How to Calculate ROAS for a Google Ad Campaign

(Source: Do Good Things)

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ROAS is a critical quality metric in Google Ad strategies, like PPC (Pay-Per-Click) and social media management. PPC marketing is also known as SEM (Search Engine Marketing) – it’s a form of online advertising that enables businesses to appear above organic search engine results.

With Google Ads PPC strategy, you bid to appear when people search for specific keywords and terms. Then, every time your ad appears and someone clicks on it, you pay per click. PPC is a well-used strategy when it comes to Google Ad campaigns.

What ROAS Means

Revenue ÷ Cost = ROAS

ROAS stands for Return On Ad Spend, which is essentially a marketing metric for measuring the revenue earned from each dollar spent on advertising.

If you’re familiar with ROI (Return On Investment) in business, ROAS is the marketing term for the same purpose. But in this context, investment is replaced with ad spend.

How to Use ROAS for a Google Ad Campaign

Expectations

Google Ads' PPC strategy is an excellent method for effective results. However, PPC expectations can vary wildly. You can use ROAS to set a benchmark for what success looks like.

Establish a ROAS goal that is tied to profitability – that way, your PPC digital agency or marketers can utilise that metric as a basis for their PPC decisions and measure PPC performance.

Budget

ROAS is a tool to consider when making budget decisions. Much like setting expectations, ROAS serves as a benchmark that helps PPC teams look beyond bids, clicks and conversions.

Utilise ROAS to help determine ideal budgets and ranges that are acceptable. If the spend can be increased and still reach higher than ROAS targets, keep spending as you’ll know you’re in profitable territory.

Bidding

You can make bidding decisions based on ROAS. The ROAS can be calculated at a detailed level, going beyond just aggregate or total spend.

Break down Google Ad campaigns into categories, like ad group, ad type, and alike, to get more control and insight. Knowing the ROAS at different levels allows you to optimise your bid strategies for an overall higher ROAS.

ROAS Metrics to Monitor for a Google Ad Campaign

Cost Per Lead

If your site is collecting leads, you need to know how much you’re paying for each lead. If the cost of each lead is more than the revenue, this indicates that you're not making a return on your ad spend.

Another aspect of CPL is the Lead Close Rate. How are lead closes tracked? Ensure your data is integrated into Google Analytics, Facebook Pixel or alike. Doing so will help you track your digital advertising efforts and show you if your strategy delivers profitable results.

Cost Per Action

Based on your leads and the rate at which they get closed, or in other words, how many leads turn into sales, you can figure out what it costs to get a sale.

To figure out CPA, divide your marketing costs by sales. For example:

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Conversion Costs ÷ Number of Total Conversions = CPA

Average Purchase Value

Seeing the number of orders rise is one thing, but pay attention to the average amount of money spent per order.

Even a small increase in APV can generate thousands of dollars of revenue – increasing your ROAS. Increasing APV can be as simple as up-selling and cross-selling, increasing your site load speed, or optimising your site for the user experience.

Conversion Rates

Look at where your traffic is coming from – is it organic, paid or through social media? This tracking information tells you where the bulk of your customers are and where your digital marketing efforts are producing the most buzz. Keep an eye on your conversion rate per channel.

Much like checking conversion rates by channel, do the same with devices – including mobile, tablet and desktop. If one area has a low conversion rate, it might just be time to reinvest. A great example is often seen in mobile. If your site isn’t optimised for mobile, then, of course, your conversion rate is going to be lower than desktop.

Moving Forward With Target ROAS for a Google Ad Campaign

ROAS is a great strategy and quality guide for paid media. However, it isn’t the be-all and end-all. With valuable metrics to monitor in your Google Ads PPC strategy, additional metrics can be used for success, too – including customer retention and lifetime value.

If you’re at the beginning of your digital advertising journey, whether you’re investing in Google Ad campaigns or other social media platforms, a target ROAS strategy is a great starting point. From there, you can set it at a level that’s profitable compared to your advertising costs.

As a digital marketing agency, we help brands and businesses improve their Google Ad campaigns and increase their ROAS. We create transformational digital solutions across New Zealand and Australia. Get in touch with us today, and let's chat about your Google Ad strategy and how to move forward. Check out our recent case studies.