If you run Google Ads Campaigns you certainly wonder whether they’re profitable. The agency sends you monthly reports that are either all Greek to you or are missing important data? If so, read our today’s article, we’ll present performance indicators paramount for every online store. It’s high time to find out what ROAS (return on ad spend) and ROI (return on investment) are.
ROAS – what is it?
ROAS is simply the percentage of return on advertising spend. When it comes to Google Analytics you can check ROAS data either in a Google Ads campaign or in custom reports and it’s assessed on the basis of your expenses on Google Ads. The formula for calculating ROAS is revenue/cost*100%. In Google Ads you can check this ratio by dividing the conversion value by the cost corresponding to the return on the ad. However, the result won’t be presented in percentages.
ROAS = revenue/cost*100%
ROI – what is it?
ROI is an abbreviation of return on investment which denotes how profitable your campaign is. To calculate ROI, use the following formula: net revenue/cost*100%. Undoubtedly, you won’t be able to count ROI as quickly as ROAS because to calculate it correctly you’ll need information about production costs or margin products. ROI is a method of estimating the profitability and it’s most frequently used by business owners. On the basis of ROI you can also determine ROAS of the campaign that you’re going to conduct.
ROI = net revenue/cost*100%
Of course, to have the possibility to count anything, first you need to properly configure e-commerce service on your account. Information about the transaction value or given products will also be necessary.
When it comes to online stores, both ROI and ROAS are the most important indicators that need to be considered if you want to run a profitable Google Ads campaign. However, just monitoring these data without attribution modeling isn’t enough, as it may turn out that the performance data won’t be complete in the standard last-click attribution. You should base your choice on various attribution models by carefully analyzing the clients’ purchases before making a decision on how to optimize campaign groups or other marketing activities in your industry.
Running a campaign based on ROI or ROAS data – how does it look like?
In cooperation with our clients, first we find out the sales goals of the most important products. These can be slow moving inventory, sales, special offers but most frequently we start talking about consumer brands or products with the highest margin. Having these data, we can estimate the minimum ROAS below which the campaign won’t be profitable as well as the optimal ROAS which you aim to achieve. The data higher than your goal will be a campaign’s success. Moreover, with these data we can begin optimizing the campaign by taking into account not only the maximum CPC rate and the conversion cost but also the conversion value for individual transactions. It turns out that sometimes it’s a good idea to pay a lot for a transaction that will make a satisfying profit and raise your ROAS because in other case you’ll be forced to lower your CPA/CPC only to increase ROAS.
Remember to monitor the average ROAS/ROI on your account but don’t forget to compare the results for different campaigns. It may turn out that your statistics are significantly overstated by, for instance, brand phrases.
If you have enough transactions on your account, during the entire campaign optimization process we test Google AI solutions, specifically automated bid strategies that already at the stage of learning use hundreds of signals to effectively optimize campaigns. Unfortunately, the automated strategies aren’t always 100% reliable, thus to reach the desired ROAS you need time and skillful account management. Very often we manage to get much better results than those of specialists who conducted a thorough analysis and tested different solutions manually.
Personally, we prefer running the entire Google Ads campaign strategy based on ROAS, as it’s very convenient. The rigid budget doesn’t restrict us, although in some cases such kind of a budget is also necessary when it comes to organizational aspects of large companies. Basing your entire budget on ROAS you can raise and lower it according to the achieved results.
To be able to fully estimate the effectiveness of your campaign, you also have to consider assisted conversions, nevertheless, you don’t take their value into account while calculating ROAS.
Hopefully, now the analysis of your campaign will become even more accurate and your results will be even better. If you should have any trouble while calculating ROAS, ask the company you cooperate with to report these data for you. Remember that in Google Ads, the column corresponding to ROAS is the conversion value/cost.