Any ecommerce business needs to measure its advertising effectiveness to maximize profits.The Return on Advertising Spend (ROAS) calculator is the most popular method.By calculating the revenue generated, you can determine how much you spent on advertising and how well it converted into sales.Here, we will break down and simplify what Return On Advertising Spend means for eCommerce businesses, discuss why it's essential, and provide tips on how exactly to utilize a ROAS calculator.Alright, let's get started!

What is ROAS

ROAS stands for "Return on Advertising Spend." It is a marketing metric used to measure the effectiveness of advertising campaigns. ROAS represents the revenue generated for each dollar spent on advertising.

A successful ROAS indicates that each dollar spent on advertising yielded more than one dollar in return. This metric can be used to evaluate campaigns, optimize budget allocation, and compare different channels to determine which one yields better results.

The Importance Of ROAS For ECommerce

ROAS helps ecommerce businesses measure the effectiveness of their advertising campaigns by providing a clear picture of the revenue generated from each dollar spent on advertising.Here are some reasons why ROAS is important for ecommerce businesses:

1. Helps optimize ad spend - By knowing which campaigns drive the most revenue, you can allocate your budget more effectively.

2. Identifies top-performing channels - ROAS allows you to see which advertising channels are delivering the highest returns, allowing you to focus on those channels and improve results.

3. Maximizes profitability - Optimizing ad spend and focusing on high-performing channels can maximize profitability for your ecommerce business.

4. Data-driven decisions- ROAS provides valuable insights that can help inform future advertising decisions, allowing you to make data-driven decisions and avoid wasted ad spend.

5. Facilitates growth - By optimizing your advertising campaigns and maximizing profitability, you can reinvest profits into your business and facilitate growth.

How To Calculate ROAS

To calculate ROAS, you need to know the gross revenue generated by the ad campaign and the total cost of the campaign, including ad spend and other related costs.

ROAS Formula = ( Gross Revenue from Ad campaign/Cost of Ad Campaign )

Step By Step in ROAS calculation
1. :Determine the revenue from your advertising.

2. Divide the revenue by the cost of advertising.

3. Multiply the result by 100 to get the percentage ROAS. If your ROAS is less than 100%, your advertising is at a loss.

This means that if you spent $1,000 on Facebook ads in one month and made $3,000 in revenue, your ROAS would be 300%.

But if you only made $900 in revenue in that same month, your ROAS would be 90%. Don't be fooled by anyone telling you that a 90% ROAS is acceptable because anything less than 100% is a loss.

By monitoring ROAS over time, businesses can optimize their advertising strategies to maximize revenue and minimize costs. This can lead to better overall performance and profitability.

To avoid misinterpreting your ROAS results or confusing them with your ROI, use a ROAS calculator. This will help you ensure that you're accurately measuring the success of your ad platforms & campaigns.

Different Types of ROAS Calculators

Several types of ROAS can be calculated depending on the advertising costs data available and the campaign's specific goals. Here are some of the different types of ROAS:

💰eROAS - Estimated Return on Ad Spend. The short-term goal of the business.
eROAS = Total ad revenue / Total ad spends

💰 ncROAS - New Customer ROAS.The long-term health of the business.
ncROAS = New customer revenue / Total ad spend

💰POAS - Profit on Ads Spend. It defined the business ecosystem's profitability.
POAS = Gross profit / Total Ad spends

Calculate ncROAS - New Customer ROAS

New Customer ROAS or ncROAS measures how efficiently your marketing efforts generate revenue from new customers compared to the amount spent on advertising.

It's not just about the percentage split between new and returning customers but how much each group spends relative to the cost of converting them.

To calculate your total new customer revenue, you need to identify all the revenue generated from new customers that came as a result of your advertising efforts

This includes any purchases made by customers who clicked on your ads for the first time and completed a transaction.

ncROAS = Total New Customer Revenue/Total Ad Spend

If your ncROAS drops below 1, it means you're losing money on first customer activations.

Focusing solely on eROAS or POAS metrics may look healthy in the short term, but it puts long-term business success at risk by not generating accretive revenue from ads.

ROAS Vs ROI

When running campaigns to boost your business, you may come across the terms ROAS and ROI. But ROAS is NOT the same as ROI!

ROI is a metric that calculates the profitability of each investment you make by dividing net profits by capital investment.

ROAS, on the other hand, is a metric that measures the efficiency of your advertising spend by dividing revenue by ad spend.

ROAS is a useful metric for marketers who want to optimize their advertising campaigns and make data-driven decisions.

While ROI is more commonly used by top-level executives to make quick decisions based on the profitability of different ventures.

Before giving constructive feedback to your employees or putting more money into your venture, it's important to work with numbers and calculate your ROI.

Good ROAS Overview

Basically, a ROI that is positive is "good," and a ROI that is negative is "bad." But that's not everything.

A good return on ad spend can vary greatly depending on the industry and business goals, but generally speaking, a ROAS of 4:1 or higher profit margin is considered a good number.

This means that for every dollar spent on ads, you're generating at least $4 in return. For example, if a business spends $100 on ads and generates $400 in revenue from those ads, then its ROAS would be 4:1.

ROAS isn't just about how much revenue you make from your campaigns; it's also about understanding how much of your budget goes toward actual conversions.

Expert Tips: You must adjust if your online advertisements are not profitable. However, if you don't tracking ROAS, you will not know what adjustments to make.

Average ROAS in E-Commerce

According to a study by Nielsen, the average ROAS across all industries is 2.87:1. That means for every dollar you spend, you make $2.87 back. Not bad, right?

But here's the good news: in e-commerce, that average ratio goes up to 4:1. So for every dollar spent on advertising in e-commerce, the company will make $4. Nice!

Now, keep in mind that this is just an average. The actual ROAS for e-commerce can vary depending on several factors, like the product sold, the target audience, and competition.

But, some industries perform better than others. For instance, baby products tend to have an average ROAS of around 3.71, while health and beauty products average 2.82.

How ECommerce Brands Should Use ROAS

eCommerce brands should use a Return on Ad Spend approach to measure their digital marketing performance. This helps them focus their budget on campaigns that effectively reach and engage customers. It's a ratio that quantifies the revenue earned from each dollar spent on advertising.

With ROAS, brands can calculate the success of their marketing campaigns and make informed decisions about optimizing them for maximum return. -Here's the some exclusive examples:

- Amazon Ads Average ROAS: 7.94
- Google Ads Average ROAS: 13.75
- Facebook Ads Average ROAS: 10.67
- Twitter Ads Average ROAS: 2.71

Alright, so here's the question:

How To Improve Facebook's ROAS For ECommerce?

Facebook is the world's biggest social networking platform, with over 2.07 billion users, and it has one of the strongest advertising platforms in the world. To improve your ROAS, you need to understand your customers and create advertising that makes them buy.

Facebook ROAS = ad revenue/ad spend

Here are eight strategies to improve your ROAS with Facebook Ads.

Monitor and track your data.

If you want to get the most out of your return on ad spend, it is essential to keep a close watch on and monitor or track your statistics on Facebook.

After that, you can stop working on the advertisements that are not functioning well and concentrate instead on the advertisements that are successful.

However, you can use Attribuly to get accurate conversion track and ROAS data. Single ad level or Blended ROAS. Since Facebook ads manager data is inaccurate.

Understand your target audience.

It's really important to make sure that you're talking to the right people. If you've already tried to do this, but your return on ad spend (ROAS) hasn't gone up, there may be another issue. It's possible that your ads aren't addressing the specific problems that your audience is facing.

It's really important to make sure that you're talking to the right people. If you've already tried to do this, but your return on ad spend (ROAS) hasn't gone up, there may be another issue. It's possible that your ads aren't addressing the specific problems that your audience is facing.

To better understand your target audience, think about their interests and pain points. Consider their demographics, such as age and location, and how they interact with your brand. It can also be helpful to conduct surveys or focus groups to gather more information.

Look into the Attribuly customer journey, and understand which ad and other touchpoints convert your customer. Find the buying process with Attribuly conversion paths.

Test new creatives that better solve audience problems.

You may have noticed that sometimes your ad targeting isn't working as well as you'd hoped. Before giving up, consider that your creativity might be the issue.

Testing different creatives is key! Don't be afraid to try out different formats and designs.

If you have resources available, customizing creatives by placements can really help get more engagement and traction from users who may still need to learn about your brand or product.

Additionally, tapping into Post IDs allows for faster acquisition of engagements which adds credibility to unfamiliar prospects- win/win!

Test All Placements:

Don't just target the "news feed." Test all placements and let Facebook optimize for you. Create duplicates of your ads to keep spending on the most profitable placements.

Set Your Goals

Setting goals for your advertising campaign is a great way to ensure you get the most out of your marketing budget.

If you spend $100 on an ad campaign and make $100 in customer purchases, that's a 100% return on investment. This means the campaign paid for itself and didn't drain your business finances.

Advertising campaigns can also serve as a way to test the effectiveness of your advertising efforts. By analyzing the data from your campaigns, you can optimize future ones and increase your Return on Ad Spend.

It may take some trial and error at first, but over time, setting goals should help make your advertising more efficient and cost-effective in the long run.

Retarget your audience

It's a powerful marketing technique that involves reaching out to people already familiar with your business. This could be someone who has visited your website or purchased from you in the past.

Retargeting is important because it takes multiple touchpoints for someone to take action on an ad or call to action. Experts say it can take up to seven touchpoints before someone is ready to buy.

So, how can you use retargeting to your advantage?

One way is through Facebook ads. Facebook Audience Insights allows you to create a target audience based on detailed demographic information.

This means you can reach people who have already shown interest in your business.

Use A/B testing

Everyone wants to improve their Facebook ads' performance and get a better return on ad spend (ROAS).

With A/B testing, you can try out different variations of your Facebook ads and identify the ones that resonate most with your target audience. It's an excellent way to tweak your ad creative, ad copy, audience, promotions, and offers to boost conversions.

Optimize the Campaign for a Conversion-Based Goal

Optimizing for a conversion-based goal is important to get the most out of your Facebook ads and make more money.

By selecting a frequent conversion event, you're giving Facebook's ad algorithm enough data to quickly deliver the best results.

For example, if you have a new e-commerce store, an 'add to cart' event is more likely to generate conversions than a 'purchase' event. The earlier an ad set has completed its learning period, the higher ROAS it will produce.

As we mentioned earlier, It's also worth considering other elements to get higher ROI, such as the right targeting, relevant creatives, and optimized bidding strategies. However, you can also optimize campaigns with Attribuly.

Get A Better ECommerce ROAS With Attribuly.

Here's what we can do for you:

- Segment your target audience for better ad targeting
- Create multiple ad campaigns that fit your customers on autopilot
- Full pixel attribution
- Launch dynamic ads Facebook Conversion API
- Utilize Facebook Conversion API
- Launch retargeting Google Ads campaign
- Live customer behaviors
- Unlimited Ad channel integration

Wrap Up 🎁

As you can see, using an eCommerce free ROAS calculator can help provide a business with unparalleled insight into its ROAS goals. This type of tool gives a deep understanding of performance-based advertising analysis and helps business owners better analyze the ROI of their online campaigns.

However, with any Ecommerce ROAS process, it’s essential to seek Attribuly professional service or guidance when necessary. Doing so can help you create the most effective strategy and make sure that you don’t run into any unexpected pitfalls.