The effectiveness of a Google Ads campaign can be evaluated in a number of ways.
But at Springer Marketing, we believe that when it comes to monitoring the success of your campaigns, ROAS should to be one of your top priorities.
Do you want to know how to determine your ROAS? That is what we will cover in this post.
Why You Need to Calculate Your ROAS
ROAS is much more than just another acronym.
In short ROAS = Return on ad spend.
In other words, how much money do you make back for every pound you spend on advertising?
How to Calculate ROAS (Free ROAS Calculator)
So, what is your current return on ad spend?
The calculation is actually quite straightforward. To start, you must decide:
How much money you spent on Google Ads ( your ad spend)
How much money you made on the products sold by those ads (revenue)
Then simply enter those figures into the following ROAS formula:
Revenue x Advertising Costs = ROAS
You may also use our ROAS calculator below:
ROAS Calculator
Heres an example
Okay, let’s say you spent £500 in ads and made £1000 in revenue so far this month. Your formula would look like this:
1000 (Revenue) ÷ 500 (Ad Spend) = 2
This means you’re looking at 200% (2X) ROAS.
And that sounds pretty good right?
You doubled your money!
Well, for many businesses, 200% might not even mean they break even.
Sure, you doubled your money in ad spend; but ideally, the revenue those ads generate should do more than just pay for themselves, we want our return to cover the majority of your fixed costs, too!
So What Should Your ROAS Percentage Be?
Here’s an answer you’ll be used to hearing if you have worked with any marketing agency!
It depends!
Generally, a 300% return (£3 in revenue for every £1 spent on advertising) is considered the target figure for ROAS.
But in the real world every business is different — with different costs and overheads.
Really It’s About Profit Margins
Between rent, rates, shipping, production costs, staff costs and insurance – the list of fixed costs will vary depending on your business and how it is run.
To work out what your ROAS target percentage should be, you first need to calculate your profit margin.
The larger your profit margin, the lower your ROAS target percentage needs to be.
A smaller profit margin will mean your need to set a higher ROAS target percentage.
Heres Another Example
Let’s say you have a 25% profit margin.
So, after paying all your costs including rent, staff, manufacturing costs, a marketing agency, and every other fixed cost your business may have- you still manage to make a 25% profit of the money you bring in.
Now, Use Your Profit Margin to Calculate Your ROAS Goal
To figure out your ROAS target percentage goal, we need to solve y:
100% = (Current Profit Margin%) X (y)
The ultimate business goal is to reach 100% profit, to do this you need to determine how many times your current profit margin must be multiplied.
So, here’s that equation using the example above of a 25% profit margin:
100% = 25% X (4)
In this example, you need to multiply your profit margin by four to reach 100% profit. This puts your ROAS target percentage at:
400%
In other words, whatever the multiple is (y) that you need to reach 100% profit (using your current profit margin) is your minimum ROAS percentage goal; just turn that number into a triple-digit (e.g. 4X = 400 and 2.5X = 250) and add a percentage sign to the end.
And the you have it you now know your target ROAS percentage.
An Review Of ROAS Calculations
Let’s complete a quick run down of ROAS:
- To calculate your current ROAS%, divide your revenue by the amount of money you spent on ads.
- To calculate your ROAS% target percentage, workout what your current profit margin is and how many times that number must be multiplied to hit 100% profit.
Where Do You Measure ROAS in Google Ads
Should you measure ROAS in a campaign or Ad Group level?
Believe it or not, ROAS isn’t actually a pre-existing column inside of Google Ads. You can, however, customise your dashboard to include ROAS%. You can do this by creating a custom column using the formula above. It’s up to you about where you want to see this data.
Why Your Google Ads Management Agency Should Use ROAS To Measure Success
ROAS is a glimpse at the bigger picture. Your ROAS percentage is more than how much money you get back from your advertising spend; ROAS is a great way to track your overall business.
While other Google Ads metrics such as click-through rate, impressions, and cost per conversion are valuable in tracking your eCommerce stores success, they don’t show us how much revenue is coming in.
They tell us about leads and visitors, but not the quality of those leads & visitors.
Think of it like this: ROAS shows us that, while some Google Ads campaigns might be poor for delivering traffic metrics, they might actually be your most profitable!
If your Google Ads Management agency is not tracking ROAS, how do they know what to change and what is working?
