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3 Winning Strategies to Get a Better Return On Ad Spend on your Digital Ad Campaigns

by | Aug 24, 2021 | 0 comments

An illustration of a grave with the caption stating is SEO dying next to it

It’s a noisy world online.

And, the sound of so many people talking at the same time – not to mention debating, entertaining, instructing and doing all the other things people do to make their views known is overwhelming.

In order to make their voice seen and heard, many business owners respond by posting a constant stream of fresh content on their social networks.

But success in the online space requires consistent organic posting, a well thought out paid media strategy and constant measuring and improvement of performance.  

Even if you manage to get the first two right – far too many business owners quickly find out that while they may be spending a lot of money on paid advertising, they’re not getting the results (ROAS) they hoped for.

In this article, I’ll help you take better control of your marketing by walking you through what Return On Ad Spend is and how you can improve it.  

What Is Return On Ad Spend?

A key metric that marketers track is known as Return on Ad Spend or ROAS for short.

Return on ad spend (ROAS) is a marketing metric that measures the revenue generated for each dollar spent on a marketing campaign.

As the name suggests, ROAS help you measure the effectiveness of campaigns and is one of the key metrics tracked by digital marketers to track the success of campaigns.

Return On Ad Spend Formula = Revenue from Advertising / Cost of Advertising 

ROAS are often expressed as a ratio.

For example, if you generated $400 in revenue from a Facebook campaign that cost you $100 to run, then your ROAS would be 4:1, representing $4 made for every $1 spent.

They can also be expressed as a multiple (4x in the above case).

What this means is that you get $4.00 back for every dollar you spent on marketing. 

ROAS goals can vary by platform, too. A 2:1 ROAS, for example, is about average for Google Ads.

Pro Note:

When calculating ROAS, don’t forget about some of the other hidden marketing costs you may also need to consider such as 

  • Vendor Costs: include the costs of all vendors, including freelance writers, graphic designers, or email marketers
  • Salary: include the cost of any in-house employees working on the campaign
  • Affiliate Commissions: that includes commissions and network transaction fees
  • Overhead: include the cost of equipment and apps used for the campaign

How is Return on Ad Spend (ROAS) Different From Return On Investment (ROI)?

 

While it may be easy to think of Return on Ad Spend (ROAS) being related to the Investment metric Return on Investment, a key differentiator is that ROAS only incorporate money spent on the ad campaign whereas ROIs are meant to track the investment as a whole keeping in view the marketing as well as all other associated costs.

Tips On Improving ROAS 

Running ads with negative ROAS in the long term is pointless.

Yet, it’s a situation which many business owners find themselves in.

If you find yourself in a situation where your ad dollars aren’t performing as well as you would like, here are some tips to improve your ROAS.

 

3 Tips To Improve Return On Ad Spend

1. Improve your click-through rate (CTR)

In digital marketing, CTR stands for click-through rate. 

A metric that measures the number of clicks advertisers receive on their ads per number of impressions.

The formula for CTR looks like this:

Total clicks on an Ad / Total Impressions = Click-Through Rate

In most digital marketing channels – Google, Facebook and Microsoft Ads, the marketing channel rewards ads with a higher CTR by giving them a means a higher Quality Score, which reduces the Cost Per Click and improves your ad rank.

On the Google Display Network, every 0.1% increase in CTR yields a 20% decrease in CPC! The same is true in reverse – decreases in CTR = increased CPC, which sucks.

On Facebook, Quality Score ranges from 1 to 10 (with 10 being the highest) and is even more important! A 1% increase in Post Engagement (people liking, commenting, or clicking on your promoted posts) results in an average 5% reduction in cost per engagement.

A good CTR has a ripple effect, creating a whole chain of positive results. On the one hand, it reduces your CPC making you spend lesser on ads and on the other, if your CTR relates to a Sales conversion – you end up making more revenue.

So, here are a few ways in which you can improve CTR 

  1. Know and target the right audience. It’s important to understand who your primary audience is and what kind of content they’re interested in. With this information, you’ll be able to create ads that will have a higher likelihood of being clicked on by the people that matter most (more on this below).
  2. A picture speaks a thousand words. Incorporate images that grab attention and clearly state what the ad is about.
  3. Better ad copy goes a long way in boosting CTR. The copy is the first thing that a prospective customer will see and read. Make sure it’s compelling enough to drive traffic to your site.
  4. The Headline is key but don’t overdo it with too many words in an ad headline. The headline needs to be short, summative and sharp. It needs to bring out crucial elements of the ad and drum up intensity or curiosity as needed.
  5. Time of day matters. In Google Ads, studies have shown that CTRs are higher during the weekday mornings than on weekends or after 6 pm. Of course, there are exceptions to this rule but it’s important to note that some channels
  6. Contests with giveaways are a great way to drive traffic and can help improve CTR.
  7. Test, test & then test some more. The beauty of digital media is that it’s easy to test different ads, images and headlines so don’t be afraid to give all sorts of ideas a try. Our biases tend to dictate our preferences but the ad copy or the image you think is going to be best might not be, so make sure to test out other options too. Remember the acronym A.B.T. – Always Be Testing.

2.Improve Your Targeting 

I love the fact that you can reach the world on digital marketing platforms.

But the downside to this level of scale is that it’s easy to spend money on the wrong audience.

Since most sophisticated digital marketing platforms give you the ability to narrow down who your ads will be shown to based on key factors such as location, gender age, demographics, interests and other key variables, it’s important to understand WHO you’re targeting in the first place.

And while it may be tempting to skip this step, don’t fall prey to this trap.

You must remove the time to identify exactly who your ideal customer is, what age range they fall in, where they hang out and a host of other factors if you want to run successful ads.

The most successful ads are targeted ones that speak specifically to a specific group of people in a very narrow niche and that only happens if you have complete clarity on who you are targeting.

For a detailed look at how to create a buyer persona, you can check out my article on creating the perfect buyer persona.

Remember, the right targeting will lead to better CTRs and lower cost per click which equates to more profitable campaigns.

Pro Note:

Narrowing down on the audience and getting your targeting right is key to improving ROAS.

But, to improve your ROAs further, make sure you’re sending the right message to your audience by understanding the nuances involved in the messages you are creating.

The person you are targeting is in a different mindset on each platform and also at a different stages in the buyer’s journey so make sure that the content you create MATCHES the mindset of that person when they see your ad.

3.Increase Average order value (AOV) 

When it comes to increasing revenue, our first instinct is to find more customers.

Since revenue & revenue growth are key KPIs that business owners focus on – the marketing industry follows suit by highlighting these numbers in their reports and letting ‘customer growth’ be the key driver in decisions related to marketing spend.

And while there is some merit in that way of thinking, not having a marketing strategy based around nurturing and upselling to the existing client base is a costly mistake that can leave a lot of money on the table.

The first thing that you should think about to improve ROAS is to increase Average Order Value by offering an upsell, cross-sell or product combo as soon as your sale is made.

An increase in AOV means that your business is extracting a higher revenue for the same amount of dollars spent on acquiring the customer.

What Is Average Order Value? 

Let’s look at an example: If your store has a total revenue of $5,000 split between 100 orders, your average order value is $50. This means that, on average, a customer spends $50 for each purchase from your store.

A higher average order value will mean that your clients spend more money with you, and a higher ROI as well.

 

How To Improve Your Average Order Value

As an eCommerce business, you can improve your AOV by either encouraging your customers to purchase more items in a single transaction, or by increasing the price of the most frequently purchased items. Listed below are some of the common techniques you can use to improve AOV:

Upselling:

Retailers use upselling to increase sales by offering a customer a more expensive item that they may purchase instead of the one they already have in their cart and is a great way to increase AOV.

Some common upselling examples are:

  • An airline prompts the passenger flying coach to upgrade to a first-class seat as part of the airline check-in process. 
  • A restaurant menu gives diners the option of adding chicken or shrimp to a salad for an additional cost. 
  • The check-out process for an online book retailer offers the audio version of a printed or e-book for a discounted price. 
  • An auto salesperson recommends that a driver purchase a vehicle with a more expensive trim package that includes amenities such as leather seats. 
  • An online tool or resource is available in its most basic version for free, but unlocking premium, desired features involves paying a fee.

 

Cross-selling:

Cross-selling is a method used to encourage shoppers to add products that are complementary to the originally purchased item. For example, adding a pair of socks to match with the shoes that the shopper has just purchased.

 

Product Combos:

Make sure to create an exciting offer or incentive to encourage customers to buy more items in one go. Product packs or combos are a great way of increasing the value of the purchase. Rather than selling products separately, create a pack comprising of 3–4 items that can offer volume discount to the customer (example, “Save 30% by purchasing 3 or more hand towels”).

 

Pro Note:

Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. It makes sense, then, to do everything you can to sell more to your existing clients.

One way to do this is to improve your email systems to understand more about each respective customer. Email software such as Active Campaign for example offers a sophisticated tagging and CRM framework which allow you to segregate customers based on demographics and preferences. So, for example, if you have an e-commerce pet store for example, taking a pet owner as a dog or cat owner will help you send them relevant emails pertaining to their interests and also allow you to build Custom Audiences for remarketing on platforms such as Google and Facebook.

Summary

Return on Ad Spend is an essential metric for marketers and advertisers.

It helps indicate a campaign’s success by measuring revenue against cost. By combining it with other metrics, marketers can root out issues with campaigns that aren’t succeeding.

Unless you’re specifically focused on raising brand awareness, you should be treating ROAS as a key metric to keep track of how your campaigns are doing since without knowing your ROAS, you can’t optimize for success.

 

Uday Gehani

Uday Gehani

I'm a Web Designer & Digital Marketing Specialist. I enjoy writing posts about Digital Marketing because it allows me to go 'in-depth' and understand marketing from the inside out.

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