We’re so glad you asked!
ROAS (Return on Ad Spend) measures how much revenue is generated for every $ spent. It’s not only a great KPI but also an essential metric for evaluating your ROI (excuse all the acronyms). We love to work out the Facebook ROAS as it lets us see if our client’s ads are working and if they are, well, worth it and a good return on investment.
When looking at Facebook ad results, organizations tend to focus on landing page views, sales, downloads etc. Very important yes, but we also need to know if the sales we are generating are producing good results relative to our spend. Is it the best use of our advertising dollars?
Luckily with all the metrics FB provides, it’s very easy to work out.
Return on Ad Spend Formula
ROAS = Total Revenue generated from your ad divided by your total ad spend.
For example:
Revenue generated by the campaign $20,000
Total ad campaign spend / $5,000
ROAS 4
This shows us that for every $1 we spent on advertising we generated $4 back in revenue. That’s a 4X ROAS.
This formula can also be used to measure other ad objectives specific to your campaign, such as downloads e.g.number of downloads generated divided by total amount spent.
What is a good return on ad spend?
There is no blanket rule on what a good ROAS is for your campaign as it varies depending on the goal of the campaign, your industry and other things like the age of your brand.
If you are new entering into a market a low ROAS might be acceptable as your brand works on building awareness to those users.
In our experience a ROAS of 4:1 or higher is a sign of a successful campaign.
We need to emphasize that the accuracy of the ROAS depends completely on the accurate set up and recording of the data as any misalignment could be given a false view on the success both positively or negatively.
Having a ROAS of 3:1 or lower usually indicates that the campaign needs attention.
When should you analyze your ROAS?
We encourage our clients to work out their desired ROAS prior to undertaking any campaign. This allows them to see early on what they need to achieve in order for this campaign to be a success. If it’s not performing to the required ROAS during the campaign, then they have the knowledge and ability to pull out there $ and allocate them to a more lucrative medium.
Although ROAS is easy to measure it is completely dependent on accurate information, nothing can fall through the cracks. Pixels need to be firing both on your website and on your relevant conversion event e.g. Donate/Buy Now buttons. There should be no tracking gap and if needs be you should be manually cross-matching your leads/sales with your FB data. Check pixels are firing properly in your FB Ads Manager.
Also worth noting that you can create a custom report column in your FB ads manager that will calculate ROAS for you automatically. This can be shown in the Social Media Examiner example here…
What is the difference between ROAS and ROI?
These 2 acronyms are sometimes used interchangeably but they are not the same!
ROAS is a ratio and measures just the performance of the campaign based on money spent on ads. Agencies and marketers can easily track this and make adjustments to their ads to impact the ROAS ratio.
ROI is a percentage and is a higher level look at the success of marketing efforts. Usually it is ROI which managers are basing decisions on, it is harder to track and requires access to the full results of the business to see how a campaign affected the business across the board.
How to improve my Return On Ad Spend?
The baseline of any Facebook ads campaign should be to break-even, this break-even ROAS will be different for all companies but needs to take into account all the costs including the ads themselves, the agency running the ads or the time used by the employee doing it plus other things like designer costs for creating the ads.
So now we know what the number needs to be better than what actions can we take to increase it?
Check that the pixel and conversion tracking are working correctly so you are comparing oranges with oranges.
Ensure the ad is clear about solving your audience' problem.
Create different campaigns/messaging based on how those users have interacted with you before. Audience types matter - user who is seeing your ad for the 5th time is different to someone seeing it the first time (cold audience) just like both of those users are different to someone who has visited your website or watched a video.
When making changes it is best to conduct split testing to ensure the changes are an improvement with all things being the same other than the creative.
When things are improving do not increase the spend too fast. Try not to scale any one ad set more than 20% daily. Increasing spend too quickly will likely drop the ROAS as the quality of the audience will not be the same as you were seeing.
Look at where you are sending the traffic, sometimes the issue of not enough conversions is not related to the ads or audience but to the page they land on.
Wrapping Up
ROAS is a great way to see your campaign’s worth, plan your day-to-day tactics, and also compare and contrast your advertising $’s against your other advertising mediums. It answers the question “Should we be continuing to invest in this FB ads campaign?” Speaking of questions, if you have a digital advertising question you’d like us to answer, send us an email to “Ask Naira” at info@springhilldigital.com.
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