ROAS: Calculating and Understanding Industry Benchmarks

ROAS: Calculating and Understanding Industry Benchmarks

Hiya Chaplot

Hiya Chaplot

Oct 21, 2024

Oct 21, 2024

"Your ad spend is only as valuable as the revenue it brings in." That's the heart of ROAS (Return on Ad Spend), and it’s why it's one of the most important metrics in the world of digital advertising. But how do you know if your ROAS is good enough? That’s where industry ROAS benchmarks come in, offering a clear comparison to see where your ads stand.

In the fast-paced world of digital marketing, every dollar counts. CMOs and marketing pros know that without tracking ROAS, you're flying blind. Understanding how your ads stack up against industry averages guides your decisions and helps you unlock better returns. Ready to dive in?


Understanding ROAS

At its core, ROAS (Return on Ad Spend) is a simple but powerful metric. It measures the revenue generated for every dollar you spend on advertising. If you’re running campaigns and want to know if they’re making money, this is the number to watch. Whether you're spending $100 or $10,000, ROAS gives you a direct look at how effectively your ads generate returns.


Importance of ROAS in Optimizing Advertising Strategies

Tracking ROAS isn’t just about seeing if your ads are profitable—it helps you make smarter decisions. By knowing your ROAS, you can:

  • Identify underperforming campaigns: If a campaign’s ROAS is too low, it may be time to rethink your strategy.

  • Allocate your budget more effectively: To maximize returns, ads with a high ROAS should receive more of your budget.

  • Refine audience targeting: A good ROAS means you’re hitting the right audience. A low ROAS could indicate that your targeting needs adjustment. In short, ROAS isn’t just a number—it’s a roadmap to better ad performance.

Once you understand what ROAS is and why it’s crucial, the next step is knowing how to calculate it properly. Let's break down the formula and see how you can apply it to your campaigns.


Calculating ROAS


ROAS Formula

The formula for calculating ROAS is simple but incredibly powerful:

ROAS = Revenue attributable to ads / Cost of ads

This straightforward calculation tells you exactly how much revenue your ads bring in for every dollar you spend.

Let’s say you spent $1,000 on a Facebook ad campaign, generating $4,000 in revenue. To calculate your ROAS, simply divide the revenue by the ad spend: ROAS = 4,000/1,000 = 4:1. This means for every $1 spent on advertising, you earned $4 in return.

That's not bad, right? Now, let’s move to the considerations one should keep in mind while calculating the ROAS.


Considerations for ROAS Calculations

While the formula is simple, other factors can influence your ROAS. You need to account for:

  • Affiliate Commissions: If you’re paying affiliates, subtract those commissions from your total revenue.

  • Other Costs: Factor in shipping fees, product costs, or other operational expenses.

These costs can eat into your profitability, so they’re essential to consider when calculating your true ROAS.

Once you’ve calculated your ROAS, the next question is: how does it compare to the rest of your sector? Let’s dive into the average ROAS benchmarks across different sectors to give you a clearer picture.


Average ROAS Benchmarks by Sectors

Different industries operate on varying margins and business models, so understanding your sector’s benchmarks is essential for assessing performance. Here’s what you can expect across several key sectors:


E-commerce

In the world of e-commerce, determining the ROAS can be difficult as it varies on the type of product sold. Generally, a ROAS of 3:1 or higher is considered healthy. Since online stores often face high competition, keeping your ROAS above this mark indicates that your ads are performing well.


Direct-to-Customer (D2C)

The Direct-to-Consumer (D2C) model gives brands the power to sell directly to their customers without needing middlemen, which means more control over the entire experience. However, competition can be fierce, and ROAS can fluctuate greatly depending on what you’re selling and how you’re marketing it. Generally, for D2C brands, aiming for a ROAS of 4:1 or higher is a solid goal.


B2B (Business-to-Business)

For B2B companies, where sales cycles are longer, a ROAS of 2:1 or higher is typical. This lower benchmark reflects the higher upfront investment in nurturing leads, but it's still a solid result for campaigns focused on long-term contracts or large deals.


Services

The services sector generally operates on higher profit margins, which means a ROAS of 6:1 or more is not uncommon. Since costs are lower and scalability is high, you can aim for a stronger return here than in product-based industries.

While industry benchmarks give you a broad sense of what to expect, different advertising platforms also have their own ROAS standards. Let’s look at how some of the top ad platforms stack up.


ROAS Benchmarks by Advertising Platform

Each advertising platform has strengths and weaknesses, and knowing the average ROAS can help you decide where to focus your ad spend.


Google Paid Search

With an average ROAS of $3.95, Google Paid Search often delivers strong returns, especially for advertisers targeting users with high intent. These users typically search for specific products or services, making them more likely to convert.


Meta Ads

Meta Ads, encompassing Facebook and Instagram, offer businesses powerful tools for reaching highly targeted audiences with an average ROAS of $2.23. Facebook’s advanced targeting drives brand awareness and conversions, while Instagram excels at visually engaging, lifestyle-oriented content. Together, they provide a versatile platform for businesses to connect with their audience through personalized and impactful campaigns.


Amazon

Amazon’s advertising platform, with an average ROAS of $4.81 in 2023, is perfect for e-commerce businesses looking to reach users with high purchase intent. Since Amazon users are already in a buying mindset, this platform is a reliable source of revenue for many sellers.

Now that we’ve explored platform benchmarks, it’s time to narrow our focus and look at how different industries perform across various platforms. Each industry has its unique ROAS across different channels, so let’s dive into the data.


Industry-Specific ROAS Data

Different industries see varying results across advertising platforms. Below are the typical ROAS figures for some sectors, broken down by platform.


 Consumer Electronics -

  • Google: $3.54

  • Meta: $1.94

  • Amazon: $4.5-5

The consumer electronics sector heavily relies on detailed product information and reviews. Google and Amazon are critical platforms for driving conversions, as consumers often research extensively before purchasing.


Pet Supplies -

  • Google: $1.54

  • Meta: $2.58

  • Amazon: $2-$2.5

In the pet supplies market, the emphasis is on emotional appeal and community engagement. Meta platforms, especially Instagram and Facebook, effectively leverage visual content and community connections, enhancing brand loyalty and driving sales.


Baby Products -

  • Google: $3.89

  • Meta: $2.93

  • Amazon: $3.5-$4

For baby products, parents prioritize safety and quality. Google and Amazon dominate this sector, as parents often seek specific information and trusted reviews before purchasing. Meta platforms serve as useful touchpoints for brand engagement.


Toys & Hobbies -

  • Google: $3.12

  • Meta: $1.82

  • Amazon: $4-$4.5

 

Toys and hobbies benefit from intent-driven searches on Google, leading to high returns. Amazon is crucial for conversions due to its extensive selection, while Meta platforms help build brand awareness and engage consumers through targeted content.

Now that we’ve looked at some industry-specific benchmarks let’s explore how you can improve your ROAS and get the most out of your ad spend.


How to Improve ROAS

Maximizing your ROAS requires constant testing and optimization. Here are some key strategies you can use to improve your return on ad spend:


1. Experimenting with Ad Placement and Platforms

Different platforms and ad placements perform differently for each brand. By experimenting with multiple platforms—like Google, Facebook, Instagram, or even Amazon—you can see which offers the highest returns. Don’t be afraid to test new placements within these platforms, such as mobile vs. desktop or feed vs. stories.

If managing these multi-channel strategies feels overwhelming or you want to maximize your results, partnering with experts like GoMarble can be a game-changer. As an AI-assisted performance marketing agency specializing in cross-channel performance marketing, GoMarble ensures your campaigns are optimized across all platforms, helping you achieve the best possible ROAS.


2. Segmenting and Personalizing Audience Targeting

Segmenting your audience into specific groups allows you to tailor ads to their unique preferences and behaviors. Personalization can significantly boost your ROAS by ensuring your message is highly relevant to your target audience. For example, you can split your audience by age, location, or buying behavior and create custom ads that resonate with each group.


3. A/B Testing Ad Creatives and Refining Keywords

Constant A/B testing is essential to understanding what ad creatives perform best. Try different versions of your visuals, copy, or call-to-action buttons. Additionally, refining your keywords helps you focus on the search terms that actually drive conversions. A small change in your creative or keyword strategy can make a big difference in your ROAS.


4. Optimizing Budget and Conversion Rate

Optimizing your budget ensures that high-performing campaigns get the necessary resources to thrive. By continuously monitoring your conversion rates and reallocating budgets to the best performers, you’ll maximize your ad spend efficiency. You can also experiment with conversion rate optimization (CRO) techniques to improve landing pages or checkout processes, driving more conversions from the same ad spend.

With these strategies in place, you’re well on your way to improving your ROAS. Now, let’s summarize everything we’ve covered.


Conclusion

ROAS is a crucial metric that helps you measure the effectiveness of your advertising campaigns. From calculating it using a simple formula to understanding industry benchmarks and platform-specific data, you now have a clear idea of how to evaluate your ad performance. By experimenting with ad placements, segmenting audiences, A/B testing creatives, and optimizing budgets, you can continuously improve your ROAS and drive better results for your business.

Understanding ROAS is essential, but achieving benchmark-beating results often requires expert guidance. This is where AI-assisted performance marketing agencies like GoMarble come in. With a team of expert marketers, we optimize cross-channel ad campaigns to ensure the highest returns possible and help your brand achieve benchmark-beating ROAS.

If you’re ready to improve your ROAS and scale your business, book a demo with GoMarble today.


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AI-Assisted Performance Marketing Experts

COMPANY

FREE TOOLS

AI Copywriter

Coming Soon

Copyright © GoMarble AI 2024