Measuring ROAS for a CPC Campaign
Return On Advertising Spend (ROAS) is a marketing metric that measures the efficacy of a digital advertising campaign. It gauges the effectiveness of advertising campaigns by calculating the revenue generated compared to the cost of ads. ROAS helps marketers assess campaign profitability and allocate resources wisely for optimal results.
How to Measure ROAS for Your CPC Campaign
Let's say your company's sales team runs a cost-per-click (CPC) campaign on a digital advertising platform to promote a new product to a specific audience. The sales team has set a revenue target for this campaign and wants to evaluate its effectiveness by measuring the return on ad spend (ROAS).
You can calculate it with this simple formula:
ROAS = (revenue from ads/cost of ads) x 100
Let us examine below how we would do it.
Data Collection and Analysis:
1. Campaign Selection: First, select a few different CPC campaigns running over a specific period. Let's consider three campaigns named A, B, and C.
2. Click-Through Rates (CTR): You analyze the click-through rates for each campaign to see which ones attract the most clicks from users. The CTR indicates the effectiveness of your ad in capturing user attention.
- Campaign A: CTR = 5%
- Campaign B: CTR = 3.5%
- Campaign C: CTR = 7%
3. Conversion Rates: Examine the conversion rates for each selected campaign. The conversion rate indicates the percentage of users who clicked on the ad and then took the desired action, such as purchasing.
- Campaign A: Conversion Rate = 10%
- Campaign B: Conversion Rate = 8%
- Campaign C: Conversion Rate = 12%
4. Revenue and Ad Spend: You gather data on the revenue generated from each campaign and the total amount spent on advertising (ad spend) for each movement during the specific time frame.
- Campaign A: Revenue = $5,000, Ad Spend = $1,000
- Campaign B: Revenue = $3,500, Ad Spend = $900
- Campaign C: Revenue = $6,000, Ad Spend = $1,200
Using the above formula, let us calculate each campaign's return on ad spend (ROAS).
For Campaign A:
ROAS = ($5,000 / $1,000) * 100 = 500%
For Campaign B:
ROAS = ($3,500 / $900) * 100 = 388.89%
For Campaign C:
ROAS = ($6,000 / $1,200) * 100 = 500%
In this example, Campaign A and Campaign C have the same ROAS of 500%, indicating that the company earned $5 in revenue for every dollar spent on advertising. Campaign B, while having a lower ROAS of 388.89%, is still generating a positive return on investment.
The above result is considered exceptional since a common benchmark for an acceptable ROAS is 4:1, meaning for every $1 in ad spend, you generate $4 in revenue.
The company calculated the return on ad spend (ROAS) for each campaign by analyzing campaigns with the highest click-through rates and corresponding conversion rates.
By keeping careful tabs on ROAS, companies can make informed decisions on where to invest their ad dollars and how they can become more efficient.
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