Return on ad spend is a key marketing KPI that can help you get your business on track. By properly tracking your adverts, you can ensure you’re getting the most from your budget.
Ads play a big role in getting the word out about your company, products, services, and promotions. Driving traffic through increased clicks on your adverts are key advertising goals. But more important than that is driving revenue.
So how do you determine the effectiveness of your ads? Well, it’s easy. You need to learn how to calculate your ROAS, or return on ad spend.
But, as any B2B marketer will tell you, ROAS isn’t always simple to measure. We’re here to help you make it easy.
Table of Contents
Before we get into the specific problems marketers (particularly those in B2B) run into when trying to measure ROAS, let’s take a look at some of the frequently asked questions relating to ROAS and the measurement process.
If you’re already familiar with the metric, feel free to skip forward to the next section.
Let’s start off simple. ROAS is an acronym for return on ad spend. It’s used in marketing and advertising to understand how your paid-for adverts are driving sales for your business.
Put simply, ROAS is a calculation that divides the amount of revenue generated from ads by the amount spent on advertising.
The goal of measuring ROAS is to determine if the cost of advertising yields an acceptable amount of incoming business revenue.
Today’s marketing best practices are all about data. Metrics like increased traffic, followers, and visibility are no longer enough. Company leaders want to know exactly how much revenue marketing and advertising campaigns generate.
ROAS lets you produce reports showing exactly how much revenue your ad campaigns generate for the business. Additionally, it allows you to determine which ad campaigns are most and least successful—and if running ads is even worth the cost—which helps you continuously refine your spend to eventually generate the most revenue for the least costs.
On the surface, return on ad spend and return on investment (ROI) seem like identical metrics. Both measure the amount of revenue generated from a specific allocation of funds.
But what’s the difference?
Most ad campaigns are costs—not investments.
An investment is something that drives value long-term.
Content marketing is a great example. Publishing content to your company’s blog may drive traffic and revenue to your business for as long as the site and content exist online.
Advertising, on the other hand, typically intends to drive traffic and revenue temporarily. Of course, you could gain more social followers or newsletter subscribers from ads, but most of the time, the goal of an advertising campaign is to increase revenue while the ad is running.
You could, in fact, measure both the ROAS and ROI of your advertising campaigns.
In this scenario, ROAS would measure the direct revenue generated while the ad was running, while the ROI would measure how the ad campaign contributed to long-term revenue by increasing brand visibility or product/service awareness.
If you know exactly what you spent on an advertising campaign and exactly how much revenue that campaign generated, calculating ROAS is simple.
Just divide the revenue by the cost:
But, let’s use this example.
Your company spends £200 on an advertising campaign. From that paid campaign, you generate £1,000 in revenue.
Your ROAS is 5:1—you earned £5 for every £1 you spent on advertising.
Sometimes though, calculating your ROAS isn’t quite so simple. What if you can’t identify exactly how much revenue you generated from your advert?
This is a fairly common problem for B2B marketers because most of your conversions happen offline through sales calls.
There is a solution to this problem, though, and we’ll discuss it in the next section.
If you’re in charge of marketing and advertising for an e-commerce site, calculating ROAS is relatively straightforward. All of your conversions happen online. That means you can track which campaigns drove sales. And better still, you can find out exactly how much revenue you generated from those campaigns.
But for B2B marketers, it’s rarely this simple. Sure, you may have some customers who enrol online, but the majority of your conversions likely occur offline through sales calls.
If you’re driving leads through forms, or asking leads to call you, then how do you loop those online conversions to offline sales?
Marketing and sales teams tend to sit in silo. This means that lead data is missing in your sales team’s CRM, and revenue data is missing from your marketing analytics tools.
So, if you set an advert live, how can you track revenue?
To calculate ROAS for a company with offline conversions, you need an analytics tool that allows you to close the loop between your online leads and your offline sales.
Marketing attribution tools allow you to close this gap.
You’ll be able to track every lead and every touchpoint.
Here’s how it works:
Ad impressions and click-throughs aren’t always the best indicators of campaign effectiveness. Consider this example:
Considering only impression, click-through, and ad cost data, ad campaign 1 is the obvious top performer. For the same cost as the other two campaigns, it drove as many as 100 times the number of click-throughs of the lowest-performing campaign.
However, that insight changes when we add revenue and ROAS data to the picture:
By adding revenue and ROAS data, we can now see that although ad campaign 1 drove the most traffic, ad campaign 3 generated the most revenue. This paints an entirely different picture of ad campaign performance—one that can be used to make more informed decisions.
For example, if your goal is to increase awareness, ad campaign 1 is the highest performer. But if your goal is to increase revenue, you need to focus more on ad campaign 3. Access to this data allows you to make decisions that help you reach your top marketing goals.
If you run paid ads as part of your marketing initiatives, you need to track your return on ad spend. It’s the best indicator for determining whether or not your campaigns are doing what they’re supposed to do: generating revenue for the business.
Ruler Analytics makes it easy to track the ROAS of your advertising campaigns—and all of your other marketing campaigns for that matter.