Understanding your business’s returns on investment (ROI) and return on ad spend (ROAS) is important to having a performing marketing campaign.
Especially with a pay-per-click (PPC) ad campaign like Google Ads, the costs need to be worth it for your business.
What is the Difference Between ROAS and ROI?
ROI stands for Return on Investment. This metric is the amount of money that’s left over after all costs have been deducted. ROI can help influence lots of other decisions within the business, and is applicable outside of the digital marketing space.
ROAS stands for Return on Ad Spend. This metric is the ratio of how much is spent specifically on ads and how much you earn from it.
Rather than just looking at the overall ROI of a large campaign, ROAS allows a business to evaluate the success of a specific ad set. This is an important distinction since evaluating an overall campaign doesn’t specify which specific parts of it are performing well or subpar.
It’s important to note that “ROI of a specific ad set” and “ROAS for an ad set” are the same thing in most cases and are often used interchangeably. ROAS indicates if the ad set is working, and ROI tells if your business is making money.
Now that we know what’s what, how do we know what a good ROI and ROAS is?
What is a Good ROI and ROAS?
Looking specifically at Google Ads, the average ROAS is around $2 per $1 spent, according to Google. Going above this average is the goal. We have seen Google Search Ads go up to $8 for every $1 spent.
Good ROI is very industry-dependent, so when you’re judging your ROI, it’s important to factor in your overall other costs.
A high ROAS is necessary to maintain a profitable business if you’re already spending most of your budget on other costs to produce or distribute your product.
When considering an ROI for your whole business, anything above 3:1 is good.
So let’s find out how good your ROI and ROAS are. Here’s how to calculate it:
How to Calculate ROAS
To calculate your ROAS, you will need to already have some data from your Google Ads campaign about your total revenue from the ads and the total amount you spend on ads.
To calculate the ratio, just divide these two numbers.
ROAS = (Total Ad Revenue / Total Ad Spend) * 100%
Or you can represent the fraction as a ratio by simplifying the numbers:
ROAS = $800 / $8000 = 8:80 = 1:10
How to Calculate ROI
To calculate your business’s ROI, you will need to know your total revenue and total expenses. Even if you’re trying to evaluate your Google Ads, ROI factors in the costs of everything else that goes into creating and selling your product or services.
Costs like management and manufacturing, distribution, or paying your workers are all factored into this cost.
First, find your net profit from your total revenue minus total expenses:
Net Profit = Total Revenue – Total Expenses
Then use this to find your ROI by dividing net profit by your total expenses:
ROI = (Net Profit / Total Expenses) * 100%
You can also use features in the Google Ads dashboard to track your ROAS.
Here’s how:
- Ensure Conversion Tracking is set up. You will have to set it up to count whenever a user takes the specified action after going to your landing page.
- Link your Google Ads account with Google Analytics.
Next, let’s talk about how to optimize your Ad Spend to maximize ROI from Google Ads…
How to Optimize Ad Spend for Maximum ROI
There are quite a few ways to optimize how your Ad Spend is used for Google Ads. If you’re looking to really optimize, sometimes this requires micromanaging your Google Ads bidding to target very specific consumers.
Continuous monitoring of a Google Ad Campaign can be one way to optimise your Google Ad Spending. This may require changing ad targeting and bidding strategy, A/B testing ad copies and creatives,
Here are some things you can do:
- Changing targeting bidding strategies: Using smart bidding. Adjusting bids to target specific locations and times of day
- A/B testing: Testing your Ad copy and creative to get more high-quality clicks can be an effective way to change your.
- Focusing on top-performing keywords: Using only relevant keywords that match users with high conversion intent. This will improve Ad Relevance, which can improve your Click-Through Rate
- Track and optimize KPIs: Increase your conversions and other KPIs to ensure conversions.
Optimizing other KPIs like Cost Per Acquisition and increasing your Conversion Rate can help save money and reduce the overall costs of business while maintaining or increasing the number of customers from Google Ads.
For instance, if your ROAS is low, you can try to decrease your actual costs while maintaining the same amount of return by increasing metrics like Quality Score to reduce the cost of bids.
All of these options take time and specialization. Google Ads can be highly effective and profitable if done right. Even if you don’t have a good ROI from Google Ads right now, don’t let that discourage you.
If you find you don’t have the time for managing Google Ads, or don’t know where to start to optimize them, consider hiring MPire Marketing to manage your Google Ads and improve your ROAS.