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Defining & Calculating Return on Ad Spend (ROAS)

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Defining & Calculating Return on Ad Spend (ROAS)

Wondering how to calculate ROAS? This oft-spotted acronym is an integral part of gauging the success of certain advertising efforts within a given marketing strategy. Whether you’re looking for info to boost your general knowledge base or want to understand the relationship between ROAS and campaigns, this quick guide has you covered.
 

What Is ROAS?

 
ROAS stands for “return on advertising spend.” This calculation is used to measure how much revenue a specific advertising campaign is bringing in compared to the amount of money spent on ads related to that campaign.

People tasked with managing ad accounts rely on ROAS to convey how cost-effective a campaign truly is. This is an objective and quantitative way to understand how a new ad campaign is running, but you can also use ROAS to find out whether an existing campaign is trending in the right direction.
 

How to Calculate Return on Ad Spend (ROAS)

 
It’s quite easy to calculate ROAS. Simply identify the revenue brought in by your ad campaign and divide that number by the cost of that same campaign. For example, if your ad spend totals $2,000 and your total ad revenue is $4,000, your ROAS calculation would be $4,000 divided by $2,000 = 200% (or a 2:1 ratio).

To make things even easier, you can use an online ROAS calculator to quickly determine how ad spend and ad revenue are playing out on a given campaign. All you need is your total ad spend and revenue, and the calculator does the rest.
 

Why Do Marketers Calculate ROAS?

 
Marketers measure ROAS to see how effective their ad campaigns truly are. This is a major step toward discerning whether a campaign is tracking toward pre-determined goals or falling short of expectations. Calculating ROAS early on in the campaign (and then at regular milestones moving forward) also helps marketers optimize advertising spend, as they can opt to decrease spending for low-performing campaigns and reallocate those funds to high-performing campaigns.

The information offered by ROAS can also help determine the wider direction of your marketing strategy. One relatively simple calculation gives you hints as to what campaigns, content types and distribution channels your target demo may be responding to most.
 

What’s Considered a Good ROAS?

 
Good ROAS is a relative concept that depends heavily on the goal of your campaign and the averages for your industry. For instance, if your goal is to drive awareness of a new streaming service, you may be okay with a lower ROAS because that number reflects conversions rather than awareness. When you’re measuring ROAS early on in the buyer’s journey, the numbers just may not be as impressive.

High ROAS matters more when your advertising strategy focuses on getting upfront revenue from a customer base that typically has a lower lifetime value. You want to see ROAS that are above the oft-cited 4:1 benchmark because it’s understood that will likely follow a downward trend over time.
 

How ROAS Relates to Profit and ROI

 
ROAS and ROI are often conflated, which makes sense when you realize that ROAS is basically one spoke in the ROI wheel. ROI stands for “return on investment,” which is a more long-term measurement of the return you get from larger marketing and advertising efforts. This includes things like fees paid to an SEO agency or your freelance video editing team. ROAS is a more short-term measurement that focuses solely on whether ads are driving revenue.

ROI also takes net profit into account (ROI is calculated as Net Profit divided by Net Spend), while ROAS deals with revenue and ad cost.

Many marketers choose to measure both ROAS and ROI, as the metrics combined can help the powers that be understand campaign performance and how it contributes to the business’s success and bottom line.
 

Key Factors & Considerations for an Accurate ROAS Calculation

 
Because you’re likely using ROAS to determine the future of your ad campaign, it’s crucial your calculations are as accurate as possible.

Here are some things to consider as you work with ROAS, plus a few tips on how you can ensure your numbers are right on the mark.
 

Don’t Forget the Fees

 
Some marketers prefer to calculate ROAS based solely on ad costs, but it can be helpful to take peripheral expenses into account as well.

If you’ve decided to include all ad-associated costs in your ROAS calculation, you’ll need to round up receipts that reflect fees paid out while executing the campaign. This includes vendor fees and transaction fees, like the percentage PayPal takes when charging for goods and services or the rate platforms charge to facilitate a campaign. Mine your accounts for other less conspicuous charges like commissions and relevant employee expenses, too.
 

Popularity Pays Off

 
Remember how we said good ROAS is all relative? Here’s another example of that. Brands new to the market are likely to have lower ROAS because they’re shouldering the entire cost of raising awareness and acquiring those customers. Existing brands launching a new campaign might have a high ROAS right off the bat because they’re able to leverage brand familiarity and established relationships.
 

Known When to Hold ‘Em — and When to Fold ‘Em

 
It’s vital to understand when ROAS percentages should be worrisome and when you just need to wait out a slump. Typically, ROAS below 300% is cause for concern, meaning you either need to revamp and reoptimize your campaign or consider pulling it altogether. Re-optimization could mean:

  • Changing up the demographic you’re targeting
  • Trying new ad types and channels
  • Tweaking pricing or the type of promotional offer attached to the campaign
  • Reworking the actual look and feel of your ads — perhaps hiring a writer to change the tone of the service description or changing up the imagery

But sometimes, especially when a company or service offering is brand new, ramping up ROAS just takes time.
 

Avoid Relying on ROAS Alone

 
ROAS is important, but it shouldn’t be evaluated in a vacuum. Instead, look at ROAS in relation to other factors such as the goal of your advertising campaign and conversion factors like click-through rates to get a better understanding of the overall health of your initiative. Actual numbers matter too — you could have a high ROI and still lose money if production costs are overwhelming.

“We are very data-driven and everything we do has to have a KPI associated with it. ROAS is only one point in the picture and it’s not always even the most important one. People can get very focused on ROAS but especially in the testing and trying phase, there’s a lot of learnings and KPIs that could make more sense.”

– Maya Wasserman | Head of Marketing / Director of Marketing Communications, Sony (Source)

 

Conclusion

 
Determining how to calculate ROAS is important, but it’s arguably even more critical to understand why ROAS matters and what role it plays in strategizing and executing effective ad campaigns. These concepts become even more important in niches like non-click-based media, like Streaming.

For example, at Tinuiti we often see marketers struggling to measure the full impact and demand of ad campaigns and consumer activity. But make no mistake, Streaming drives ROAS and we can prove it. Our patented solution, powered by Bliss Point technology, intelligently applies modern machine learning and optimization techniques to the non-click-based Streaming environment. That’s a fancy way of saying we can prove the channel is working with our highly technical attribution tools, even without a clickstream. That’s good news for high-growth brands looking to efficiently scale streaming campaigns with full-funnel attribution.

Want to learn more about the relationship between streaming and bottom of the funnel channels? Be sure to register for our upcoming webinar “Streaming Ads that Work – and Why”  Streaming+ today.

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The Future of Content Success Is Social

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The Future of Content Success Is Social

Here’s a challenge: search “SEO RFP” on Google. Click on the results, and tell me how similar they are.

We did the same thing every other SEO does: We asked, “What words are thematically relevant?” Which themes have my competitors missed?” How can I put them in?” AND “How can I do everything just slightly better than they can?”

Then they do the same, and it becomes a cycle of beating mediocre content with slightly less mediocre content.

When I looked at our high-ranking content, I felt uncomfortable. Yes, it ranked, but it wasn’t overly helpful compared to everything else that ranked.

Ranking isn’t the job to be done; it is just a proxy.

Why would a high-ranking keyword make me feel uncomfortable? Isn’t that the whole freaking job to be done? Not for me. The job to be done is to help educate people, and ranking is a byproduct of doing that well.

I looked at our own content, and I put myself in the seat of a searcher, not an SEO; I looked at the top four rankings and decided that our content felt easy, almost ChatGPT-ish. It was predictable, it was repeatable, and it lacked hot takes and spicy punches.

So, I removed 80% of the content and replaced it with the 38 questions I would ask if I was hiring an SEO. I’m a 25-year SME, and I know what I would be looking for in these turbulent times. I wanted to write the questions that didn’t exist on anything ranking in the top ten. This was a risk, why? Because, semantically, I was going against what Google was likely expecting to see on this topic. This is when Mike King told me about information gain. Google will give you a boost in ranking signals if you bring it new info. Maybe breaking out of the sea of sameness + some social signals could be a key factor in improving rankings on top of doing the traditional SEO work.

What’s worth more?

Ten visits to my SEO RFP post from people to my content via a private procurement WhatsApp group or LinkedIn group?

One hundred people to the same content from search?

I had to make a call, and I was willing to lose rankings (that were getting low traffic but highly valued traffic) to write something that when people read it, they thought enough about it to share it in emails, groups, etc.

SME as the unlock to standout content?

I literally just asked myself, “Wil, what would you ask yourself if you were hiring an SEO company? Then I riffed for 6—8 hours and had tons of chats with ChatGPT. I was asking ChatGPT to get me thinking differently. Things like, “what would create the most value?” I never constrained myself to “what is the search volume,” I started with the riffs.

If I was going to lose my rankings, I had to socially promote it so people knew it existed. That was an unlock, too, if you go this route. It’s work, you are now going to rely on spikes from social, so having a reason to update it and put it back in social is very important.

Most of my “followers” aren’t looking for SEO services as they are digital marketers themselves. So I didn’t expect this post to take off HUGLEY, but given the content, I was shocked at how well it did and how much engagement it got from real actual people.

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7 Things Creators Should Know About Marketing Their Book

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7 Things Creators Should Know About Marketing Their Book

Writing a book is a gargantuan task, and reaching the finish line is a feat equal to summiting a mountain.

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Being position-less secures a marketer’s position for a lifetime

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Optimove Positionless Marketer Optimove

On March 20, 2024, the Position-less Marketer was introduced on MarTech.org and my keynote address at Optimove’s user conference.

Since that initial announcement, we have introduced the term “Position-less Marketer” to hundreds of leading marketing executives and learned that readers and the audience interpreted it in several ways. This article will document a few of those interpretations and clarify what “position-less” means regarding marketing prowess.

As a reminder, data analytics and AI, integrated marketing platforms, automation and more make the Position-less Marketer possible. Plus, new generative AI tools like ChatGPT, Canna-GPT, Github, Copilot and DALL-E offer human access to powerful new capabilities that generate computer code, images, songs and videos, respectively, with human guidance.

Position-less Marketer does not mean a marketer without a role; quite the opposite

Speaking with a senior-level marketer at a global retailer, their first interpretation may be a marketer without a role/position. This was a first-glance definition from more than 60% of the marketers who first heard the term. But on hearing the story and relating it to “be position-less” in other professions, including music and sports, most understood it as a multidimensional marketer — or, as we noted, realizing your multipotentiality. 

One executive said, phrasing position-less in a way that clarified it for me was “unlocking your multidimensionality.” She said, “I like this phrase immensely.” In reality, the word we used was “multipotentiality,” and the fact that she landed on multidimensionality is correct. As we noted, you can do more than one thing.

The other 40% of marketing executives did think of the “Position-less Marketer” as a marketing professional who is not confined or defined by traditional marketing roles or boundaries. In that sense, they are not focused only on branding or digital marketing; instead, they are versatile and agile enough to adjust to the new conditions created by the tools that new technology has to offer. As a result, the Position-less Marketer should be comfortable working across channels, platforms and strategies, integrating different approaches to achieve marketing goals effectively.

Navigating the spectrum: Balancing specialization and Position-less Marketing

Some of the most in-depth feedback came from data analytic experts from consulting firms and Chief Marketing Officers who took a more holistic view.

Most discussions of the “Position-less Marketer” concept began with a nuanced perspective on the dichotomy between entrepreneurial companies and large enterprises.

They noted that entrepreneurial companies are agile and innovative, but lack scalability and efficiency. Conversely, large enterprises excel at execution but struggle with innovation due to rigid processes.

Drawing parallels, many related this to marketing functionality, with specialists excelling in their domain, but needing a more holistic perspective and Position-less Marketers having a broader understanding but needing deep expertise.

Some argued that neither extreme is ideal and emphasized the importance of balancing specialization and generalization based on the company’s growth stage and competitive landscape.

They highlight the need for leaders to protect processes while fostering innovation, citing Steve Jobs’ approach of creating separate teams to drive innovation within Apple. They stress the significance of breaking down silos and encouraging collaboration across functions, even if it means challenging existing paradigms.

Ultimately, these experts recommended adopting a Position-less Marketing approach as a competitive advantage in today’s landscape, where tight specialization is common. They suggest that by connecting dots across different functions, companies can offer unique value to customers. However, they caution against viewing generalization as an absolute solution, emphasizing the importance of context and competitive positioning.

These marketing leaders advocate for a balanced marketing approach that leverages specialization and generalization to drive innovation and competitive advantage while acknowledging the need to adapt strategies based on industry dynamics and competitive positioning.

Be position-less, but not too position-less — realize your multipotentiality

This supports what was noted in the March 20th article: to be position-less, but not too position-less. When we realize our multipotentiality and multidimensionality, we excel as humans. AI becomes an augmentation.

But just because you can individually execute on all cylinders in marketing and perform data analytics, writing, graphics and more from your desktop does not mean you should.

Learn when being position-less is best for the organization and when it isn’t. Just because you can write copy with ChatGPT does not mean you will write with the same skill and finesse as a professional copywriter. So be position-less, but not too position-less.

Position-less vs. being pigeonholed

At the same time, if you are a manager, do not pigeonhole people. Let them spread their wings using today’s latest AI tools for human augmentation.

For managers, finding the right balance between guiding marketing pros to be position-less and, at other times, holding their position as specialists and bringing in specialists from different marketing disciplines will take a lot of work. We are at the beginning of this new era. However, working toward the right balance is a step forward in a new world where humans and AI work hand-in-hand to optimize marketing teams.

We are at a pivot point for the marketing profession. Those who can be position-less and managers who can optimize teams with flawless position-less execution will secure their position for a lifetime.

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