ROAS – What is it and why does it matter?
When you approach your digital agency about results on Facebook, unfortunately most will tell you about your impressions, clicks and even how many more likes you got.
All sounds great, but aren’t you more concerned about how much money they generated for you? You’re obviously paying them for their ‘expertise’ and Facebook for the ad space, so with all that money going out the door, isn’t it important to know what’s coming back in?
There’s lots of terms they could also throw at you like Cost Per Acquisition (CPA) or Cost per Conversion (CPC) but whilst that all sounds impressive and may make them look good, the only one you should really be bothered about is Return On Ad Spend (ROAS).
ROAS doesn’t care about the margins like Return On Investment (ROI), it concentrates exclusively on ad spend. Your ROAS, calculation is simply the profit from advertising divided by the cost of advertising i.e. money in / money out. We look at it like a vending machine; for every dollar I put in, how many dollars came out the other end?
For example, let’s say, you ran a campaign that generated $2,000 in sales and $1,000 in ad spend.
2000/1000 = 2
Therefore, an ROAS of 1:2 is a 200% return or for every $1 you put in, you got $2 back.
So, what’s a good ROAS? Generally, we see most agencies happily boasting an ROAS between 2 – 4. Hey, doubling, tripling or even quadrupling your money isn’t bad! Bear in mind, you still need to cover costs not included in this calculation so generally aim for 1:4. What your true target ROAS is of course depends on your revenue, margins, operating costs etc.
Take a look at a screenshot taken from a campaign we ran earlier this year (2020). We were put up directly against another agency by a client for their e-commerce contract. Looking at the results, whilst we generally did better across the board, the key points to note are the Spend, Purchase Conversion Value and the ROA.
Our competition spent a total of $929.46 on ads and generated $8,451.07 in sales giving them an ROAS of 1:9 or 900% return or for every $1 they spent, they got back $9. Bravo! That is undeniably a good ROAS.
In comparison, we spent marginally less on ads by just $3.96, but generated $47,189.00 in sales giving them an ROAS of 1:51 or 5,100% return or for every $1 we spent, we got back $51.
So, whilst Impressions, Clicks and Likes are all well and good, don’t get distracted by them. Make sure you’re across what the bottom line is regards income and expenditure of your Facebook campaigns, because you can’t take Likes to the bank.
Warning! Incoming, unadulterated self-promotion: If you would like to learn how to achieve these results for yourself, check out our Facebook Marketing and Management Training Course: Online Social Media Marketing Course