Improving return on ad spend, or ROAS, isn’t a trick in the book; instead, it’s synonymous with the mechanics of your marketing strategy. This intriguing narrative has twin chapters called “investing in owned channels” and “perfecting user-friendly advertising on third-party channels.”
Owned channels (like email, text, and onsite ads) offer brands the ability to control their narrative and messaging, ensuring that it aligns with their overall brand marketing strategy. Mastery over owned channels promises rewarding ROAS as brands have control over segmentation, targeting, and costs. However, let’s not brush off the importance of third-party channels.
The catch here isn’t merely broadcasting self-serving commercials on these platforms, but more on polishing user-friendly ads. Although third-party channels might pose a higher investment initially, a strategy that allows ads to display only after the user has disengaged from their primary content consumption can heighten the visibility and engagement of your ads. Intrusive ads that interrupt the user experience are a surefire way to drive potential customers away.
This tactical maneuvering can be a great hack for improving ROAS despite the diminishing returns recently associated with third-party channels. So, gear up and step into the realm where striking the right balance between owned and third-party channels forms the backbone of an impressive, rewarding ROAS strategy.
What is ROAS?
Return on ad spend (ROAS) is a fundamental metric in media marketing performance analysis, and it has gained popularity due to its interpretative simplicity.
Essentially, ROAS details the gross revenue formed from every dollar invested in an advertising campaign. This substantiates whether a particular campaign was effective or not. So, a higher ROAS indicates the ad campaign has generated more profit compared to the amount initially spent. It helps in identifying revenue-producing initiatives and allows brands to make informed decisions about future advertising spend.
Digging into the nuances of “target ROAS”, it’s identified as the sought-after return on ad spend that an organization aims to achieve. This target, which varies from business to business, is a fundamental benchmark that helps in the performance evaluation of marketing initiatives.
It operates based on profitability objectives, fueling strategic choices about budget allocation, progress tracking, and optimization of advertising efforts. A well-defined target ROAS can spell the difference between the success and failure of a campaign.
Should an ad’s ROAS fail to meet the designated target, it would signify a need for reassessment or reoptimization. It’s prudent to recognize it as a measurement that aids in comprehending the connection between investment in advertising and outcomes in revenue, i.e., it demonstrates how $1 spent on advertising contributes to your company’s sales.
Represented as a percentage or ratio, a high ROAS percentage suggests that the marketing effort has resulted in higher revenue and vice-versa.
Discarding the notion of ROI obsession and embracing ROAS tips the scales towards acquiring a holistic view of marketing investments, enabling better campaign outcomes. The lesson, at its core, encourages advertisers to differentiate between the measures of success to drive superior investment decisions.
How to Calculate ROAS
Return on ad spend (ROAS) is a critical metric in digital marketing that measures the efficacy of a company’s ad expenditure. The key to calculating ROAS lies in understanding its simple yet profound formula: the total revenue generated from the advertisement campaign divided by the total cost spent on the ad.
This ROAS formula in digital marketing is vital in determining the profitability of an advertising campaign. To put it succinctly, it’s an indicator of how well your investment in ads translates into revenue.
The higher your ROAS, the better your return on investment (ROI). A question that often arises is, what is a good ROAS? While there’s no definitive answer, a good ROAS is typically viewed as one where every dollar spent yields at least $4 in revenue, implying a ROAS percentage of 400%.
However, this figure can vary based on the specificities of each industry and the type of campaign in question. If your ROAS isn’t hitting the desired mark, you might need to rethink your strategy. The solution could lie in switching your approach to owned versus third-party channels.
Nowadays, you can also use online tools like a ROAS calculator to streamline the computation process. Such calculators offer an easy method to determine your ad campaign’s profitability swiftly.
ROAS vs ROI
Delving deep into the intricacies of metrics, let’s shed some light on two pivotal concepts that often get juxtaposed, ROAS and ROI (return on investment).
ROAS and ROI, though seemingly similar, embody distinct characteristics, functions, and implications in the marketing lexicon.
ROAS emphasizes the amount any business receives corresponding to the amount invested in advertising. On the contrary, ROI focuses on the profit amassed against the initial investment, which includes not just advertising but also various costs such as production, staffing, and shipping.
At Wunderkind, we are in the business of making advertising work for you effectively and efficiently. Through supercharging your owned channels and installing post-content third-party ads, we guarantee you revenue.
Wunderkind is a trusted partner for myriad brands aiming to supercharge their ROAS. Learn more.