How should I benchmark my ROAS?

In my recent LinkedIn post, I argued that despite what most people believe, ads are not a closed auction. This essentially means there can be a win-win-win situation for you as an advertiser, Meta as a platform, and users who are consuming the ads. However, for this to happen, the following conditions must always be true:

• All ads should be as engaging and natively served as the content on the platform.

• Meta's algorithms must perfectly recommend only relevant ads to users.

• Users must have a limitless appetite for consuming ads.

• Users must be ready to make a purchase decision and have money to spend online.

It almost seems like science fiction for us marketers to imagine all these conditions always being true. This is why Meta Ads don't perform consistently; the end user is not always in the right frame of mind to take the desired action. However, Meta's algorithms have improved significantly over the years, especially in balancing your advertising goals against users' needs. This is why smart advertisers can take advantage of the algorithm and deliver profitable (though still fluctuating) ROAS.

The most important step in improving ROAS is not only knowing the right KPIs but also knowing the targets for those KPIs. So, how do you select these targets?

You benchmark your performance with those of high performers in your cohort of advertisers

The best way to define your cohort is as follows (in order of importance)

1. Geography: It's the number one determining factor of your ad costs, as ad bids (a function of demand and supply) vary drastically by geography.

2. Objective: Getting eyeballs is cheap; getting conversions is hard. When benchmarking ad costs, compare campaigns with the same objectives.

3. Category: Assuming all advertisers in a given category have similar net margins, their ad bids will also tend to be similar.

4. Order Value: The higher the purchase you're driving, the more you'd be willing to pay for your ad clicks (extension of the above point).

5. Ad Spend: As you scale your ad budgets on Meta, the algorithm's ability to find new audiences diminishes compared to your daily budget. This results in Meta consuming your budget towards repeat impressions or expensive audiences.

It's really difficult to get the data at the right granularity to find the right benchmarks for you. The perfect dataset only exists with Meta, and they aren't going to make these benchmarks available (for obvious reasons).

So, we had to work extra hard to get the right benchmarks for our ads grader tool.

Back in December 2023, we launched our crowdsourced dataset and incentivized users to share anonymized data with us through Incentivised surveys.

Meanwhile, in February 2024, Shopify launched Ad Benchmarks as part of their Audiences App rollout to Shopify Plus customers

Using our crowdsourced dataset and Shopify's Benchmarks, we've been able to maintain over 60% coverage of Benchmarks across all five cohorts mentioned above. Whenever we don't have the accurate benchmarks available, we "roll down" the benchmark set to the next-best cohort. This way, we can maintain data consistency and provide the best possible benchmarks for your KPIs in your ad account.

We hope you find value in these benchmarks, and don't forget to checkout our Meta Ads Grade with our free Ads Grader Tool

Stay tuned for the next one!

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