As e-commerce businesses navigate the ever-evolving landscape of PPC, ROAS stands as a key indicator of campaign profitability.
Return On Ad Spend is easily calculated by: Campaign Revenue / Ad Spend
ROAS measures the revenue earned for every £1 spent on your ads. Similar, but not to be confused with ROI, you can use it to determine how profitable your paid campaigns are for your business.
Each business will have different ROAS targets, as it depends on your product margins and advertising spend, but for every £1 you put in, you want to get more out.
If you take a glance at your ROAS targets and find that you’re not achieving said target, you may be leaning towards the conclusion that your paid strategy isn’t working…
Before you turn it off, let’s review some key drivers that influence ROAS and will help improve your paid media campaigns.
Ad creatives and copy
Whether it be an image asset for a performance max campaign on Google Ads or the front and centre of your Facebook Ad, creative assets and ad copy can evoke certain emotions in your potential customers.
Having ads a user can relate to can lead to higher conversion rates, which reduces your CPA and, therefore, increases your ROAS.
The key to the best creatives and ad copy is to test, test, and test.
Continuing to invest in different and compelling creatives allows you to A/B test what your audience resonates with, improving click-through rate and lowering cost per click, as the platform will reward advertisers that have a better and more relevant positioning to the user than others, reducing costs that leads to a better overall ROAS.
Engaging ads contain:
- Highlights of product USPs
- Addressing a pain point/Solving a problem
- Social proof and reviews
- Seasonal messaging
With automated bidding, it is highly recommended to give the platform as much variation as possible due to a “not-one-size-fits-all” user purchase journey. A headline that you think may be the most compelling to your audience may not be the one that always works best.
One user may convert through social proof, while another may be compelled to convert after seeing “free delivery”. Implementing variation allows the platform to determine what will drive the user to your site and convert.
Regularly reviewing ads will help you learn what is driving purchase intent, so you can keep the best-performing ads live, and update low-performing ads.
Improving Post-Click Conversion Rate
When investigating in-platform ROAS targets, it can be easy to overlook the wider picture of the user journey. Once the user makes their way to the website, a streamlined and easy purchase journey should be the priority for a higher conversion rate and better return for the same amount of spend.
Common issues that reduce return include:
- The alignment of landing page messaging and ad copy
- The offer not being as compelling as your competitors
- Slow site speed
- Confusing cart and checkout process
You can use free website tools such as Microsoft Clarity and Hotjar to review where users are spending time on your site. After reviewing multiple recordings and heatmaps, you’ll be able to spot any trends, such as users clicking on certain buttons and how easy or complex the process of adding to cart or check out is.
Blending compelling ads with a smooth website journey will help maximise ROAS.
Managing short-term and long-term objectives
Understanding your overall ROAS target is key to a solid strategy across ad channels. Once you know your ideal target and campaigns have enough conversion data, you will quickly start to see where performance is being driven from.
Making data-driven decisions, such as having individual campaign ROAS targets for different products, is essential to grow your business. This is because each group of products will have different margins, meaning some products will need a higher ROAS target, and others will have more room to push further.
One thing to keep in mind is managing expectations when finding the sweet spot in terms of scalability and profitability.
When targets are set too high, automated bidding may struggle to find opportunities and restrict performance. This indicates the platform will not be looking for new users but will focus on hitting targets even if that means having a low sales volume.
If your business wants to drive more sales, slightly lowering your campaign ROAS targets will strategically allow automated bidding to adjust to finding new opportunities. Going too low will result in increased ad spend, risking profitability, so finding the sweet spot that works for you is essential.
Note: It is also important to know when to make changes. Too many changes in a short period will result in automated bidding not having enough time to learn the intention of the campaigns. So, keep multiple major changes to a minimum, as they can put your campaigns back into the learning phase.
Following on from strategic decisions, being able to utilise the budget effectively will help improve ROAS in the long run. Driving the best ROAS requires efficient ad spend management.
Where applicable, employing dynamic budget optimisations will allow the platform to adjust spend based on real-time data, allowing it to go after the best opportunities at that moment in time.
It isn’t just about drastically increasing spend, as this may not have a linear impact; it involves aligning spend with overall goals and campaign optimisations.
As performance improves and campaigns are spending their daily budget, steadily increasing the budget by small increments, around 10% at a time, is a great way to keep up the momentum whilst continuing to hit the target.
Trends And Competitive Landscape
In any market, there are always fluctuations due to, for example, a new competitor or seasonal peaks.
Being aware and adjusting paid activity to market movements can mitigate the impact on ROAS.
For example, additional competitors bidding in the auction can increase click costs around Black Friday, so reviewing products that have the margin to go into a sale would be advisable.
It’s vital to know when to go hard and when to pull back, referring back to knowing your minimum profitability level that is acceptable for your business and capitalising on opportunities that positively impact ROAS.
In essence, having a comprehensive approach that encompasses creative testing, landing page optimisation, and strategic budget management is key for maximising ROAS and ensuring sustained success.
To do this, you need to know what return is deemed profitable for your business to set the correct campaign targets.
Once set, keep an eye on factors that drive your ROAS, such as conversion rate, the cost of your clicks and external factors like the landing pages.
Make the relevant changes and give the automated bidding strategy time to learn what has been adjusted. It’s an ongoing process, but making the right changes will help improve your profitability and eventually give you consistent performance.
Want to know if your ROAS target is profitable for your business? Try our quick and simple tool here.