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What is ROAS and how can you use it for PPC?

Return on ad spend (ROAS) is an important digital marketing metric that measures how much your business earns in revenue. No matter what stage of your PPC marketing campaign you are currently in, ROAS can be a highly beneficial metric and benchmark. 

  • It can help to measure the overall ROI for a business. 
     
  • You can use it to set campaign expectations. 
     
  • It can help with decision-making when it comes to your digital marketing tactics. 

We are going to highlight our top 7 ways to use ROAS to improve your PPC performance. But first of all, let’s go over what ROAS really means.  

What exactly is ROAS? 

Return on ad spend is a pay-per-click metric that we use to measure the efficiency of a paid search or digital marketing campaign. You can use it to compare PPC campaigns against one another and see which is driving the most profit.

You can then use this information to understand where to invest your ad budget to get the best possible return. Essentially, the higher your ROAS, the more effective your advertising messages. 

You can measure at different levels within your Google Ads account. These include the account level, the campaign level, the ad group level, and so on. As long as you know how much you are spending and earning at that particular level, you can calculate your ROAS.  

How is it calculated? 

Your ROAS is calculated by taking the total revenue generated an ad and dividing it by the cost of ad spend.  Here is a visual example of how it works from Search Engine Land:

Return on Ad Spend = total revenue divided by the total expenses

How does ROAS differ to ROI? 

You may have heard ROI – return on investment – and ROAS being used interchangeably. In many ways, they are similar. The main difference is that ROI is typically used to measure the overall effectiveness of your online advertising efforts. It is a measure of what you are spending and what you are earning in return. On the other hand, ROAS is looking at the effectiveness of one specific ad, campaign, ad group or even keyword.  

7 Ways to Use ROAS in PPC 

1. Setting Expectations 

PPC is a popular channel and is known for driving quick yet highly effective results for various advertisers and companies. However, it is a complex channel and can be difficult to work your way around. Being clear about what you expect to come from a campaign can help you to understand when you are hitting your goals or when you need to make changes. 

We would recommend working out your return on ad spend to provide an opportunity to set a benchmark for what success looks like for your business. Having an ROAS goal or expectation can play a key part in the decisions you make going forward. This brings us on to our next point, budgeting.  

2. Budgeting 

This metric can serve as a useful tool when factoring any PPC budget decisions. It can take you beyond looking at things like bid, budget click and conversion rates. 

We would recommend using it to determine suitable budges and ranges for your PPC campaigns based on real past performance. In most cases, you could measure ROAS without capping your budget to keep on track.  If your spend is increasing and you are still exceeding your target ROAS, for example, then you will know you are safe in terms of having an ad that is profitable.  

3. Bids 

You can calculate ROAS at a more detailed level than just a high level, I.e. for total spend. You can gain more control and insight by breaking campaigns into categories such as campaign, ad group and ad type. Doing so can also help to make bid decisions based on ROAS. 

For example, let’s say you are running Google Product Listing ads within Google Shopping – you can separate these out from other ad types and get an ROAS on them. You could also go right down to the individual product level to find out how different Google Shopping products produce different ROAS. 

The main takeaway from this is that understanding ROAS at different levels can enable you to optimise your bid strategies and have higher levels of control over what is driving your overall return.  

4. Ecommerce 

ROAS is an important ecommerce metric. There are plenty of online tools and integrations that can feed revenue data into Google Ads and Google Analytics. With these metrics available, you can quite easily see your ROAS by taking the total revenue divided by total spend.  

Working out this calculation is generally the quickest part. What you will need to do next is determine an acceptable or better yet, a good ROAS overall. To do so you’ll need to focus on things like profit margins for products and the full aspect of ROI.  

6. Combining ROAS with other metrics 

While ROAS is certainly a useful benchmark and quality guide for paid media – for the best possible results we would suggest combining it with other PPC metrics.  

Tying ROAS to other metrics beyond the point of sale can lead to more valuable insights for uses other than digital marketing spend management. For example, when measuring it alongside customer retention, RFM (recency, frequency, monetary) and lifetime value metrics – you can find even more insights to improve your PPC activity. 

Get in Touch  

Return in ad spend is not just a metric used to manage and keep track of ad spend. It is a crucial part of driving conversions that are driving revenue for your business.

If your current digital marketing efforts are not producing revenue, then you will need to make changes. But if you are not tracking ROAS – it is much less likely you will know where to make those changes. 

Measuring your ROAS will help you to ensure that you are achieving a positive return consistently throughout a PPC campaign. If you don’t know how what to expect or how much to spend in an upcoming campaign, then an ROAS goal can be a great starting point. 

If you have any questions or want to hear more about our pay-per-click services, you can get in touch with London based PPC team!

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