ROAS is calculated by taking the revenue attributed to a given ad campaign and dividing by the ad spend for the campaign. For example, if you spent $500 on an advertising campaign and it then generated $1000 in revenue, your ROAS would be $1000/$500 = 2 – indicating that for every dollar spent on ads, $2 was earned in revenue. Marketers also use ROI, which takes the net profit over the cost of the investment (for this example, ($1000-$500)/$500 = 100% ROI).

So what does good look like? The ideal ROAS benchmark across industries is between 4 and 5. The exact figure you should aim for depends on the profitability of your products, your growth phase, and the funnel stage you’re targeting your campaign at. For example, a lower ROAS isn’t necessarily a bad thing if you’re focusing on awareness building, where ad spend is used to get your name out there rather than drive sales directly. When optimizing towards a ROAS target, it’s easy to think short-term and therefore more bottom of funnel activities. However, it’s important to consider your overall marketing strategy. A more balanced plan comes from filling the funnel at the top, rather than putting too much emphasis on the fallen fruit – the audience close to a buying decision.

Here are 4 tips to drive ROAS up for overall brand growth:

1. Reduce Ad Costs

The easiest way to increase ROAS is to reduce your ad costs. Review your bidding strategy and budgets across campaigns for cost-savings. Try automated or smart bidding to help you achieve your ad goals. For example, Google’s Target ROAS strategy determines how likely a user search is to generate a conversion, then adjusts the bid accordingly.

2.  Audience Targeting and Retargeting

Understanding your audience is key to get your ads to the right people. By targeting the right customer profiles, you can spend less while reaching better prospects. This will help you win more conversions per dollar spent over time – therefore improving ROAS. You can also experiment with retargeting. Tailoring ads towards people who’ve already showed interest in your brand means you’re engaging prospects who have a higher intent to purchase, driving conversion up.

3. Pay attention to keywords

The relevancy of your keywords can have a big impact your search campaign ROAS. It’s best to focus on very specific keywords that align closely with your ideal consumer and avoid generic high-volume keywords where it’s hard to stand out. Use Google Keyword Planner to discover new keywords. Searching for words and phrases related to your brand can assist in finding the most relevant keywords, which you can then build in to your campaigns. Consider adding negative keywords to weed out customers searching for related terms which are less relevant for your brand.

4. Increase AOV and LTV

To drive higher ROAS, you can extract more revenue from captured customers – either through higher average order values (AOVs) or higher lifetime values (LTVs). Nudge people to buy higher value products or bundle multiple products together, and work on building customer loyalty. Review our blogs on building LTV and LTV:CAC ratio for more tips on how to build more valuable customers.

ROAS is a helpful metric to assess the overall effectiveness of your marketing spend activities, but as with any piece of data you should not look at it in isolation. Keep in mind that marketing is a series of touchpoints which collectively create and reinforce brand memories. All these touchpoints combine to contribute to maintaining or increasing sales. Maintaining a high ROAS is great, but there are times when it’s ok to have a lower ROAS, such as when you’re using campaigns to drive brand awareness, so don’t lose sight of your overall strategy for the sake of driving ROAS up.