate your ROAS, you only include the cost of advertising and the profit from advertising. You’re not worried about your conversion rate, click-through rate, or other metrics.
But when you calculate ROI, there are more metrics to consider. ROAS doesn’t worry about the margins of the product you’re selling — ROI does.
ROAS focuses on the effectiveness of your ads.
What is a Good Return on Advertising Spend?
So, what’s a good ROAS?
Once you know what a 2x (and 3x, 4x, and so on) ROAS is and how ROAS is different than ROI, it’s pretty easy to evaluate the effectiveness of your ads.
And you’ll soon see that a 2x ROAS, while great in terms of ad performance, isn’t ideal for running and growing your business.
You need a higher ROAS to help cover costs not included in the simple calculation.
While the magic number will depend on your revenue, margins, and operating costs, we recommend you start by aiming for a 4x ROAS or higher to really see the power of generating revenue from ad spend.
Now that we are on the same page let’s look at five proven tactics to get a better return on ad spend:
Tactic #1: Focus on Targeting (and Retargeting)
Whether we are talking about Facebook ads or Google ads, targeting your campaigns at the right audience is key.
For this, we recommend you go beyond basic demographics.
Don’t get us wrong. Demographics are important, and your ads should be set to target basic demographics (gender, age, location, and so on). But that’s the basic stuff.
If your restaurant is in San Diego, don’t pay to target people in New York….
To up your game, you should also focus on your audience’s interests, brands they like, and behavior.
How to target your Facebook Ads:
There are several ways to target your Facebook ads, but here are some of our favorites.
- Use Facebook Audience Insights.
Facebook Audience Insights (FAI) provides vital information about your Facebook followers. From here, you can create your target audience by filtering through demographics and other key information (age, location, gender, interests, and more).
- Create Custom Audiences.
You can use Facebook Custom Audiences to really hone in on lower-funnel customers. For example, through Facebook you can create a custom audience, so your ad targets all of your customers who visited a specific web page (such as the check out page) on your eCommerce site within a specific amount of days.
- Differentiate between mobile and desktop campaigns.
Think of mobile and desktop as two vastly different mediums that require a different approach. Be present on both platforms, but know that the act of someone scrolling through a feed on their phone as they wait at the doctor’s office or kill time in their office is a completely different act than someone at home on their laptop.
For more on this, check out our guide to mobile and desktop Facebook ads.
How to use retargeting on Facebook:
26% of potential customers who visited your site and were retargeted will return to it.
It’s not a strategy you can just ignore.
Here’s how you to use retargeting effectively:
Right off the bat, there are two options: “static” or “dynamic” retargeting Facebook ads.
While static ads let you push one ad to all your customers within an ad group, dynamic ads change based on your customer’s browsing history. Using dynamic ads will allow you to push highly relevant ads to your potential customer.
Consider that the average cart abandonment rate, worldwide, is about 75%. Retargeting ads can help you knock that back significantly.
Dynamic ads can place products from an abandoned shopping cart in front of the customer who abandoned them.
Simply target people who visited a specific page of your site (such as /cart), and exclude people who viewed another page (such as /purchaseconfirmation):
Here’s what a retargeting ad looks like:
Website visitors who are retargeted with display ads are 70% more likely to convert on retailer’s website.
How to target your Google Ads:
In Google ads, you’ll want to focus on in-market targeting and affinity audiences:
- In-market targeting focuses on customers close to the bottom of the sales funnel.
These are audiences that are “in-market” for whatever product, service, or promotion you’re currently running. Example: you can use in-market targeting to run your ads towards people in the market for a new car.
- Affinity audiences focus on your customer’s behavior, such as what pages, apps, videos, and YouTube channels they frequent.
Using Google’s profile of that person, you can target your product towards someone who is likely to be interested. If you run an eCommerce site that sells camping gear, an affinity audience might be users who are looking up hiking trails in their city.
Bonus Tip: Create Lookalike Audiences
While custom audiences are great for re-engaging people who already had an interaction with you, lookalike audiences allow you to target new users that don’t know you yet, but are very likely to become your customers.
Choose a suitable custom audience as a source.
For example, current customers if the aim is to get more purchasers, or current leads if you wish to get more signups. You need at least 100 people in the seed audience to create a lookalike audience.
You can use lookalike audiences with both Facebook ads and Google ads.
For Google Ads:
Lookalike audiences are called similar audiences. Google recommends using similar audiences along with a remarketing strategy.
Similar to Facebook, you create a list of your source audience (also called a ‘seed audience’), and let Google find an audience that matches that data.
Plus, newer on Google, is the fact you can now use customer affinity and intent to build custom intent audiences.
Provide a sample of your source audience.
From there, Facebook takes all available data and looks for commonalities.
Then, Facebook creates (or finds) other audiences that overlap with all the factors of your source audience.
Facebook lookalike audience best practices:
- Have a source audience between 1,000 and 50,000 people.
You can build a lookalike audience on Facebook with a source of only 100, but we recommend having at least 1,000 users in your source audience.
- Facebook doesn’t share exactly how it finds your lookalike audience,
but based on our experience, it’s a combination of user behavior, interests, demographics, pages liked, and ads clicked.
- You can set the percentage for your lookalike audience.
For example, you can pick your lookalike audience size, 1%, 5%, or 10%+. If you pick 1%, that means Facebook will only go after 1% of the available audience that fits your criteria. We recommend starting smaller (1%) and increasing the size as needed.
Our post on creating Facebook lookalike audiences shows that the larger your audience, the higher the dollar amount of your cost-per-lead.
With AdEspresso we made the process much easier, check the image below and…
…and if you want to give AdEspresso a try, click here to Start Your 14-Day Free Trial
Tactic #2: Get Granular with Your Data
Knowledge is power, and while that is both obvious and a cliche, there is a direct relationship between insights on your customers and an increased ROAS.
For Facebook ads, focus on placement, platform, and device.
Questions to ask yourself:
- Are your customers shopping mostly on mobile devices or desktop computers?
- Do your ads perform better in the Facebook Feed? As a Facebook Suggested Video?
- Do they do better within the Instagram Feed or as an Instagram Story?
If you’re going in with zero information (as in, this is your first campaign on Facebook), then select Automatic Placements.
This lets Facebook choose for you, and you can monitor results and change ad placements as needed.
For Google Ads, you can actually try Target ROAS bidding to let Google use your customer data for you.
Set your ideal ROAS (say 5x) and let Google work to optimize your ads towards that number.
Unlike other smart bidding strategies, with Target ROAS bidding, Google is only looking at getting your requested ROAS.
But, sadly, it isn’t as simple as setting your Target ROAS as high as possible. If PPC marketing were that simple, we wouldn’t be here. If you set your ROAS too high, it may limit the traffic your ads get.
Keeping an eye on the data and making proactive changes is your best shot at success, which leads to our next tip…
Tactic #3: Split Test Your Ads
By running consistent split tests, you are always optimizing your posts for higher conversions and a better ROAS.
Here is how to do it:
On Facebook, you can use Dynamic Creative.
You provide Facebook with several versions of your ad (different images, videos, titles, descriptions, and so on). Then, Facebook creates combinations based on the components you provided.
As results trickle in, Facebook tells you what combinations worked and what combinations didn’t.
Dynamic Creative is assuming you want your hands off the wheel, but you can also run a Facebook split test on your own time.
Pro-Tip: Don’t use a successful ad as a crutch! When your customer sees the same ad repeatedly, it creates what’s known as ad fatigue. All ads have an expiration date, successful ads just last a little longer.
Like Facebook, Google Ads has a built-in split-testing feature.
With Google ads, you’re focusing on:
- Your Headline
- The First Line
- The Second Line
- The Display URL
With split-testing, whether on Google or Facebook, you’ll want to start small and track results.
What happens when you put ‘power words’ (such as save, must, or now) into your headline?
What happens when your CTA changes from Learn More to Buy Now?
Tactic #4: Use the Right Keywords to Get the Ready-to-Buy Customer
If you’re struggling to maintain a good ROAS, or to get your ROAS above 4x, then it’s time to revisit the keywords you’re targeting.
Don’t forget the basics:
Don’t focus exclusively on keyword volume.
Keyword volume tells you what keywords are most searched, but it doesn’t tell you that those people are buyers.
Look for Lower Funnel Keywords.
These are “buying” keywords. Their volume may be less, but their buyer’s intent is higher. Since you’re focusing on improving your ROAS, you need to be focusing on getting more buyers with your ad.
Use the Negative Keyword Feature.
This is a Google exclusive, but it’s one that is important not to overlook.
We tend to focus on the audience we do want, but another way to look at the problem is identifying the audience we don’t want.
The average Google ads account wastes 76% of its PPC budget on the wrong keywords.
Use Google’s Negative Keywords feature to make sure your ad isn’t being pushed to the wrong audience and hurting your ROAS.
Tactic #5: Optimize Your Landing Page to Convert
Your ad is the quarterback throwing the Hail Mary pass, and your landing page is the wide receiver who needs to catch the ball in the end zone. No matter how good the quarterback, if the wide receiver has butterfingers, you’re not going to score.
If your ad is heavily optimized and has been tested to convert, you’ll get visitors to your page. But if your page is a mess or isn’t consistent with your ad (headline, offer, design elements, etc), then the customer experience is ruined, and it makes conversion a lot trickier.
And even once you have a beautiful landing page that is optimized for conversion, you need to check its speed.
A full 85% of landing pages take at least 6 seconds to load:
And the longer it takes your page to load, the higher your bounce rates will be.
High-level tips on how to make an optimized landing page:
Use simple headlines and descriptive text which matches your ad.
The beauty is you know exactly where your customer came from, so you can optimize the landing page to match the style and tone of your ad. But keep your headlines simple and to the point. This isn’t the time to confuse or layer useless information on your customer.
Keep the CTA clear and compelling. Always show your customers where to click.
There are different theories on how radical your CTA should look compared to the rest of your ad. The main thing is to be able to speak to why your CTA is the way it is and how it is working towards conversion and not away from it.
Check the loading time of your landing page.
We’ve all gone to a page, waited a few seconds, waited a few seconds more, muttered under our breath, and bounced off. 70% of customers said page speed impacts whether or not they buy from a company.
Split test, split test, split test.
Have multiple landing pages up, so you can test their effectiveness. You may think a simple CTA and a minimal form field is perfect. And that may be true, but you’ll want to test it.
ROAS is a powerful metric, and its power lies in its simplicity.
By focusing on your ad spend and ad revenue, you can pinpoint where you need to improve.
If you’re just getting started (or you’ve been working on your ROAS for a while and can’t get above a 2x and 3x ROAS), then it’s time to focus on these proven tactics:
Starting with those five strategies will get you going on a path towards a higher ROAS and a healthier digital marketing campaign.