• What is Ideal or Optimal ROAS?

What is Ideal or Optimal ROAS

ROAS is an abbreviation for Return on Ad Spend. This indicator is used to measure the effectiveness of the advertising campaign and is expressed as a percentage. ROAS is also useful for comparing the performance of different advertising campaigns and determining which campaigns show the highest return on investment.

If the ROAS is high, it means that the campaigns are generating high revenue for the amount of money spent on advertising. Conversely, if the ROAS is low, it means that the campaigns are not performing as well as expected and will need to be optimized or adjusted.

By tracking and analyzing ROAS, we can make informed decisions about how to allocate our advertising budget and how to optimize our campaigns to perform better. This can help us get the most out of your advertising efforts and maximize your return on investment.

The ideal or optimal ROAS varies depending on the type of business, industry and specific marketing goals. The following are some general guidelines and considerations for determining the optimal ROAS for your business.

Critical ROAS (Break Even ROAS) is the return on ad spend value at which the ad revenue is exactly equal to the cost of that ad. In other words, it is the point at which the investment in advertising pays off, but does not yet bring any net profit. By exceeding this value, the company starts generating profit from advertising.

Ideal ROAS is higher than Break Even ROAS, also known as Critical ROAS. They are used automatically when calculating the optimal Target ROAS in BlueWinston campaigns, which are used for the automated creation of product advertisements in Google and Microsoft Ads for your e-shop. Try now for 30 days free.

How do we find ROAS?

ROAS is calculated based on the amount of revenue generated for each unit of currency (e.g. Euro) spent on advertising.

To calculate ROAS, we simply divide the total advertising revenue achieved by the total amount spent on advertising. We multiply the result by x 100 to express it as a percentage. The ideal ROAS should be approximately 1.25 times Critical ROAS or 25% higher than Critical ROAS. These values ​​should be the goal when setting up campaigns in Google and Microsoft Ads.

  1. Industry Standards: Different industries have different average benchmarks for ROAS. For example, e-commerce businesses typically aim for a 4:1 ROAS (that is, $4 in revenue for every $1 spent on advertising), while other sectors may have higher or lower benchmarks.
  2. Profit Margins: Consider your profit margins. If your profit margins are high, you can afford a lower ROAS and still be profitable. Conversely, if your profit margins are low, you will need a higher ROAS to cover costs and generate profit.
  3. Marketing Goals: Your goals for ROAS can vary depending on your marketing goals. For example, if your focus is on growth and new customer acquisition, you may be willing to accept a lower ROAS in the short term if it means long-term growth.

Conclusion

It is always necessary to carefully consider what revenues the ROAS value is calculated from and whether it is netted of costs that do not represent profit. This is important for both reporting results and optimizing campaigns based on ROAS. Because it can easily happen that even if the ROAS looks promising, you may actually be selling at a loss.

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