Contents
- What is ROAS?
- The Importance of ROAS
- How to Calculate ROAS
- Differences Between ROAS, ROMI, and ROI
- Features of ROAS Calculation for B2B
- How to Improve ROAS
What is ROAS?
ROAS, or Return on Advertising Spend, is an important metric for measuring the profitability of advertising investments. The main feature of this metric is that it focuses not on intermediate user actions, such as clicks or views, but on the final profit and sales. This allows for a more accurate assessment of the effectiveness of advertising campaigns and budget optimization.
The Importance of ROAS
ROAS is often used in performance marketing, making it an indispensable tool for optimizing advertising expenses and analyzing the effectiveness of ads across different channels. For example, if you launch an advertising campaign to sell handmade candies through platforms like VK and Yandex.Direct, you might notice that the reach and number of clicks on Yandex are significantly higher. However, to draw final conclusions about profitability, it's necessary to calculate ROAS.
When analyzing the results, you may find that despite a higher reach on Yandex, sales turned out to be lower than on VK. This emphasizes the importance of using ROAS to adjust the advertising budget and make decisions about reallocating resources.
How to Calculate ROAS
The formula for calculating ROAS is quite simple and requires only two pieces of data: the amount of revenue and advertising expenses. The formula is as follows:
ROAS = (advertising revenue / advertising expenses) * 100%
Advertising expenses can easily be obtained from advertising accounts such as Yandex, VK, and Google. However, to accurately calculate revenue, it's essential to closely monitor how many customers came through the ads and how much they spent. To automate this process, it's recommended to use analytics systems like Google Analytics or Yandex.Metrics, which will help avoid lost data.
Typically, ROAS is calculated for the entire period of the advertising campaign, but it can also be done for specific time intervals, such as a month. This helps to optimize the budget more accurately.
Differences Between ROAS, ROMI, and ROI
Although ROAS, ROMI, and ROI are all metrics for measuring return on investment, they differ in scope. When calculating ROI, all costs and revenues of the company are considered, including expenses for raw materials, employee salaries, and production costs. For example, when selling handmade soap, it's necessary to consider not only the cost of the soap but also the packaging and the salary of the target specialist responsible for the advertising.
ROI = (revenue - costs) / costs * 100%
ROMI, on the other hand, focuses solely on marketing expenses:
ROMI = (revenue - marketing expenses) / marketing expenses * 100%
To calculate all these metrics, it's necessary to know the business margin, which is often a trade secret. Therefore, for quick and straightforward assessments of advertising campaigns, ROAS is most commonly used.
Features of ROAS Calculation for B2B
In the B2B sector, the sales cycle can take considerable time, involving multiple stages such as briefing, preparing a commercial proposal, and approvals. In this case, it is challenging to track which client came through clicking on an ad banner, as many factors influence the purchase, including the competence of the manager and the terms of the deal.
For accurate calculation of marketing metrics, including ROAS, B2B companies are recommended to integrate CRM systems and end-to-end analytics. This allows for the collection of customer data and linking website inquiries, calls, and social media interactions with the CRM, providing a complete picture of customer interaction with the company.
How to Improve ROAS
If your ROAS is lower than expected, don't rush to make hasty conclusions. First of all, ensure that you accounted for all sales. If the results are still disappointing, try applying the following methods to improve the profitability of your advertising campaigns:
- Test creatives: create several ad creatives with different headlines and calls to action to identify the most effective ones.
- Check the competence of specialists: hire a professional target specialist or designer to create more appealing ads.
- Improve the landing page: the website should clearly present the unique selling proposition, and its design should be attractive and functional.
- Analyze conversion at all stages: identify bottlenecks in the sales funnel and fix issues to increase conversions.
- Eliminate ineffective advertising channels: redirect the budget to more successful advertising channels.
- Use retargeting: "warm up" users who have already shown interest in your product to increase the chances of purchase.
By applying these methods, you can significantly increase ROAS and make your advertising campaigns more effective.