01 September What is a Good ROAS in Ecommerce?
Ecommerce metrics are critical for understanding the performance of an ecommerce business. They can help you to understand what’s working well for your business, where investments make sense, and what you need to work on.
ROAS, or Return on Advertising Spend, helps businesses understand how their advertising budget is performing.
Advertising spend can notoriously get out of hand. It’s important to utilize a good ad strategy, across multiple channels, in order to get the most benefit. The best ad strategies understand their buyers and use this to optimize keywords and targeting.
A good ROAS means that your advertising is performing well, and you are receiving good quality orders due to your advertising efforts. A poor ROAS requires work before profits slip away.
So, what is a good ROAS in ecommerce? That depends entirely on your market, your products, and your buyers’ engagement with advertising.
What is ROAS?
ROAS stands for Return on Advertising Spend. Put simply, how well is your advertising performing? Is it generating sales?
A high ROAS means that your advertising efforts are working, and you’re generating a good amount of sales to offset the advertising spend.
A poor ROAS indicates that your advertising needs to be optimized. You might also find that your customer acquisition cost (CAC) is increasing, too. It’s easy to overspend on online advertising and blow through your budget, so it’s important to monitor your ROAS.
The ROAS formula is as follows:
ROAS = Revenue / Ad Spend
For example, if you generated $100,000 in revenue, but spent $20,000 on your advertising budget, your ROAS would be 4. Ultimately, you’re aiming to spend as little on advertising to generate good sales revenue.
What is a Good ROAS?
What is considered a good ROAS depends a lot on your ecommerce business. Overall, your ROAS figure should be as high as possible. What is achievable will vary depending on the market.
Firstly, a good ROAS will depend on the buyers. Some audiences or demographics may be more impacted by online advertising than others. For instance, a younger audience might be savvier about online ads.
Your product offering and market are also important. Products in oversaturated spaces will find effective advertising more challenging, as competition is fierce. Your product itself might not resonate with your buyers through advertising.
Each of these factors can limit your ROAS, and there aren’t simple fixes, especially if you’ve already invested in the inventory.
Not only that, but the definition of a good ROAS’ can vary for each business. Startups might target a much higher return on investment, as they need the funds for growth. Companies launching new product lines might favor an increased conversion rate, rather than revenue.
Generally, a ROAS figure of 4, or 400%, is a good starting point. This goal is achievable for most businesses with an optimized advertising strategy. However, your business needs might vary.
Facebook and Social Ads
Your choice of advertising platform will also dictate what kind of return is achievable. Facebook and Google both generate huge amounts of revenue from their advertising platforms. However, their targeting methods can impact your advertising spend.
Facebook uses machine learning to optimize your ads and find your buyers. It might seem counterintuitive, but simplifying your ads helps algorithms to understand your product offering, and who is interested in it.
Research suggests that the average ROAS of Facebook advertising is around 3.5. This might seem like a low return. Consider your profit margins, target return, and what kind of ROAS your business needs. This might help you to decide whether Facebook advertising is the right platform for you.
Google and PPC Ads
Google’s advertising algorithm works a little differently. In traditional PPC advertising keywords are critical. You need to find the right keywords that reach your buyer, for your business.
Keywords should have plenty of search volume, with as little competition as possible. Your market and available keywords can impact your ROAS here.
Google’s algorithm is learning and offers suggestions as “broad match” keywords. However, your initial keyword research needs to be based on your target buyer, your product offering, and market research.
Google Shopping Ads can also help to improve your return on advertising spend. These are tailored towards those looking to purchase, so investing in these can be money well spent. Again, your keywords are key here.
Amazon marketplace also provides a PPC ads service for the platform. Similarly to Google, the key is choosing relevant keywords. However, Amazon ads also need to be visually appealing, with eye-catching product photos or videos.
Support your ROAS
It’s important to always continue optimizing your advertising as your products change, and as you learn more about your buyers. However, there are other key strategies that can support your ROAS and drive sales and revenue. Your marketing plays a critical role in generating sales and reducing advertising costs.
Combine your advertising efforts with your email marketing campaigns. Around 80% of online shopping baskets are abandoned. You might have spent a good amount of budget getting your customers to the checkout, but what do you do when they don’t make the purchase?
Your email marketing should work in tandem with your advertising. Re-marketing and email drip campaigns should be triggered when a buyer doesn’t checkout. Perhaps you could offer them a discount to seal the deal, or provide free shipping? Always make sure you touch base with new subscribers, too.
Inbound marketing is another powerful tool for sales generation. Utilize organic content, social media communication, and SEO to reach out to customers without a fee. Website SEO helps your webpages rank organically for your chosen keywords and can back up your Google Ads strategy. Ultimately, reducing spending where possible helps your ROAS.
Key metrics like ROAS are critical to successful ecommerce analytics. Consistently analyzing your business performance, from all angles, helps you to understand where to invest your time and capital.
The best advertising strategies need the best tools and the right level of investment. This means investing in your advertising. If you need support or capital, Yardline can help. Yardline provides up to $20 million in capital for ecommerce business growth. Our team of experts can help to guide your investment decisions, so you can make the most out of your funding. Get in touch with us to start your application today.