Advertising leaders are always looking to spend their ad dollars more efficiently.
The number of digital advertising channels available opens the door to tremendous opportunity, but also creates the opportunity for intense scrutiny. Advertisers must not only prove they’re choosing the channels and tactics with the best return on ad spend (ROAS), but they must also continue to optimize and improve campaign performance over time.
As an advertiser, improving your ROAS performance should always be your holy grail. In this article, we’ll break down the three underlying components of boosting your ROAS, while providing seven actionable tactics to make it happen.
What is ROAS?
Return on ad spend is a ratio of how much revenue you generate per every dollar spent on advertising. ROAS is a measure of spend efficiency, allowing advertisers to track and compare their ad campaigns’ effectiveness.
On the surface, the ROAS calculation is simple: the total revenue generated directly from the ad campaign divided by the total campaign cost.
For example, if you spend $5,000 on a PPC ad campaign and generate $15,000 in direct revenue from those ads, you would have a ROAS of 3:1, or $3.
The secret to improving your ROAS performance
Improving your ROAS is about breaking the equation down into its underlying components and creating efficiencies at each step.
When you dissect it into its component elements, online ad revenue is the product of:
- Online ad clicks
- Post-click conversions
- Revenue per conversion
Let’s say your cost per click is $1.96. If you convert 4% of your paid traffic, this means it takes you 25 clicks to get a single conversion. In this scenario, each conversion costs you $49. Thus, your average order value—the typical amount your customers spend on a purchase—would need to be over $49 to make your campaign worthwhile. Of course, you’d want it to be at least two to four times that.
Therefore, to improve your ROAS, you must:
- Lower your cost per click
- Improve your post-click conversion rate
- Increase your revenue per conversion
Let’s start with lowering your ad costs.
Lower your cost per click
Improving your cost per click (CPC) means you can either achieve the same number of clicks with less ad spend or earn more ad clicks for the same spend.
Either way—assuming each click’s quality and relevance remains unchanged—lowering your CPC means improving your ROAS.
Here are three proven strategies to cut your cost per click.
1. Experiment with your bidding strategy
Bidding inefficiently is an easy way to waste your ad spend. Experimenting with your bidding strategy can help you spend your ad dollars more productively.
For example, to lower your CPC, you may choose to aim for third position rather than the top ad spot. Third position still shows up at the top of the SERPs, but costs less than the top spot—earning you more clicks for less spend.
Another way to improve your CPC is to experiment with bidding strategies. You may find that manually adjusting your maximum bid with Manual CPC or Enhanced CPC allows you to control your ad costs without impacting conversions.
However, lowering CPC isn’t everything. Depending on your industry, automated Smart Bidding options like Target CPA, Target ROAS, Maximize conversions, or Maximize conversion value may cost you more per click, but may result in higher conversions or a better ROAS.
That’s why it’s smart to experiment. Don’t assume that targeting a low CPC or targeting high ROAS will automatically give you the expected results.
2. Target the right audience
By identifying and targeting the people most likely to buy from you, you can spend less and convert more.
While most advertisers are familiar with classic targeting tactics like narrowing your audience by geolocation, job title, or device, few advertisers actually take the time to create multiple audience personas and then develop ads specifically targeted to each audience segment.
How does segmenting your audience improve your ROAS?
Ad relevance, expected click-through rate, and landing page experience are the three main factors of Quality Score. Improving Quality Score lowers your ad costs, and therefore improves your ROAS:
Don’t forget about retargeting. People who have already visited your site are more likely to click and convert. If you write compelling ad copy that specifically targets previous site visitors, you improve your chances further.
3. Target keywords wisely
On top of targeting the right people, you also want to target the right searches. Just because someone fits your audience profile doesn’t mean they’re ready to buy. You have to reach them at the right time.
To do so, use negative keywords to avoid irrelevant impressions and clicks that hurt your Quality Score.
Target long-tail keywords to avoid getting into high-cost bidding wars. Long-tail keywords not only have the benefit of lower competition and cost, but they’re also more likely to have higher post-click conversion rates.
For example, someone searching “pink size 9 women’s running shoes” is more ready to make a purchase than someone searching for “women’s shoes.”
Finally, create single-keyword ad groups to ensure that both your ad copy and post-click experience are as relevant as possible to the user’s search. This increased relevance means higher click-through rates and conversion rates, and, therefore, higher revenue.
Improve your post-click conversion rates
The second secret to improving your ROAS is to improve the rate at which you convert clicks into customers.
It all comes down to providing an optimized post-click landing page experience.
4. Follow landing page best practices
A well-designed landing page is a must-have when it comes to driving conversions.
According to best practices, landing pages should be:
- Focused. Each landing page should have a single conversion goal as well as calls to action that elicit one desired action from the visitor. It should also be free of navigation or in-content links, which would distract the visitor from converting.
- Persuasive. Each landing page should contain clear and compelling copy that leverages the principles of persuasion. It should also feature an attractive incentive or offer that’s difficult to walk away from, with social proof that convinces buyers it’s worth it.
- User-friendly. Each landing page should adhere to the principles of design and use responsive layouts to fit any device. It should also load as quickly as possible, ideally in under three seconds.
However, this traditional advice is somewhat unsatisfactory, as we know the average advertising conversion rate ranges from only 2% to 4% in most industries. If we assume the average advertiser is already following landing page best practices, that’s still as much as 98% of ad spend getting wasted.
Two additional pillars of an effective post-click experience are key. In 2021, landing pages should be:
- Holistic. Take both the pre-click and post-click stages into account when designing advertising campaigns. Weave a cohesive narrative through the ad journey, using message-match to meet visitor expectations.
- Personalized. Presenting the right message to the right person at the right time isn’t easy, but it’s the key to advertising nirvana. At minimum, you should use ad targeting data to personalize your post-click experience.
5. Provide a personalized journey
One-size-fits-all messaging is a prominent reason advertisers have had to settle for sub-4% conversion rates and weak ROAS. The thing is, messaging that resonates with one audience might not work for another.
To provide a personalized journey, you need to:
- Employ a 1:1 ad-to-page ratio, so each of your highly personalized ads leads to a highly relevant landing page.
- Develop landing page copy that not only message-matches your ad, but also appeals to your targeted audience segment’s needs and goals.
This personal experience creates a greater likelihood for conversion and, therefore, an improved ROAS.
Unfortunately, that’s easier said than done. To achieve 1:1 ad-to-page personalization at scale, meaning a personalized journey for every prospect, you need a dedicated team and ample resources.
Alternatively, you can turn to Post-Click Automation (PCA)—a new category of software that leverages AI and machine learning to automatically create, personalize, and optimize landing pages for every ad. It’s the only way to truly deliver personalized ad journeys at scale without blowing your budget.
6. Optimize your post-click experience
While post-click personalization is about increasing the likelihood of conversion for individual visitors, landing page optimization aims to improve your conversion rate for all site visitors.
To grow your conversions, you must continuously optimize your pre- and post-click experiences. That means regularly running a/b tests until you find the best design and content—another resource-intensive activity.
PCA also fulfills that purpose, taking the guesswork out of landing page design through automated optimization. It tracks audience behavior on your landing pages through technology like heatmaps and then suggests improvements expected to increase your conversion rates.
Increase your revenue per conversion
Ironically, perhaps the most neglected part of the ROAS equation is the revenue component.
Advertisers typically obsess over click-through and conversion rates, but often fail to consider broader business implications and whether they’re driving the highest-value sales.
7. Earn more revenue from each customer
Of course, every business wants to earn more revenue from each customer, but there are some practical methods of achieving this with your post-click experiences.
If you’re in ecommerce, this could mean increasing the average order value (AOV) by offering free shipping in exchange for a minimum purchase or bulk order.
You can also upsell by offering bundle deals (“Do you want fries with that?”) or by referring customers to higher-cost products or services through a recommendation engine.
Vital tactics for achieving this aim are committing to tracking your AOV and tailoring your ad campaigns to favor the best-value products and services.
And don’t forget: Your best customers are the ones you already have. According to eConsultancy, you are three to 14 times more likely to sell to a current customer than a new one. Therefore, another way to increase your ROAS is to increase your customer lifetime value (LTV).
To do this as an advertiser, you can employ marketing tactics like:
- Retargeting campaigns
- Email campaigns
- Rewards and loyalty programs
- Coupons and discounts
Of course, boosting LTV also comes down to simple business practices that are somewhat out of your control as an advertiser—like providing excellent customer service and high-quality products and services that keep loyal shoppers coming back.
Get more from your ad spend
Improving your ROAS isn’t a one-and-done activity. It takes ongoing testing and optimizing at every stage of the advertising funnel.
By creating precisely targeted ad campaigns and providing personalized post-click experiences, you can make significant improvements to your ROAS.