Ads play a big role in getting the word out about your company, products, services, and promotions. And while driving traffic to your site and increasing actions on your social posts are both worthwhile advertising goals.
The end result for advertising is always increased revenue.
In order to determine how effective your ads are at driving revenue, you need to learn how to calculate your return on ad spend (ROAS).
As any B2B marketer can tell you, ROAS isn’t always simple to measure.
An Introduction to Return on Ad Spend
Before we get into the specific problems B2B marketers run into when trying to measure ROAS, let’s take a look at some of the questions asked most often about ROAS and the measurement process. If you’re already familiar with the metric, feel free to skip forward to the next section.
What Is ROAS?
In marketing and advertising, ROAS is an acronym for return on ad spend.
It’s 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.
Why Is ROAS Important?
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.
ROAS vs. ROI?
On the surface, return on ad spend and return on investment (ROI) seem like identical metrics. Both measure the amount of revenue generated off of a specific allocation of funds. The main difference between them is that ROAS is a tactical metric while ROI is a strategic metric.
So what does that mean?
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.
How Do You Calculate ROAS?
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:
So if you spent £200 on an advertising campaign and generated £1000 in revenue from the campaign, your ROAS is 5:1—you earned £5 for every £1 you spent on advertising.
It’s also important to keep in mind that the cost of the advertising campaign may need to include more than just the cost of running the ad.
For example, if you paid a graphic designer and copywriter to create the ad, those costs should be included as well.
Where calculating ROAS gets tricky, however, is when you can’t identify the exact amount of revenue generated by your ad campaign. 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.
What Is a Good ROAS?
Source: Nielsen Catalina Solutions
The graphic above shows the results of a decade-long Nielsen Catalina Solutions survey of ROAS for the consumer packaged goods industry. But even in other industries, you can reference these benchmarks to evaluate the effectiveness of your ad campaigns.
However, it’s good to keep in mind that what constitutes a “good ROAS” varies wildly depending on your company’s unique situation. For bootstrapped startups with few customers and minimal advertising budgets, a 2:1 ROAS may not justify the costs of running ads.
In that scenario, you may need to target a ROAS of 5:1 or 10:1.
The Difficulties B2B Marketers Face Calculating ROAS
If you’re in charge of marketing and advertising for an e-commerce site, calculating ROAS is relatively straightforward. Because all of your conversions happen online, you can use most analytics tools to track what campaigns customers arrived from and what they ultimately ended up purchasing and spending.
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. And since marketing and sales teams usually work in separate systems, your marketing analytics tool may never show how ad-generated interest plays out in terms of actual sales and revenue.
To calculate ROAS for a company with offline conversions, you need an analytics tool that enables closed-loop marketing.
A closed-loop marketing analytics tool like Ruler Analytics connects your marketing analytics to the sales team’s CRM, allowing you to access details about customer behaviours across the entire buyer’s journey.
Here’s how it works:
- 1. You run an ad campaign, and a user clicks on that ad. Ruler begins tracking that user’s journey with the ad recorded as the point of origin.
- 2. The user visits a few other blog posts and landing pages before requesting a demo. Ruler tracks all of those interactions and feeds that data into the sales team’s CRM.
- 3. After the demo, the user decides to purchase your product. After the salesperson logs the conversion into the CRM, revenue data is passed back to Ruler Analytics where the revenue generated is attributed back to the originating ad campaign.
Because Ruler integrates with your CRM, you’re able to see exactly how much revenue your ad campaigns generated, even if the conversion happens offline.
How ROAS Helps B2B Marketers Build Better Campaigns
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 Ad Campaigns, You Must Track ROAS
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. Want to learn more? Check out some of our related posts below, or schedule a demo to see it for yourself.