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Return on Ad Spend (ROAS): The Secret Sauce to Google Ads Success

by | Jul 13, 2023

Hey everyone! Dan Caston here, your friendly Google Ads maestro from Focus Your Ads. Today, we’re pulling back the curtains on one of the most pivotal metrics for Google Ads—Return on Ad Spend (ROAS).

While we’re specifically targeting small store owners—those of you who are handling your Google Ads yourselves—this information is beneficial for anyone navigating the e-commerce world or managing a service-based business. So, without further ado, let’s dive in!

What is ROAS?

Imagine you’re at a flea market, and you find an antique for $10. You turn around and sell it for $50. That’s a clear profit, right? You spent $10 and made $40. In the world of Google Ads, ROAS functions similarly—it’s the ratio of your ad campaign revenue to its cost.

For instance, if you spend $500 on an ad campaign and it generates $2500 in revenue, your ROAS would be 5:1 (or 500%). You get $5 for every dollar you spend. Simple, isn’t it?

Real-World Examples

Let’s put this into perspective with some real-world examples:

  1. Online Clothing Store: Say you run an online clothing store. After spending $2000 on Google Shopping ads, you make $10000 in sales. Your ROAS? 5:1.
  2. Home Décor E-commerce Site: Let’s assume you have a home décor e-commerce site. You decide to run a Google Ads campaign for $1500. This campaign drives $9000 in sales. Your ROAS? 6:1.
  3. Landscaping Services: Now, let’s move away from e-commerce. You’re a landscaper and spend $800 on Google Ads. You gain $4000 in contracts. Again, your ROAS? 5:1.

How to Use ROAS

So, you’ve figured out what ROAS is, but what next? How do you use this data to grow your business?

Well, the key is to optimize your ROAS. Just because a high ROAS indicates good short-term profits, doesn’t mean it’s always good.

Think of it this way—if you have a product that makes you a high ROAS but sells only ten times a year, is that better than a product with a slightly lower ROAS but sells hundreds of times a year? Not really.

A high ROAS can be a siren song, potentially misleading you. Yes, it’s important, but it shouldn’t be your only point of focus. It needs to work hand-in-hand with other metrics like Click-Through Rate (CTR) or Search Impression Share to paint the complete picture.

ROAS Optimization Tips

It’s not just about knowing your ROAS, but also optimizing it. Here are some quick tips:

  1. Know your Profit Margins: If you have a $200 product with a 10% profit margin, a 5:1 ROAS won’t cover costs. However, for a $200 product with a 50% profit margin, a 2:1 ROAS could be profitable.
  2. Use Google’s Automated Bidding: Google’s algorithm is designed to optimize ROAS based on the conversion value you set. This helps you maximize your results without micro-managing every ad.
  3. Optimize Product Descriptions: Especially for Google Shopping Ads, optimizing product descriptions can significantly impact your ad’s visibility.

ROAS Real-World Fixes

Let’s consider some real-world situations where we could use ROAS to fix issues:

  1. Low Revenue on High Selling Product: You have a product that sells well, but the revenue is low. Perhaps the ROAS is too low to cover the costs. Here, you can either increase the product’s price (if the market allows) or decrease the ad spend.
  2. Product with High ROAS but Low Sales: Maybe you have a product with a high ROAS but low sales volume. You may need to invest more in ads to increase visibility or tweak the product description for better searchability.
  3. Service-Based Business with Low ROAS: Your service-based business has a low ROAS. You need to reassess the ad spend, potentially target more profitable services, or narrow down the audience to potential high-value clients.

Remember, a high ROAS isn’t always a victory. It’s important to balance it with other aspects of your business.

Wrapping Up

ROAS is not just a metric—it’s a compass that points you in the right direction. Understanding and optimizing it can make all the difference to your Google Ads success.

Does this all seem like a lot to handle? We’ve got you covered! At Focus Your Ads, we can take the reins of your Google Ads campaign, leaving you free to focus on what you do best—running your business.

Just head on over to our contact form to get in touch. We’re here to help, guiding your ad campaigns towards profit and success.

Remember, your Google Ads can only be as successful as your understanding of the metrics. So, keep learning, keep asking questions, and keep improving!

Until next time, this is Dan Caston from Focus Your Ads, signing off!