Who is interested in digital marketing and acquisition, must know how to calculate the ROI and the ROAS of the campaign. Indispensable on Google Ads like Facebook, these metrics accurately measure the performance and profitability of your campaigns.
Optimizing your advertising spending means first and foremost understanding them! So this week, we are going to explore with you 3 fundamental metrics for the good management of your campaigns, Google Ads, and Facebook Ads in mind. At the heart of this mathematical subject, the well-known ROI – Return on Investment; ROAS – return on ad spend and target ROAS, a variable used for Google Ads automatic auctions. To your calculators, let’s go!
ROI and ROAS
ROI, ROAS, and ROAS Target, how to differentiate them?
Whether you are running marketing campaigns on Google Ads, Facebook Ads, Linked In, or any acquisition channel, it is essential to understand the difference between ROI and ROAS in order to arbitrate your advertising budget.
The return on investment (ROI) is a financial KPI widely used. It is a ratio that compares the gain or loss of an investment against its cost. It is also useful for assessing the potential return on investment against the costs incurred.
The ROI is a metric business. In this sense, it includes all the costs generated by an operation. When you calculate the ROI of a campaign, you need to include the advertising costs, as well as the expenses related to the team, to the design … Think global!
The ROAS – Return On Ads Spending – which can result in a return on ad spend is, he focused on the cost of the campaign. By calculating the ROAS of a campaign, you weigh the revenue generated by the advertising device against the budget committed on the acquisition channel. Unlike ROI, this metric focuses on profitability and leverage performance .
The target ROAS is a variable specific to Google Ads campaign management. This is a piloting metric. Unlike the ROI and ROAS, which are calculated a posteriori, the target ROAS makes it possible to define a campaign objective, by setting the associated bids.
Now that these 3 KPIs are quite distinct, let’s see how to calculate them.
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The ROI, the “stop and go” indicator …
Rather basic concept, the ROI, Return On Investment, allows, as its name suggests, to calculate the return on investment of a campaign. In short, this is the metric that will tell you whether or not to continue your campaign, in terms of the spinoffs it generates.
Concretely, the ROI gives you an insight into the gain made, once the expense has been deducted. By integrating the margin rate, you get a view correlated to actual profits. By equating all expenses with the ROI calculation, this metric gives you a holistic view of campaign performance as well as that of your teams and budget trade-offs related, for example, to campaign design.
Dedicated landing page, shooting, copy of advertisements are all positions to be counted in the ROI formula.
How to calculate the ROI?
To calculate the ROI of your Google Ads or Facebook Ads campaign, you can apply the following formula:
Percentage ROI calculation
((Turnover X Margin rate) – Expenses) / Expenses) x 100
ROAS, the profitability indicator
The ROAS, Return On Ad Spending, allows him to calculate the return on advertising spending. In other words, this indicator evaluates the profitability but also the effectiveness of your advertising campaigns .
The ROAS highlights the margin generated compared to the budget committed to activating an advertising campaign on the search engine, Google or Bing, or on social networks, Facebook or Instagram, for example.
Marketers believe that an advertising campaign is profitable when its ROAS is above 100%. Be careful though, since the ROAS only takes into account a part of the expenses, it can be more flattering than it seems. To find out, the only way is to calculate your ROAS!
ROAS, the calculation formula
Whatever the acquisition lever activated for your marketing campaigns, the ROAS is calculated using the same formula.
Calculation of ROAS
(Revenue / Expenses)
Calculation of ROAS as a percentage
(Revenue – Expenses) x (100 / Expenses)
ROAS in Google Ads
Concretely, this means that for each euro invested in Google Ads, you generated 16 € of turnover. Unlike the ROI, the ROAS gives a ratio between the gain and the expense .
To calculate your Google Ads ROAS, refer to your reporting statistics, directly from your Google Ads interface or dive into Google Analytics.
Note, on Google Ads, it is possible to integrate dynamic variables, such as the cost of a product, into the ROAS calculation, which gives you a more precise view, depending on the conversion rate.
With your KPI in your pocket, it will be easier for you to arbitrate the evolution of your campaigns, with the aim of increasing or reducing your ROAS.
ROAS in Facebook Ads
Facebook Ads is also an important acquisition lever, so it is in your interest to calculate the ROAS of your Social Ads campaigns. For this, the calculation formula obviously remains the same.
As with Google Ads, you will need to set up a conversion objective and associate the Facebook pixel with your campaign. It is he who will allow you, via the Business Manager, to report the variables necessary for calculating the ROAS.
Please note, Facebook Ads are based on performance for the delivery of certain types of campaigns. If you opt for automated campaigns, make sure the ROAS remains correct so as not to upset the algorithm!
Your objective is then to align, as much as possible, the cost per objective with the auction strategy of the social ads campaign. Consider putting ROAS and ROI in parallel here to make sure you don’t miss out on dissemination opportunities. Keep in mind, however, that ROAS is a “real-time” measurement, while ROI offers a longer-term vision.
Target ROAS, the Google Ads automatic bid indicator
While these concepts are fairly basic for marketers, the target ROAS that can be configured via Google Ads is sometimes more obscure. This is indeed a flexible bidding method, which can be applied automatically to several campaigns or ad groups.
In essence, the target ROAS will allow you to set a conversion objective, associated with a CPC. This auction strategy is applicable to the following distribution media:
- Research Network: average ROAS target matches the goal set for all keywords, ad groups, and campaigns
- Google Shopping: Average target ROAS corresponds to the target set for ad groups and campaigns
- The display-only network or Mobile campaigns cannot manage target ROAS
How to calculate the target ROAS?
Concretely, the target ROAS is calculated as follows:
Conversion value / ad spend x 100%
From this value, Google Ads optimizes CPC bidding to meet your goals with minimal investment. The advantage: simplified management and a budget without surprises!
Unlike ROAS and ROI, target ROAS is defined upstream of the campaign. It is therefore a forecasting metric.
Do you want to see more clearly in your advertising investments? What if you called on acquisition professionals …
Does the difference Why calculate ROAS and ROI?
As we have seen, ROI and ROAS are two complementary metrics.
ROI is for optimizing a strategy while ROAS is for optimizing a tactic, but some marketers use these terms interchangeably.
ROI measures the profit generated by advertisements relative to the cost of the latter. It is a business-centric metric that is most effective in assessing the contribution of advertisements to an organization’s bottom line.
In contrast, ROAS measures the gross income generated for each euro spent on advertising. This is an advertiser-centric metric that measures the effectiveness of online advertising campaigns.
With ROAS, marketing is seen as a cost necessary for the business to run smoothly, while with ROI, marketing is an investment intended to gradually increase the profits of the business.
When the ROI is positive, it means that the entire value chain is profitable, beyond simple advertising distribution. On the other hand, if the ROAS is high but the ROI is negative, you can conclude that the campaign, as a whole, lacks profitability. Since dissemination is successful, you will likely need to revise the design process to reduce costs.
ROI and ROAS
How to optimize a campaign when the ROI or the ROAS is not profitable?
Whether it is a Google Ads or Facebook campaign, the ROI and the ROAS give you an overview of the performance, and therefore the profitability of the advertising device. These metrics should be taken as red flags when results are not forthcoming. Either way, that means it’s time to adjust a few variables to increase the performance of your investment.
Revise your advertising goal
When your Google Ads or Facebook campaign is not profitable, it could be because of an incorrectly calibrated goal. The budget to be committed will be significantly different depending on whether you want to generate more traffic, increase the volume of conversions, or boost engagement.
Your mission: to align the expenses incurred with the turnover generated by the action targeted by the campaign .
Re-qualify your audience pools
A negative ROI or ROAS possibly reflects an audience targeting problem. Maybe you are targeting too large a segment on Facebook ads, which drives up your CPC, or the other way around on Google Ads ?!
Again, the numbers don’t lie. Analyze, analyze, test, and adjust! Go back to your basics, the definition of your personae, and then proceed by a group of audiences, according to the progress of the profiles over the conversion tunnel.
Again, not all have the same value depending on the expected action. Also consider integrating similar and personalized audiences, which reduces costs.
Take care of your campaign creations
Sometimes the lack of ROI is more about campaign material than showing ads through Google Ads or Facebook ads. A poorly thought out landing page, a CTA that is not visible, an unclear or overly aggressive message, and the conversion rate plummets.
Sometimes the issue is between the landing page and the serving, i.e. ad copy. An ad decorrelated from the stage of the purchase journey, an advertisement without a Google Ads extension, a poorly worded CTA, and it is the click-through rate that suffers.
To help you master these aspects, essential to maintain performance, the JVWEB agency now has a Studio Ads division, where our experts put their experience at the service of your campaign materials.
Calculating its target ROAS, upstream of the campaign, its ROAS, and its ROI, once the distribution has taken place, is essential to keep control of your advertising budget and to manage its marketing performance. As you have seen, all you need to do is remember two incredibly simple calculation formulas to keep control of your investments, do not deprive yourself of them!
If all this still seems very vague to you or you feel helpless in the face of half-mast metrics, contact the JVWEB agency. Our Account Managers are ready to support you, a calculator in each hand!
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