Running ads on social media and especially Facebook is pretty much essential for e-commerce businesses today. But not all ads are made equal. And as an e-commerce business, you have to keep track of your Facebook return on ad spend (ROAS).
How much you understand ROAS on Facebook and how you deal with it can make – or break – your business.
It’s as simple as that.
What is ROAS?
Return on ad spend (ROAS) is a metric used by businesses to measure the revenue they’re getting from their ads.
It’s about how much they’re spending and how much revenue they’re generating from those ads.
Any business that runs ads across social media platforms needs to calculate its return on ad spend.
It’s particularly important for e-commerce businesses, which rely on social media marketing to attract, retain, and retarget customers.
How To Calculate Return On Ad Spend
To calculate your ROAS, you’ll need to use the ROAS formula.
It looks like this:
ROAS = revenue from ad campaign ÷ cost of ad campaign x 100 = %
For a clearer picture of return on ad spend, let’s take an example.
Let’s say you run a $100-ad campaign and generate $200 in revenue. To calculate your ROAS, divide your revenue ($200) by the cost of the ad ($100) and multiply it by 100.
200 ÷ 100 x 100 = 200%
This means you’ve doubled your revenue or generated 2x your ad spend.
ROAS vs ROI
Another important metric that shouldn’t be confused with return on ad spend is return on investment (ROI).
Both ROAS and ROI are important e-commerce KPIs. They give you insights about your money spent, but in different ways.
The difference between ROI and ROAS is that return on ad spend focuses on money spent in marketing and advertising campaigns, whereas ROI is about the return from something bigger like your entire marketing strategy.
Moreover, ROI can be used across various business segments not just ads.
ROI can measure the return on investing in software for speeding up business processes or marketing automation or human resources, or anything else. It measures the value and return from any investment in general.
ROAS, on the other hand, is about ads, and covers individual campaigns. It’s about how much money you’re generating from advertising dollars.
What’s a good ROAS for Facebook ads?
Obviously, there’s no one-answer-fits-all to this question.
Why? Because there are many factors at play when calculating and measuring the impact of your ads and ROAS.
Moreover, a good Facebook return on ad spend for one company may not be so for another.
To get a better idea of what a good Facebook ROAS is, it’s best to look at industry averages. This means reviewing data about the average ROAS in your industry and measure accordingly but not blindly.
A survey by DataBox of 30+ respondents found that for the majority, average ROAS was 6x to 10x, whereas several businesses said their average ROAS was 4x to 5x.
Only 5% of survey respondents reported generating an average ROAS of over 80x.
It’s worth mentioning that your Facebook return on ad spend can be affected by:
- The size of your business.
- How long you’ve been in the market and how well people know you and your brand.
- Your industry.
- Your cost per lead and cost per acquisition (CAC).
- The ad campaign itself and its moving elements such as the image, copy, and product sold.
11 Tips to Improve your Facebook return on ad spend (ROAS)
Generating a high ROAS from your Facebook ads shouldn’t be seen as a dream.
The secret lies in a few tips you can follow to optimize your ads and make them cost-efficient and high-performing.
In other words, optimizing your Facebook ROAS allows you to spend less and get more in revenues and profits.
Here are our 11 tips for optimizing your Facebook ads for a better ROAS.
1. Understand your customers
It goes without saying that to create a successful ad campaign, you first need to understand your customers. This includes their wants, needs, and, of course, their pains.
2. Segment your target audience
Once you understand your customers, you can then segment them into groups. Using a customer segmentation strategy can go a long way into helping you optimize your ROAS from Facebook ads.
Moreover, having a segmented target audience allows you to focus your target on specific pain points. Using a broad demographic in your ads means you’re likely to miss many targets.
Your women customers aged 25 to 30 don’t have the same problems as women aged 40 to 50 or men of the same age.
With customer or user segmentation, you can ensure your ads reach their target, generate revenues, and increase conversions.
3. Use the Facebook Pixel
The best way to measure the performance of your Facebook ads and retargeting ads is to install the Facebook Pixel into your website.
The Facebook Pixel is code that you embed into your website so you can track your customers’ ad clicks, purchases, among other things.
4. Define your campaign target
Whether you’re running your ads yourself or through an agency, you need to set your target for each marketing campaign.
The purpose of this step is that you don’t get lost in all the data and metrics you get. If your target is to generate leads, then getting 1,000 shares is great but not your target.
Similarly, if you’re target is to get customers to visit your store AND convert but the result is only traffic with little to no conversions, then your ad needs some work.
5. Use clear ad copy
To get customers to click your ad, you need to write clear and concise copy. Don’t forget the text on your images and videos.
All of these can get customers to click or keep scrolling. Vague ads aren’t likely to generate the interest or desire to purchase that business owners think they would.
6. Solve a problem
Customers usually buy products because they need them or solve a pain for them.
By highlighting your customers’ pain points in your ad, you’re likely to increase your conversion rate.
7. Alternate between images and videos
Your customers are more likely to see your ad’s artwork or image before they read the copy.
If they find the image appealing, they’ll continue to read your ad and then decide if they want to click it and visit your store.
A good tactic, depending on your business, is to alternate between images and videos in your ads. You should also see which ad format works best for your brand and products.
8. Use A/B testing
One of the benefits of running ads on Facebook, and other platforms, is being able to test them to see which is more suited to your target audience.
You can A/B test various aspects of your Facebook ads to get a better ROAS. These aspects include: your ad creative, the ad copy itself, audiences, promotions, offers, among others.
By A/B testing your Facebook ads, you’ll be able to experiment with different options and see which works best in terms of conversions and for your audience.
This will also help you prevent ad fatigue and see which ad campaigns offer a better average customer acquisition cost for your e-commerce store and accordingly a higher ROAS.
9. Create a lookalike audience
It’s important to understand the different types of Facebook audiences and which of them suit your products.
For example, your Facebook Custom Audience are people who already know you and your brand. From this list, you can create Lookalike Audience. This audience includes people who are similar to your current audience, meaning they’re more likely to have a similar behavior.
Another audience type is the Facebook Dynamic Audience, which is an audience generated for businesses who use the Facebook product catalog.
They are also people who have engaged with one or more of your store’s products or services. Engaged here means clicking your ad, adding a product to their cart, or purchasing a product.
10. Create a dynamic audience and dynamic ads
One of the benefits of having a dynamic audience is being able to create dynamic ads.
These dynamic ads are unique in a way because they rely on customers’ browsing activity on your website.
11. Use Facebook retargeting ads
Last but certainly not least is using Facebook retargeting ads. These are ads that appear to customers who have visited your website.
If you’re doing ad retargeting using dynamic ads, the products your customers last viewed on your website will appear in the ad and feed.
Get a better Facebook ROAS with Stars Commerce
You’re now armed with our top 11 tips for improving your return on ad spend on Facebook.
But want some additional help?
We’d like to help you not only increase your revenues from your ads but also make it easier for you to create Facebook ads, reach customers better, and increase your conversion rate.
Stars Commerce is an ads automation platform. We help e-commerce businesses like you get the biggest bang for their buck.
- Segment your target audience
- Create as many ad campaigns as you want and that fit your customers on autopilot
- Create lookalike and dynamic audiences
- Launch dynamic ads
- Launch retargeting campaigns
- View your ad performance via a detailed dashboard
- Offer personalized ads
In other words, you’ll be improving your ROAS across several social media platforms and reviewing the performance of your ad campaigns, your average ROAS, and much more.
Ready to see a higher Facebook ROAS?
Now it’s time to start reviewing your current and previous campaigns.
See which worked, which could use some tweaking, and which need to be paused.
You can now start creating new Facebook ad campaigns using the above tips.