The 7 Keys Of ROAS For Long-Term eCommerce Growth

Written by Reese Garcia
Director of Data Operations

What is the ROAS formula?

ROAS is a common marketing metric in the PPC world and stands for return on advertising spend. What’s the formula for ROAS? ROAS is simply your total revenue divided by your total ad spend:

ROAS = Revenue / Cost

If, for example, you generate five dollars in revenue for every dollar in ad spend, then your ROAS would be a 5. Or if you generated $80,000 in revenue and spend $20,000 on ads, then you’d have a 4 ROAS.

One thing to keep in mind about ROAS: it’s not the same thing as ROI, or Return on Investment. The calculation for ROI is (Revenue - Cost) / Cost.

To use one of our earlier examples, if you generated $80,000 in revenue last month and spent $20,000 on ads, you’d have an ROI of 4. A ROAS of 5, for example, is equal to an ROI of 4.

While ROAS is a simple ratio of dollars earned to dollars spent, you may prefer ROI to get a clearer understanding of your earnings after costs.

The 3 Pillars That Support Your ROAS

ROAS isn’t a universal measure across ad accounts. Meaning, some businesses are happy to get a 1 ROAS while some may barely scrape by with a 4 ROAS. Let’s talk about the three underlying pillars that support your ROAS.

1. Profit Margins

The first pillar that supports your ROAS is your profit margins. And deciding what ROAS you should have before understanding how your margins tie into it is a completely useless exercise.

2. Average Order Value

The second pillar behind your ROAS is your average order value (AOV). Your AOV is the average amount your customers pay at checkout, and how much your customers spend at checkout can quickly make the difference between a low ROAS and a high ROAS.

3. Customer Lifetime Value

If hearing about lifetime value (LTV) reminds you of sitting in the backseat of your parents’ car as a kid and repeatedly asking “are we there yet?” I don’t blame you.

What is a good ROAS for Facebook?

According to a 2015 Nielsen study, the average ROAS across most industries hovers around 287% and a common ROAS benchmark is a ratio of 5:1, or $5 in revenue for $1 ad spend.

Our own data looking at nearly $5 million in Facebook ad spend shows an average ROAS of 3.62.

How to Calculate Delayed Attribution for Facebook Ads

Calculating your delayed attribution sounds harder than it is. All we’re doing here is solving the gap between the time visitors click your ads and when they buy.

To calculate your delayed attribution, you’ll need to open up your columns in Facebook ads manager, customize your columns, and click on the “Comparing Windows” link so that you can view your 1 and 28-day attribution windows.

What is a good ROAS for Google Ads?

Just like with Facebook, delayed attribution can impact your ROAS, and your Google Ads ROAS will depend on the kind of traffic you’re targeting.

4 Strategies to support your ROAS in the long-term

Having a clear strategy with ongoing adjustments to support your strategy is crucial to maximizing your ad account’s ROAS.

1. Use Email Marketing to Your Advantage

Emails today equal revenue tomorrow. As such, email marketing is one of the best ways to get more mileage out of your ROAS.

2. Offset Your Advertising Costs with SEO

Speed and control are on your side with paid ad campaigns, but you can offset some of these advertising costs by investing in SEO.

3. Improve Your Conversion Rates with Chatbots

You can use chatbots to help your customers find a product they’re looking for, learn more about your brand, and even answer simple questions.

4. Build Subscriptions, Referrals, and Loyalty into Your Offerings

If there’s one takeaway you get out of this post, it’s this: you’ll generate more earnings from loyal, existing customers than from trying to acquire every new customer you can.