Attn : Businessowners | The Most Simplest Explanation on Ads Spend You Need To Understand
In Today’s Newsletter You Will Learn
- How paid ads actually work
- How you can increase your sales to 4X with same paid ad budget (By comparing 2 different cases)
- What are the things you need to consider while running paid ads.
So you are into E-commerce or any other business and running ads, then tracking and comparing effectiveness of your ad campaign is must.
That means you must calculate your ROAS
But What is ROAS?
The ROAS calculation is simple: the total revenue generated directly from the ad campaign divided by the total campaign cost.
It is a measure of ad-effectiveness and spend efficiency.
For example, if you spend $3,000 on a PPC ad campaign and generate $9,000 in direct revenue from those ads, you would have a ROAS of 3.
Higher the ROAS, higher the profitability.
But regrettably, most people are not able to catch the crux of improving their ROAS.
Although improving ROAS isn’t a one-and-done activity. It takes ongoing testing and enhancing at every stage of the advertising funnel.
However, you can start by breaking the ROAS equation down into its underlying components and generating efficiencies at each component elements.
Basically online ad revenue is the product of three component elements:
- Online ad clicks
- Conversion Rate
And, we are going to unveil actionable steps to increase the efficiency of each of them, So stay connected!!!
How they work ?
To increase your ROAS you need to “Lower your cost per click + Increase the conversion rate”
Let’s understand, how this works.
Now we are going to compare 2 scenarios, where ad spent will be same in both, but will see how ad clicks and conversion rate changes.
Let’s say you have a product of $200 and $100 to spent on marketing.
Case 1
Ad Spent : $100
After spending $100 you reach to 1000 people and you CTR (Click through ratio) is 5%, means 50 out 100 people will click on your ad.
So,
Reach : 1000
CTR : 5%
Clicks on Ad (Website Visitor) : 50
Now 50 people visited your product page and your page conversion rate is 2% (Conversion rate is how many people are actually buying out of total visitors)
Taking 2% of 50 visitors we got 1 sale of $200
i.e after spending $100 on ads, sales is $200, ROAS is 2X
so the whole equation will look like :
Ad spend : $100
Reach : 1000
CTR : 5%
Visitors on Sales Page. : 50
Conversion Rate : 2%
Sale : 1
Product Amount: $200
Total Sales: $200
ROAS : 2
Case 2
You have same product of $200 and same ad spent budget of $100.
Taking reach same , as in Case 1 : 1000 people.
But now we have improved our ad copy , so that more people will click on the ad (Let’s say it increases to 10%)
And we do some optimisation on our sales page (like adding more reviews, adding FAQ, Product Video- so that visitor on website have no question in mind while buying the product) , our conversion rate get doubled and its 4% now.
This is how the equation will look like now.
Ad spend : $100 (Same)
Reach : 1000 (Same)
CTR : 10% (Doubled , because of our improved ad copy)
Visitors on Sales Page. : 100
Conversion Rate : 4% (Doubled, because of our more optimised sales page)
Sale : 4
Product Amount: $200
Total Sales : $800
ROAS : 8
By improving your CTR (through ad copy), & Sales page conversion rate (through optimising your sales page) you can get the 4X in the same ad spent.
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The number mentioned above are taken just to explain the concept, it will be different for everyone , but the technique to increase the ROAS will remain the same.
In our next week newsletter, we will specifically converting how to increase you CTR by improving ad copies.
So , make sure you subscribe to our weekly newsletter.
And if you have any questions related to ROAS, feel free to comment.
Stay tuned. See you next Saturday.