Return on Ad Spend (ROAS)
a path to success

Are you getting the results you need from your advertising? Image made with Stable Diffusion

Return on Ad Spend (ROAS) should be part of your tracking and assessment toolkit for your advertising strategy. Probably not a controversial stance, but often ROAS is treated as just another column in a spreadsheet, with the descending sort on sexier fields like clicks, CTR, or CPC.

Math

For clarification, ROAS is calculated simply as:

ROAS = Total Revenue from Activity (or campaign) / Total Cost of Activity (or campaign)

For example, a campaign that generates $1,000 in revenue and costs $200 would have a ROAS of 5:1 (or $5 for every $1 spent). Of note, ROAS is a measure of, in this case, the campaign’s effectiveness. It differs from Return on Investment (ROI), which evaluates overall strategy and considers margins and other expenses outside your direct advertising spend.

There’s a lot to be said about the details of measuring and allocating revenue and cost. The important part is consistency and abstracting anything that might distort outcomes. A notional or average for revenue account opening or application may be a good start. You will want to understand segment performance and measuring, or better yet, predicting lifetime values of potential customers. Fixed overhead may be better applied at overall budget levels but watch for channel or campaign level allocations that change your decisions on the outcome.

Allocation of ad effectiveness (i.e., this ad leads to this conversion) can be equally tricky (see here for a view of the science behind Google’s allocation model). Again, consistency is essential in making comparisons and establishing a baseline.

So once you’ve done the work, calculating ROAS or simply adding it to your reporting, it’s time to take action to drive that higher and put you on the path to faster growth.

  1. Understand performance benchmarks from each channel: Create the apple-to-apples view across your channels. Easier said than done. However, having a clear picture of performance across ad platforms gives you actionable insights to allocate your spend in a way that drives performance.
  2. Employ personalized follow-up and retargeting based on your potential customer’s stage: Once you’ve had an interaction/visit from a potential customer, take signals from their activity (message responded to, page/app section visited) to follow up with the most relevant information for where they are in your funnel.
  3. Lean into channels and campaigns that are working, and cut back on what’s not: You’ll have some inclination at this point to take action. Which campaigns and channels stand out? Which are clearly missing expectations? Use this to make shifts, say <10% of budget to start, and begin to put more effort into winning approaches.
  4. Fuel your acquisition channel with the “best” customer profiles to increase the success of look-a-like audience creation: Create clear segments of targeted customers and actively focus your ad effort on them. Similarly, reduce spending on customers you don’t want or who would be better served with retention or re-engagement campaigns.

If this sounds like a lot of work, it is. Managing this effort at scale requires focus and time. However, once you can point to the direction you want to go, you can leverage your data to jump ahead. Adopting a formal data approach and automating tasks based on your learnings can significantly reduce overall effort and cycle times. Days and weeks spent in spreadsheets to see results next month or quarter can turn into real-time addition to remarketing ad groups, follow-up messaging, and much faster and more confident decision making.

This learning curve of getting a handle on your data and using it to create a competitive advantage is steep. It is, however, the path to standing out and creating stability and resilience for your bank or credit union. Take the first step, no matter how small, and if you need help or advice, reach out. We can provide pointers and examples to follow no matter where you are on your journey.

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