The Ultimate ROAS Guide
Have you ever wondered what the return on ad spend (ROAS) is for your business? You’re in the right place if you’re unsure of how to calculate it or even what it is. To help you decide on the advertising budget for your business, this article will cover all the information you need to know about ROAS.
What is ROAS?
ROAS stands for return on ad spend; It is a metric that measures how much revenue you generate for every dollar you spend on advertising. It takes into account the cost of advertising, and the revenue generated from the users acquired as a result of the specific promotion.
Why is ROAS important?
ROAS is important because it allows you to measure the effectiveness of your advertising spend. If your ROAS is low, it means that you are not generating enough revenue for your spend. On the other hand, if your ROAS is high, it means that your advertising strategy is generating a good return on your investment. More explicitly, ROAS boils down to well-optimized targeting and a streamlined selection of user acquisition sources to efficiently hit your ROAS goals.
How do you calculate ROAS?
ROAS is essentially calculated by dividing your total revenue by your total ad spend. With mobile ROAS, it can be calculated by triangulating the in-app purchases or app purchases received from users acquired through the campaign, and dividing that by the total cost of the app campaign itself.
Basically, ROAS = [Revenue gained from advertising / Cost of advertising] x 100
For example, if you spend $100 on advertising and you generate $200 in revenue from the new users acquired, your ROAS can be visualized as a 2:1 ratio or seen as 200%.
In the world of mobile marketing, there are multiple ways of calculating your return on ad spend, mainly: calculating platform-specific ROAS and calculating bundled ROAS.
Platform-specific ROAS is a method of calculating your return on ad spend such that you only take into consideration: The revenue generated from a campaign (or set of campaigns) on a specific ad platform, divided by the amount spent on a specific ad platform. This can be used to gauge platform-specific performance and aid in budgeting and bid adjustment decisions. Lower-performing platforms might receive lower budgets upon feedback and higher-performing platforms are usually granted the lion’s share.
The other method of calculating ROAS would be to bundle together multiple platform-specific ROAS’ into one all-encompassing number to show how much return you have earned on ad spending. This means collating multiple ad spend and revenue figures and bundling them into one total ROAS number; it is better to use this figure to gauge performance in a specific quarter or fiscal year for operational means rather than for short-term numbers to optimize campaigns.
What is a good ROAS for your App?
There is no one-size-fits-all answer to this question. The answer mainly depends on your business goals and objectives. However, a good starting point is to aim for a ROAS of 200% or higher, as that would represent earning twice as much revenue as you spent in advertising costs. While easier said than done, below you will find tips that can help you optimize your app campaigns and boost your ROAS to hit commendable levels.
Top Tips to Improve your ROAS
There are a number of things you can do to improve your ROAS. Some of the most effective strategies include:
1. Targeting a more specific audience
Creating a segment of users that you want to target translates to a more optimized use of ad budgets so that you only spend on users that are far more likely to convert and commit to boosting your revenue. The more efficient your ad targeting, the higher your ROAS will end up being.
2. Creating more relevant and targeted ads
Simply having a target audience segment in mind will not be enough to seal the deal. Communicating to these segments through relevant and targeted ads will aid greatly in increasing ad conversion rates, and consequently, your ROAS.
3. Testing different ad creatives
How might one create relevant ad creatives? The answer is in the testing. By running A/B testing, you can determine which banners, interstitials, videos and gifs are more effective in persuading your target market. In tandem with the previous point, persuasive creatives targeted at specific audiences will result in more cost-efficient ad communication.
4. Optimizing your landing pages
How many times might you have clicked on an interesting ad only to get lost in an unoptimized mess of a webpage? A landing page that is plagued with technical bugs or is simply not easily navigable will result in lost potential customers. It is better to ensure that all your landing pages are fully optimized and functioning to provide your customers with a streamlined user experience which will ultimately facilitate an increase in ROAS.
5. Adjusting your bids and budgets
During a marketing campaign it is important to keep tabs on the different channels’ spending and budgets when compared to results. After setting up the campaign, it is vital to monitor and optimize it and ‘weed’ out sources that are lacking in terms of performance. This is why most ad sources come with a managed service so that you do not need to spend your time looking at multiple reports every hour of the day; customer success specialists optimize your campaigns based on your KPI’s through careful bid and budget adjustments to ensure a high return on your ad spending.
6. Using negative keywords
When using certain platforms, like Google Ads, for instance, negative keywords are optimization tools that allow you to exclude certain search phrases and terms from your campaigns to remove irrelevant search situations. Negative keywords will result in better targeting by limiting the number of irrelevant searches and by placing your ad in front of interested users and boosting your ROAS as a direct result.
7. Adding a call to action (CTA) button to your ads
By including CTAs, you’re giving users a clear and easy way to take the next step, whether it’s buying an in-app product or service, signing up, or downloading something. Make sure the button is placed in a prominent and easily visible location. Use a color that stands out against the background of your ad. Make the text on the button clear and concise so users know exactly what they’re supposed to do. Concise and well-integrated CTAs will greatly aid in improving your clickthrough rate (CTR) and by extension, your ROAS.
8. Tracking and analyzing your results
Results are only half the battle, make sure to track campaign data to ensure how many paying users you have acquired from your mobile marketing efforts. Analyzing campaign costs and comparing them with the tracked total revenue achieved from acquired users is how you can ultimately realize your ROAS, and also highlight sources that have aided the most in this endeavor. They may be used in future campaigns depending on your campaign requirements.
By following these tips, you can significantly improve your ROAS and generate a better return on your advertising spend in the future.
After reading this guide, you should have a good understanding of how to calculate your ROAS and what factors to consider when setting your mobile ad spend goals and KPIs. Keep in mind that your ROAS may vary depending on your app, app category and GEO, and target audiences. Experiment with different ad spending levels to find what works best for your business.