Is It Time To Stop Avoiding Your ROAS Issues?

The online marketing world is full of acronyms and jargon, isn’t it?

More than once, I’ve heard people confidently use acronyms that I’m not sure they understand. Equally, I’ve been guilty of not wishing to admit that I don’t understand what’s being said to me. This social dynamic creates important conversations where no one really knows what’s going on. Just nod and smile, Jack…

ROAS could be one of those confusing acronyms for many business operators and marketers, especially when it’s often and incorrectly used interchangeably with ROI.

Even if the decryption of ROAS (return on ad spend) is understood, how to calculate and evaluate ROAS to inform marketing and advertising decisions remains a grey area for many businesses.

ROAS = Return on Ad Spend
ROI = Return on Investment

ROAS gives you the first indication of what’s going on with your advertising returns.
ROI gives you the detailed bottom-line impact for the business.

This is a problem. If you don’t know what dollars are coming back to you from your advertising investments, you can’t improve!

This article sets out to help you understand and use ROAS in order to maximize your PPC results.

Let’s pull both ROAS and ROI together in an example

If you have a ROAS of 4.0, you have a $3.00 Gross Profit after $1.00 goes to advertising spend (because you earned $4 for every $1 spent on ads).

Your $3.00 of Gross Profit needs to cover costs of manufacturing, design, customer service, shipping, etc. If the cost of fulfillment is less than $3.00, you have made a Net Profit, which will lead to a positive ROI.

For example, if your cost of fulfillment was $1.50 from your $3 Gross Profit, this leaves $1.50 as Net Profit (ROI).

Total breakdown:

Revenue: $4.00
Ad spend: $1.00
Fulfillment cost: $1.50
Net profit (ROI): $1.50

If you wish to work out your Net Profit, or ROI, as a percentage, the formula is:

ROI = (Revenue Amount – Investment Amount) ÷ Investment Amount

How To Measure Your ROAS

Beyond knowing the formulas and calculations, you need to know how to measure your ROAS by getting the right data inputs at the start of it all.

Here is our three-step process for generating ROAS reports that will transform your advertising success:

Step one: Track everything (beyond the click)

Whatever form of PPC advertising you engage in (Google Ads, Facebook Ads, Microsoft Ads, etc.) is trackable.

This means you can track what happened beyond the click. If clicks result in calls, form fills, online transactions, bookings, live-chats, newsletter sign-ups, donations, registrations, or any other form of transaction that you desire a clicker to take, you can track it.

At this point, you will know your lead count and cost per lead or your sales count and cost per sale (e-commerce).

Most of this tracking is built-in to the advertising platforms – all you have to do is configure and install the correct conversion tracking tags. In some cases, you might wish to use a third-party call tracking software such as CallRail.

Step two: Connect Advertising Data with Business Data

This part is CRUCIAL and is the one that most businesses miss.

Knowing that you had conversions isn’t enough. You need to answer these type of questions:

• Which leads convert to sales?
• What was the value of those sales?
• How many times did that customer return for future purchases? Etc.

Additionally, you need to know what campaigns, ad groups, ads, or keywords, drove those specific conversions.

This allows you to trace back business value to advertising initiatives in order to decide whether to check, raise, or fold your advertising campaigns.

This is typically achieved by one or two main methods:

1. Connect your advertising platform to your CRM. For example, both Google and Facebook Ads connect to Salesforce.

If there is no native integration between your ad platform and CRM, you can often use Zapier to create the connection.

2. Utilize UTM tags in your destination URLs to pass hidden form-fields to your CRM.

These hidden form fields would include medium, source, and campaign information, for example.

You’ll need to ‘prepare’ your CRM to receive these additional fields. Each one is different, so just reach out to them and ask them for help in formatting your CRM to receive source attribution by lead/customer.

Build out your destination URL tagging using Google’s URL builder.

By doing this, when a lead or customer triggered by your advertising campaigns reaches your CRM, you’ll know what advertising initiative they came from. Once they’re in your CRM, you’ll know their value to you.

Step three: Generate ROAS reports

The final piece of the puzzle is to associate your source-attributed-CRM-data with advertising spend.

For example, your CRM will now tell you:

Campaign one: 52 leads | 5 sales | $3,000 ATV | $15,000 revenue
Campaign two: 52 leads | 2 sales | $10,000 ATV | $20,000 revenue

In your preferred form of reporting (can be automated with the right tools or in a sheet), you need to plug in the advertising spend to complete the picture:

Campaign one:
$10,000 spend | 52 leads | 5 sales | $3,000 ATV | $15,000 revenue | 1.5 ROAS

Campaign two:
$10,000 spend | 52 leads | 2 sales | $10,000 ATV | $20,000 revenue | 2.0 ROAS

The above scenario is, of course, simplified. You’d likely drill-down further by campaign ad group, types of sale/customer, single transaction value vs. lifetime value, etc.

Do you see how the picture has changed now? Before having the complete picture, you might think that campaign two sucks because it only had two sales from 52 leads. The average transaction value of campaign two is greater than campaign one, giving it a still-better ROAS!

In this case, you’d likely divert some (or all) budget from campaign one to campaign two in order to generate a better overall ROAS for your business.

You can see how having lead count, cost per lead, and even sales count, are essentially useless and misleading to you unless you have the full picture to illuminate your ROAS.

Closing Call:

Ready your axe!

The title of this article asks you, is it time to stop avoiding your ROAS issues? 

You probably already knew 90% of what was covered in this article but maybe had some small knowledge gaps to fill or needed to see it all pulled together.

You’ve known about the gaps (or total voids) in your measurement and understanding of ROAS for some time now. It holds you back. It causes frustration. It stunts growth.

My friends, you’ve now had your refresher on advertising ROAS. It’s time to stop avoiding the troll under the bridge.

Take out your axe, slay your issues and figure out your ROAS once and for all.

A whole new world of opportunity, clarity, and confidence in your marketing decision-making awaits you.