What Is a Good ROAS?
Many metrics offer insights into the success of an advertising campaign, and return on ad spend (ROAS) is one of the most important. But this number alone won’t be very useful without the right context. Join us to discover what defines a good ROAS and what this data point can really tell you about your business.
What defines a good ROAS in marketing?
ROAS shows how much money your paid advertisements, including pay-per-click (PPC), social media, and email marketing ads, generate per dollar spent. Let’s explore what qualifies as a good ROAS and why this metric is only one part of the equation.
Industry standards
A good ROAS is highly context-dependent, and what exceeds expectations in one industry may be considered a flop across other verticals. Although there’s no universal benchmark for what number makes a good ROAS, we can offer an average range for various fields:
Estheticians: 3.0-6.0
Doctors and dentists: 3.0-7.0
Restaurants: 1.5-3.0
E-commerce sites: 2.5-4.0
SaaS/B2B: 3.0-6.0+
DTC brands: 3.0-5.0
Luxury goods: 4.0-8.0
Profit margins
Without a solid understanding of your margins, ROAS is essentially meaningless. You can use your gross profit margin to calculate your break-even point, the minimum revenue needed to recoup your advertising costs. Remember that high-margin businesses can survive on lower ROAS than low-margin companies.
Platform variation
Different channels naturally yield different ROAS results. For example:
Google Ads: High ROAS, high intent, ideal for bottom-of-funnel conversions.
Facebook and Instagram: Social media sites offer lower immediate ROAS, but better when evaluated with blended ROAS and customer lifetime value.
YouTube and TikTok: Lowest direct ROAS, but valuable for boosting awareness.
Business goals
Most businesses don’t maintain a good ROAS throughout every stage of growth. As you build brand awareness, prioritize customer acquisition, and expand into new markets, a lower ROAS is expected. However, higher returns are necessary for profit optimization. As your company matures, you may begin tracking blended ROAS, incremental ROAS, and ROAS by customer type.
Related: What Is Netiquette and Why Is It Important?
How to calculate your return on ad spend
Ready to put this number into practice? Let’s break down how to use this measurement to better understand how much your business is making from your advertising investment.
The formula
ROAS measures the revenue generated by every dollar spent on ads using the following formula:
ROAS = Ad Revenue ÷ Ad Spend
ROAS is typically displayed as a ratio, but may also appear as a percentage.
Using the formula
Let’s say you spend $1,500 on an ad campaign and make $4,500 in gross revenue. Here’s how to calculate your ROAS:
$4,500 ÷ $1,500 = 3.0
According to this calculation, you made $3 for every $1 spent on advertising.
Comparing benchmarks
This metric alone doesn’t give you the full picture of your campaign’s overall performance – you’ll need to compare your ROAS to other benchmarks for that, including:
Break-even ROAS: Are you losing money or making money?
Industry standards: How do your returns compare to the competition?
Historical performance: How has your ROAS fluctuated over time?
Platform-specific models: Is this channel performing as it should?
Goal-based benchmarks: Does my ROAS align with my current stage of growth?
Related: How To Create SEM Ad Copy
Tips for improving your ROAS
So, what can you do when your ROAS isn’t good? Before you scrap your existing ad campaigns and start from scratch, start with small steps to better determine where your existing system falls short.
Track every lead
Meticulous recordkeeping is your friend when calculating an accurate ROAS. Record every form fill, log every phone call, and ensure that every booked appointment is traced back to an ad source. Don’t forget to mark every closed deal as revenue, even if it’s an estimate.
By performing an in-depth analysis, you can identify which keywords, ads, and audiences actually convert, and use that information to increase spending on proven tactics and enhance your ROAS.
Eliminate bad data from your algorithm
Oftentimes, we see accounts with above average ROAS, yet the business isn’t seeing actual growth in their sales and revenue. When we look under the hood of their ad accounts, we often find poor audience targeting, or branded keywords in SEM campaigns that obfuscate reports and effectiveness of ad dollars.
In highly competitive industries, it may be a good idea to bid on your branded search terms, but it should always be segmented into a separate campaign. The same goes for engaging repeat customers on social channels. Clear audience data gives much more insight to the cost of new client or customer acquisition.
Consider setting phone call conversions for ads
Phone calls are ephemeral, and there’s no built-in software to record clickthrough rates, so it’s easy to zero in on customer questions and forget about your marketing objectives in the moment. But tracking how many calls come from ads and your website can help you understand which sources generate more leads. Before ending each incoming call, ask how the caller found you.
Test different landing pages
As a rule, your landing page must align with customer intent and clear the path to seamless conversion. Instead of creating entirely new landing pages, start by testing variations in:
Headline clarity
One CTA vs several
Trust signals like reviews, certifications, and before-and-after pics
Short forms vs long forms
Booking calendar vs contact form
Related: How to Grow Your Business with SEO Services for Shopify
Partner with Grove Brands and grow your business!
It’s a common misconception that ROAS alone can serve as a meaningful indicator of your overall advertising success. In order to make the most of this data, you must view it in the context of other essential metrics.
Grove Brands can help ensure your advertising efforts yield a good ROAS! Contact us today to get a free website audit and see how you can leverage the insights.
