Whether you are a seasoned advertiser or a newbie to marketing, you are likely keenly aware of the metric for return on ad spend — also known as ROAS. Working in paid search, we hear this word used constantly. Simply put, ROAS is the amount of revenue your business earns for every dollar it spends on advertising. ROAS can be easily calculated by dividing revenue by cost.
For example, if you spent $100 on advertising and earned $400 in revenue, then your ROAS is 4:1 or 400%.
As my colleague wrote about last year, there are many ways to use ROAS as your goal for your marketing initiatives in an ecommerce setting and beyond. In fact, the intention of many profit-focused campaign strategies is the highest ROAS possible. Through our management of hundreds of paid search accounts, we have found that hyper-focusing on only one metric — such as ROAS — can undermine the success of your advertising efforts.
While focusing on ROAS can be profitable for your business, we have found that managing pay-per-click (PPC) for our clients with ROAS as the only key performance indicator (KPI) can throttle the impression and click volume to the site. When your volume nosedives, fewer people see your ads and click through to your website because the campaigns are optimized to prioritize keywords that are more likely to convert.
If your business sells or offers a highly specific good or service, campaigns tightly focused on ROAS can be precisely what you need to hit your benchmarks. But for most businesses, the lack of volume that comes with micro-optimizing can be detrimental to the overall profitability, and ultimately the success, of the business.
How many times have you searched for something, seen an ad, clicked on it, and then not bought something from the webpage where you landed? Probably quite a few. These types of “tire kicker” keywords would not be optimal for a ROAS-targeted campaign and would likely not be shown to searchers. Not allowing these types of high-funnel keywords to bring in traffic would eliminate your opportunity to remarket to these users. By remarketing to people who have already been to your site and expressed an interest in your business, you are able to get your ads in front of their eyes, so they remember your business when they are eventually ready to purchase.
Don’t worry — there are ways to win the war between ROAS and volume; one of which we wrote about earlier this year. Another important thing to remember when it comes to ROAS versus volume is that your goals should be flexible. Almost every business has a seasonality component, and your metrics should reflect that. Try to ensure that your benchmarks are able to ebb and flow with your seasonality.
While ROAS is an excellent KPI for paid search, it is crucial to keep a keen eye on the account volume when optimizing to this metric. Optimizing your PPC campaigns purely for ROAS all the time can counterintuitively decrease campaign performance. Keeping the bigger picture in mind is always the best way to go when it comes to paid search efforts.