Online Retailers: Measure Return on Ad Spend. Here’s Why.
As shoppers seek to avoid the holiday mall stampedes, digital advertising will be a key tool for e-commerce merchants to boost online sales this season. The holiday e-commerce market is expected to grow to over $79 billion dollars this year in the U.S. alone. This season is a crucial time for e-retailers to end the year in the black, and many will run digital ad campaigns without a clear view into how their campaigns impacted their 2015 profits.
If you’re asking yourself, “did my ad campaign make money?” — measure Return on Ad Spend.
It’s great if your ads earned a lot of clicks, views, or other engagement. But if they aren’t actually driving sales — and driving sales that help you earn a profit — then they won’t be worth your time and money.
What is ROAS?
Return on Ad Spend is similar to Return on Investment (ROI), but it’s a more specific and actionable metric. While ROI calculations take complex business expenses into account, ROAS focuses on a single calculation:
Advertising-Based Revenue / Advertising Spend
Most digital ad tools optimize for Conversion Rate instead:
Conversions / Visitors
Measuring Return on Ad Spend, however, can directly impact your ad strategy for the better. Instead of focusing on the volume of transactions, ROAS reveals the total value of those transactions. And when you optimize your ads for ROAS, you can earn more revenue per transaction.
These insights can inform your audience targeting too. Let’s say that your teenage audience routinely makes purchases from ads in the $10–20 range, but your mid-thirties audience responds to product ads for items that are valued at $200+. You’d likely change your targeting or creative to cater to the more mature audience, since the ROAS will be greater.
How to optimize for maximum ROAS
Before you even begin digital advertising for your ecommerce property, you need to ensure that your website is structured properly to be indexed by Google. Use your e-commerce software to tag, label, and organize every product description and image properly so it can be found by Google’s bots. If your product line is properly organized for Google and other crawlers, you will facilitate Google AdWords campaigns, Amazon and eBay placements, Rich Product Pins, organic search results, Google Dynamic Search Ads, Facebook Product Ads, and more. Without this structure, paid ad campaigns won’t effectively drive the conversions you’re looking for. This plumbing allows customers to find you quickly with the right keywords.
Then, install proper conversion pixels to track every conversion and its source and value.
Once your structure and analytics are in place, to maximize ROAS you’ll need to:
Conduct In-Depth Audience Development
Generate audience targets based on product groups, demographic details, and website behavior and then test ad set performance against these audiences. Do men in New York routinely buy loafers while women in California love your sandal line? How much Return on Ad Spend do you generate from each group? How can this number be increased?
Run Creative Testing
Test your creative assets for maximum performance. A change in copy or images can make a big difference and you’ll want to know which messages resonate best with your highest-performing audiences to drive the most revenue.
When you have pixels installed on every one of your inventory pages, you can determine when a user views a product or puts in it in their cart and doesn’t purchase. Through retargeting ads, you can serve ads to users who didn’t seal the deal. Users that see retargeting ads are 70% more likely to convert.
Offer Free Shipping or Other Perks
Test ads that offer free shipping or other discounts. It’s possible that offering a 10% discount could actually bring in more revenue than an ad without the offer, but you won’t know that until you test and report on ROAS.
Measure Return on Ad Spend to determine which audiences to target, which creative to promote, and which products sell best online. Vanity metrics may help guide your campaign when you first launch, but transaction value — and the profit you’ve earned after you’ve subtracted your ad cost — is the most meaningful way to ensure that your digital advertising spend contributes positively to your bottom line.
This post originally appeared on linkedin.com.