What is ROAS, and how should you measure it?
As a marketer you’ve likely been given a set of business goals that you’re charged with achieving, whether that’s acquiring new customers, prompting existing customers to buy more frequently or encourage them to try new products in an adjacent category.
Regardless of your objectives for the coming year one thing is certain: your success will be measured based on real business outcomes … units moved, revenue generated, loyalty program sign ups. One thing the c-suite won’t be impressed with is a slide that boasts high CTR or a low CPA if your other, truly business-oriented targets have been missed.
The solution? Return on ad spend (ROAS) will help you focus your efforts in media and tactics that drive business results.
CTR: Just one hand clapping
I’d hate to sound like a cynic, but CTR alone isn’t a very useful metric. In fact, it’s rather self serving. It confirms that a specific piece of technology — an ad server or DSP — did what it was supposed to do, namely present an ad to a consumer. But did it ultimately lead to an actual sale or sign-up.
But what does CTR really tell you? To hear pundits tell it, it is an indication of interest. If a consumer clicked on an ad it’s an irrefutable indication that he or she is interested in your brand, right?
Except that as consumers we all know that’s not the case. I accidentally clicked on an ad for a company that sells cutesy tee-shirts and mugs with specific breeds of dogs on them. The idea is that I can opt to have representations of all my pets printed on an item. I don’t do cutesy, even though I do have pets. The ads continue to follow me around the Internet, sadly wasting the marketer’s budget on a consumer who will never convert.
There isn’t a consumer anywhere in the world who hasn’t accidentally clicked on an ad, especially on a mobile device with a small screen. Some estimate that up to half or more clicks are accidental, which begs the question: how meaningful is an ROAS that’s calculated using a suspect number?
This is where return on ad spend (ROAS) is useful. ROAS typically ties back to some combination of cost you incurred for showing an ad to a customer (CPM), along with the click-through rate (CTR) or cost-per-action (CPA). By calculating your ROAS, you can identify which channels and publications deliver the best results for your business, thereby allowing you to home in on the most responsive audiences and eliminate waste in your media plan.
Another option is to calculate ROAS based on specific actions taken, or CPA. But the key here is to ensure that it’s a meaningful action, such as signing up for a newsletter or following a brand on Instagram. These actions set the stage for building a relationship with the customer, and can ultimately lead to conversions and potentially a strong lifetime value. (These actions are also fully GDPR and CCPA-compliant as the consumer has chosen to raise his or her hand to say, “I’m interested”).
By calculating and understanding your ROAS, you will be in a position to understand which channels and tactics actually move the needle for your company or product, whether that’s new app installs that deliver active users, or incremental sales or subscriptions. Ultimately, it can help you design campaigns that are outcome driven, enabling prospects who are new to your brand discover what you have to offer, and build loyalty. In other words, success is in the campaign details.
To find out more about how bespoke ad ops outsourcing can boost your business, get in touch.