How to Improve ROAS: A Step-By-Step Guide

Picture this: you’ve poured hours (and dollars) into crafting the perfect ad, complete with catchy copy, stunning visuals, and clever targeting. Then you launch and wait. And the clicks come in, maybe some conversions too. But one question never seems to go away: “Is this ad actually making me money?”

If you’re like most business owners and marketers, you’ve felt the sting of wasted ad spend. What is a good return on advertising spend anyway?

On this page, we’ll provide the ROAS meaning, break down the significance of the return on ad spend metric, how to calculate it, and, most importantly, how to increase ROAS so you can get more value from every dollar spent.

Key Takeaways:

• Return on ad spend (ROAS) is an advertising metric that tracks the amount of revenue generated from every dollar invested in your ad campaign.
• Every industry has its own unique ROAS benchmark, based on advertising strategies, conversion goals, and sales cycles.
• Some strategies to increase ROAS include competitor analysis, diversifying ad platforms, optimizing audience targeting and ads for different devices. A lot can be improved by using advanced tools for ad tracking and campaign enhancement like RedTrack.

What Is ROAS in Marketing?

So, what is ROAS? Return on ad spend is a key performance indicator (KPI) used in online and mobile marketing to measure the efficiency of your digital advertising campaign. This metric tracks the amount of revenue generated for every dollar invested.

While there are multiple digital marketing metrics, none of them bring the money to the fore like ROAS return on ad spend. It helps you determine if the money you’re investing in advertising is actually generating revenue or just getting lost in the noise.

What does a high ROAS mean for business? Basically, it’s good news that signals that you’re generating significantly more revenue from ads than spending on them, that the campaigns work properly, and that they’re profitable.

If this metric is low, then it’s a sign that you need to improve ROAS by revising your ad strategy and ensuring that every invested dollar is earning you multiple dollars back. Therefore, this indicator can guide your decision-making, helping you make calls regarding what to change or how to allocate your budget.

Are ROI and ROAS the same thing? Actually, they’re not. While ROI and ROAS are closely related, they measure distinct metrics and address different questions. ROAS only includes ad spend, while ROI factors in all costs. So, you could have high ROAS, but a negative ROI if your non-ad costs are high.

Moreover, mind that ROAS is a non-static metric. It’s a fluid, non-fixed, real-time performance indicator that requires continuous monitoring. It’s subject to change over time due to several factors, including campaign optimization, customer behavior, attribution windows, and conversion delays.

How to Measure ROAS

Calculating return on advertising spend is quite straightforward. Here’s the basic ROAS formula:

ROAS = Revenue from Ads ÷ Cost of Ads (Ad Spend)

For example, let’s say you spend $700 on a Google Ads campaign that generates $3500 in revenue. Using the formula, here’s how to determine your ROAS:

Sample ROAS calculation: $3500 ÷ $700 = $5

That means that for every $1 spent in the campaign, you generated $5. That’s your ROAS.

There are various ways to demonstrate your ROAS. You could express it as a ratio showing the revenue generated against the ad spend. In the above example, you could mark your ROAS as 5:1 ($5 for every $1 spent).

You could also express it as a percentage by multiplying your result by 100. In the above example, your ROAS is 500%.

The ideal ROAS might vary depending on industry, business model, and platform. But generally, a higher ROAS indicates a more effective campaign.

What Is a Good Return on Ad Spend?

There isn’t a one-size-fits-all metric to define a “good ROAS” since every industry and company has its own unique advertising strategies, conversion goals, and sales cycles. But giving an average return on ad spend, most marketers often use 4:1 as a healthy ROAS benchmark.

Keep in mind that this would be considered an outstanding figure in some industries and a campaign failure in others. A recent EMarketer report on ROAS suggests the following metrics by industry:

• Automotive – 2.79
• Electronics – 3.93
• Beauty and personal care – 3.01
• Sports and outdoors – 4.98
• Clothing, shoes, and jewelry – 3.92

Even then, these benchmarks vary significantly across different platforms. For example, you have to factor in that the average conversion rate for the Google Ads search network is 4.40% while the average rate for Facebook Ads is 9.21%. This can directly influence your metrics.

Likewise, margins matter too. For instance, high-margin businesses, like digital products, might be comfortable with a lower ROAS, while lower-margin businesses, including retail and e-commerce, often need a higher ROAS to remain profitable.

The campaign’s goal should be taken into account as well. If it is to drive sales and conversions, a higher ROAS is preferable. If the goal is to boost brand awareness, a lower ROAS may be ideal.

Any specific advice, though? The rule of thumb is to steer clear of a negative ROAS, such as when you spend $1,500 on a campaign that generates $750. This may indicate that you need to rework your campaign urgently.

How to Increase ROAS: 13 Effective Ways

If you’re looking to increase ROAS, you need more than just a good ad. You need a well-rounded, strategic approach. Here are the top tips to help you steadily improve ROAS over time.

Monitor What Competitors Are Doing

Your competitors likely use ads to convert. Since you have the same objectives, you can borrow some of their ideas to make your ads more convincing to potential leads and create a successful campaign. Knowing what works for them and what doesn’t can inspire smarter moves in your campaign.

Analyzing their keyword choices, ad creatives, and audience engagement patterns can help uncover opportunities and gaps in your own campaign. While it might not be possible to see the exact PPC ROAS from their ad campaigns, there are ways to find the platforms they leverage for their paid ads.

Look into Campaign Data

If you want to increase ROAS, make it a habit of regularly reviewing your ad performance. Maybe your Instagram ads are racking up numbers while your Facebook ads are barely making any impact, even though your budget allocation is even. If so, some change is likely needed ASAP.

Regularly review campaign metrics like click-through rates (CTR), conversion rates, customer acquisition costs (CAC), and cost per click (CPC). Plus, adopt privacy-first ad tracking technology to track your ad’s effectiveness without compromising user activity and adhering to regulations.

Small tweaks based on real-time analytics often lead to significant ROAS improvements. A few best practices in this respect are to:

1. Leverage analytics to spot high-performing keywords, audiences, and placements.
2. Then reallocate budgets to these areas and refine targeting for improved efficiency.

Review and Diversify Used Ad Platforms

Relying on only one platform, say Google or Facebook, limits your reach and exposes you to algorithm changes and rising costs. Implement cross-channel marketing and diversify your ad spend across multiple platforms like YouTube, Instagram, TikTok, Pinterest, LinkedIn, and email.

Each platform has its unique user behavior and strengths. This helps you meet new audiences where they’re most engaged and optimize your cost per acquisition. Brands using three or more ad platforms consistently tend to increase ROAS successfully.

Determine and Scale Your Top-Performing Ads

Identify the top-performing ads that drive the most conversions and double down on them. As such, you can use RedTrack to determine which ads generate the most conversions.

Here are two ways to scale your best ads:

1. Vertical Scaling — Involves increasing the budget for your current ad set to maximize the impact of ads that are already successful. This exposes your ads to a larger portion of your target audience and boosts impressions, conversions, and clicks.
2. Horizontal Scaling — Involves duplicating successful ads across campaigns to reach new segments and audiences. It might also mean you have to tweak the creatives to refresh their appeal while maintaining effectiveness.

Analyze and Optimize Audience Targeting

Even the best ads perform poorly if shown to the wrong audience. Say, if you run an e-commerce store targeting seniors, it doesn’t make sense to advertise on TikTok, whose average user is below 30.

To make the most of your effort, consider using AI-powered tools and CRM data to segment your target audience based on demographics, intent, behavior, and past engagement. Leverage lookalike audiences, retargeted lists, and detailed interest targeting to reach users most likely to convert. Each advertising platform has unique benefits. If you’re just starting out, the safest platforms to consider are Google Ads, Facebook, and YouTube Ads.

Cut Down the Ad Cost Strategically

Improving ROAS isn’t just about increasing revenue; it’s also about cutting costs. One common mistake is that brands throw in lots of money attempting to recreate TV commercials. Focus on lowering ad spend without compromising quality.

Your campaign would perform better if you invested more in clicks, impressions, or diversifying ad platforms. Also, focus on improving your Quality Score (Google Ads) and Relevance Score (Facebook Ads).

Here are some more ROAS optimization tips to help you lower your ad spend:

• experiment with manual and automated bidding strategies;
• pause underperforming ads so you can reallocate your budget;
• schedule ads during peak times when your target audience is most active;
• test and rotate different ad formats, visuals, and messaging to find what works best;
• adopt the right ad tracking software to spot wasted ad spend.

Improve Ad Content and Messaging

Your ad’s performance hinges on two key factors: its visual appearance and its content. You want your ads to captivate your audience and address their needs. Therefore, your messaging should be concise and direct. Use persuasive writing tactics, such as pattern interrupts, to grab their attention.

To really know what resonates better, test different headlines, visuals, and ad copies through A/B testing to see what works best. And use strong calls-to-action (CTAs), as you don’t want to grab their attention but then fail to follow through and convert because you haven’t told them what to do.

Enhance Your Keyword Usage

Your keyword strategy is the backbone of your ad campaign. Use a combination of high-intent and long-tail keywords to target customers that might be ready to convert, such as “buy walking shoes for seniors” and “free shipping”.

Also, pay attention to keywords that get clicks but don’t convert. Add those to your negative keywords list so users searching for those keywords don’t see your ads. You don’t want to pay for clicks that don’t convert, so avoiding them can help increase ROAS too.

You can also monitor your competitors’ keywords to find inspiration and gaps in your strategy. However, continuously audit your keyword strategy, regularly adding profitable and negative keywords.

Optimize Your Ads for Different Devices

Users interact with your ads across multiple devices, such as desktops, tablets, laptops, and smartphones. Each of these devices displays your ads differently. If your ad isn’t shown meticulously, your audience won’t take the desired action.

Ensure your creatives, landing pages, and CTAs are responsive, load fast, and are easy to navigate across all devices. Test device-specific ad formats and bid adjustments to maximize performance where your audience is most active.

Leverage Ad Retargeting and Remarketing

Some users engage with your ads but don’t convert. Retargeting and remarketing are other tactics on how to improve ROAS. They allow you to target these users. And since the users are already familiar with your brand, these strategies often yield higher conversion rates and ROAS at a lower cost.

Set up dynamic retargeting ads based on user behavior, such as products viewed, pages visited, or abandoned carts, to personalize the follow-up and increase CLV. Also, leverage attribution modelling to go beyond last-click analysis.

Make Higher-Converting Landing Pages

Your return on advertising is only half of the equation. Your landing pages also do the heavy lifting and seal the deal. They should grab your customers’ attention, explain why your product is great, and nudge them to convert.

Here are some pointers to create high-converting landing pages:

• craft a captivating headline that sums up your unique value proposition;
• apply conversion-driven storytelling in your copy;
• use visuals where necessary;
• keep it short and straightforward;
• optimize page speed;
• use strong CTAs.

Boost CLV and CRO

Customer lifetime value (CLV) and conversion rate optimization (CRO) play crucial roles in maximizing ROAS. Don’t just focus on the first sale. Instead, build strategies to boost repeat sales, upsells, and cross-sells.

Implement email marketing, loyalty programs, and personalized offers to boost CLV. Meanwhile, CRO tactics like accurate data collection, A/B testing your landing pages, and optimizing checkout flows help you convert as much traffic as possible.

Review Non-Ad Factors Impacting ROAS

Sometimes, low ROAS isn’t just about the ads. It could be caused by what happens after. Poor customer service, shipping issues, poor product quality, hidden costs, or confusing website design could also sabotage conversions and return on ad spend.

Conduct a complete audit of your sales funnel, user experience, and fulfilment processes to ensure there’s no friction and that they support your efforts. Addressing these points can improve ROAS without additional expenses on advertising.

Concluding Thoughts on How to Improve ROAS

Return on advertising spend is more than just a marketing metric. It measures the effectiveness of your ad campaigns and overall ad strategy. And it goes beyond cutting costs. It’s about identifying what works, what doesn’t, and reallocating your budget accordingly.

Whether you’re running paid ads on Google, Facebook, Instagram, TikTok, and beyond, knowing the ins and outs of ROAS optimization can make the difference between a successful ad campaign and draining your budget without moving the needle.

What can help you know for sure? RedTrack can become the leverage that stops all the guesswork through unified tracking, cross-channel attribution, and real-time performance insights.

You can use it to identify the channels, creatives, and audiences delivering true ROI so you can double down your efforts and budget accordingly. You can take it for a spin during a free trial and see how exactly it can help your business take its advertising game to a whole new level.