How to calculate the value of advertising spend

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19 Jan 2024

How to calculate the value of advertising spend

You’ve invested in different advertising campaigns, hoping to see a return. But how do you know if it’s really working for you? Here we’ll explore why it’s worth knowing how to track the value of advertising spend, what return on advertising spend (ROAS) means and why it’s different to return on investment (ROI).

What is ROAS and how is it calculated?

ROAS, or return on advertising spend, is a crucial metric that shows you how much revenue you’re generating for every pound spent on advertising. It’s key to understand how your ad campaigns are performing. You can invest more time and budget into those that are working, and make adjustments to those that aren’t. To help you calculate ROAS, follow these steps:

  • Collect data: Gather data on your advertising spending and the revenue made from those campaigns. Make sure your numbers are specific to the channel you’re reviewing (like email marketing or social media, for example).

  • Work out revenue: Add up all the revenue generated from your advertising activities over a certain period of time.

  • Calculate spend: Now add up the total advertising costs during that same period of time.

  • The ROAS calculation or formula: Divide your revenue by your advertising spend. Then, multiply it by 100 to get a percentage. As a straightforward example, if you spent €1,000 and made €10,000 in revenue, your ROAS would be 1000%.

What’s the difference between ROI and ROAS?

ROAS and ROI are similar, but they have one major difference. ROI takes all costs into consideration. These include as operational expenses and business overheads. ROAS, however, is solely about the advertising spend and the revenue it generates. This makes it a highly valuable metric to businesses when it comes to optimising marketing strategies. By helping them identify which channels are performing best.

The importance of tracking advertising spend

Tracking advertising spend helps you to execute a powerful marketing strategy and can transform your advertising activity. Here’s why it’s about more than just a number:

  • Budget allocation: Tracking ROAS helps you understand which channels are least profitable. So, you can reallocate the budget to where you’re getting the best returns.

  • Informed decisions: Knowing your ROAS means you can make data-driven decisions, so you’re not relying on guesswork around your advertising activities.

  • Success focus: By identifying which campaigns are performing well, you can focus more efforts into them to drive even more revenue. Once you identify what works and what doesn’t, you can use that data and insight to inform future marketing campaigns and strategies that are backed by data.

  • Controlling costs: It’s important to make sure your campaigns don’t spend more than they make. ROAS helps you keep expenses in check.

  • Competitive edge: Tracking ROAS means you’ll be ahead of the curve and remain agile.

Optimising ad campaigns for ROAS

To be able to optimise your campaign ROAS, you need to make sure that you’re tracking advertising spend and return as accurately as possible. Google Analytics is an essential tool to help with this. Especially for calculating PPC ad campaigns and ROAS. It’s important to ensure you have your campaigns set up properly by choosing the right advertising goals and configuring the right campaign settings to ensure consistent reporting.

Focus areas for optimising ROAS include:

Keywords: Make sure your keywords are focused and targeted to ensure you don’t end up spending the budget on irrelevant keywords. Incorporating relevant keywords with high volumes will ensure you reach qualified leads and your target audience, driving them to your website.

Ad Copy: Create concise and compelling ad copy that targets your market audience and encourages them to click through to your website. Optimise your content with relevant keywords to ensure you show up within the SERPs.

Audience Targeting: Alongside using relevant keywords within your copy, there are additional ways to appear in front of your ideal audience. Using custom audiences shows you particular demographics you want to target. While considering factors like age, location and gender. Refining your target audience will ensure your campaigns get seen by the most relevant people to your business, in turn generating more conversions and ultimately, a higher ROAS.

5 ways to improve your ROAS

If you find yourself struggling to see a positive ROAS, there are improvements you can make to increase revenue and conversions. Here are 5 tips that can help you improve your ROAS:

  1. Set benchmarks: Understand what qualifies as good ROAS and set that as a benchmark for your advertising activity. If you know the baselines for each campaign and each channel, you can quickly see what’s worked and been successful, serving as future campaign examples.

  2. Test, test and test again: Learn what makes a good campaign and what works the best by testing your ads. A/B testing is crucial for understanding which creatives, channels and campaigns are delivering the best results.

  3. Reduce ad spend: A quick way to get more return on your ad spend is to reduce the cost. Improving your campaign’s quality score will help you do this, as a better quality score leads to higher ad rankings in the SERPs, which in turn creates a lower CPC (cost per click).

  4. Smart bidding: Workout the most effective bidding strategy for your ads to generate the most cost-effective results. Tweaking your maximum bid, setting different bids across mobile and desktop, or using automated bidding may help you save money.

  5. Consumer analysis: Take time to understand and learn about your target audience. If you don’t truly understand who is aligned with your brand and business, you won’t be able to market to the right audience. Investing time into audience insights and market research will help you refine your strategy and create targeted ads that convert.

There are many reasons to track the value of your advertising spend. ROAS gives you a clear indication of your campaign performance. Meaning, you can refine your marketing strategy. So be sure to calculate your ROAS and use it to make effective data-driven decisions that could help grow your business.

If you’d like to know more about tracking key metrics within your business, you can chat with our helpful V-Hub Digital Advisors for 1-2-1 support.

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