In the competitive world of ecommerce, return on ad spend (ROAS) is the ultimate metric. As a refresher, your business’s ROAS is the amount of revenue you make for every dollar you spend on advertising.
Calculating this number is relatively straightforward using the following ROAS formula:
ROAS = (Revenue from Ads) / (Cost of Ads)
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Knowing the result is crucial for optimizing ad spend and improving profitability. But ROAS optimization can be complicated and often requires more than casual tweaks to your marketing strategy. (It can help to understand all the factors that go into estimating a good ROAS, as well as your breakeven ROAS, where you break even on acquiring a customer.)
At the simplest level, there are two basic ways to increase ROAS: grow revenue and/or decrease ad spend. Below, we’ve compiled lots of helpful, actionable ways to do just that.
Wondering how to improve ROAS? The natural place to start is with tactics that can bump up your revenue, such as increasing conversion rate, doubling down on customer retention, or expanding to new markets.
ROAS and customer retention are intricately linked. You can’t afford to focus solely on customer acquisition. Neglecting retention strategies means you’re essentially pouring resources into replacing churned customers. As ad costs continue to rise and channels become increasingly saturated, investing in your existing customer base is more important than ever.
Take BrüMate, for example. They use a mobile app to reacquire customers for free through targeted push notifications, creating a direct line of communication with their most engaged audience.
Investing in owned channels like this allows you to build relationships with your customers on your own terms, without being at the mercy of algorithm changes or rising ad costs.
So, how can you enhance your retention efforts and drive long-term growth? Start by providing exceptional value to your current customers. Go beyond the basic post-purchase follow-up and create personalized experiences that keep them coming back for more.
Here are some ways to bolster customer retention and increase your ad revenue to improve ROAS:
Reward frequent shoppers with a points system that increases benefits with more purchases, encouraging repeat business. For instance, BYLT’s app-based program improved loyalty by offering points redeemable for discounts, increasing customer lifetime value (LTV) by 35%.
Use first-party data and zero-party data from post-purchase surveys to customize marketing messages to be more relevant and engaging for your audience. For example, if customers frequently purchase running shoes, send them emails, SMS messages, or push notifications highlighting new arrivals and exclusive deals on athletic gear.
Turn your loyal customers into brand advocates by implementing a referral program, incentivizing them to spread the word to their friends and family. For example, you could give a $10 discount to the referrer and 20% off the first purchase for the referee, fostering a community of brand advocates.
Segmenting your audiences based on their preferences, behavior, and value enables you to create hyper-targeted ad campaigns and personalized product recommendations that make your customers feel seen, heard, and understood. And that means embracing the power of first- and zero-party data.
By collecting first-party data directly from your customers through owned channels (like your website, app, or email) and encouraging them to voluntarily share zero-party data (such as preferences and feedback), you can build a cache of accurate, relevant insights that will help you create personalized experiences that boost engagement, loyalty, and ROAS.
To collect this data without coming across as invasive, make it a win-win for you and your customers. Start by identifying key touchpoints in the customer journey where you can naturally request information, like post-purchase surveys or account creation forms. Then make sure you’re offering something in return. For example:
Segment your top spenders and make them feel special with exclusive events, dedicated support, and custom offers. Focusing on audience segments with a proven track record of higher conversion rates and lifetime value can significantly uplift your advertising efforts. You’ll direct your ad spend toward users who are not just more likely to convert but also contribute to a higher AOV.
Implementing this approach requires a savvy blend of first and zero-party data collection. This means diving deep into your customer’s purchase history, engagement data, and preferences to tailor personalized messaging and offers.
Then you can create targeted campaigns that speak directly to the needs and desires of your high-value audiences. Here are some ideas for how to do this:
An often overlooked factor in improving ROAS is the performance of your website. A slow or poorly optimized site can lead to visitors leaving quickly, translating to wasted ad spend.
First, focus on page load speed. Ensure your site loads in under 3 seconds to minimize visitor drop-off rates. Next, prioritize mobile optimization. Your website should be responsive and provide a seamless experience on smaller screens.
Lastly, employ conversion rate optimization (CRO) techniques: Use heatmaps and analytics to detect and eliminate friction points in your checkout process to increase conversion rates. By optimizing these areas, you can enhance the user experience, reduce bounce rates, and maximize the efficiency of your ad budget.
Collect feedback that can illuminate aspects of the shopping experience that are either delightful or in need of improvement, then make the necessary changes to fine-tune your operations and enhance customer satisfaction.
Encouraging customers to leave product reviews and ratings not only provides insights to improve your offerings but also helps tailor your marketing strategy to better meet customer needs and preferences.
Seeking feedback on your ads allows you to ensure they’re relevant and resonant, preventing ad fatigue among your audience. Keeping a finger on the pulse of customer opinion is essential for continuous growth, increased brand loyalty, and higher conversion rates.
The more money each customer spends per transaction, the more revenue your advertising efforts generate. Increasing average order value (AOV) does more than pad your bottom line. It’s also a smart way to offset the rising costs of customer acquisition and ad spending.
There are a number of tried-and-true tactics for incentivizing customers to spend more to bump your AOV and improve your ROAS:
Free shipping is one of the most effective ways to boost AOV. Here’s how to use it to your advantage:
Any strategies you can implement to optimize your conversion rate will also optimize your ROAS. That’s because the more customers you convert, the more revenue you generate. Here are a few approaches to consider.
Dynamic pricing is a powerful strategy for enhancing your ROAS, as it allows you to adjust prices in real time according to customer behavior, current market demand, and competitor pricing. By using dynamic pricing tools, you can stay competitive by monitoring your rivals and maintaining attractive pricing strategies.
Flash sales and limited-time offers can create a sense of urgency, prompting potential customers to make quicker purchasing decisions. This flexibility not only helps align your sales strategies with market fluctuations but also maximizes revenue and profitability by enticing budget-conscious consumers and increasing overall conversion rates.
In the digital buying environment, recommendations from fellow shoppers are an influential factor in purchasing decisions. User-generated content (UGC) like reviews, testimonials, and social media posts can enhance your brand’s credibility with potential customers, driving higher conversion rates.
To capitalize on this trust, integrate genuine customer reviews prominently on product pages. Incorporate social proof in your advertising with UGC to bolster authenticity and reliability.
And there’s an added bonus: Launching a UGC campaign encourages customer engagement by inviting satisfied customers to share their experiences.
With predictive targeting, artificial intelligence (AI) leverages historical data to identify and reach audiences with the highest conversion potential, ensuring your ads are shown to the right people.
AI can analyze ad performance data and suggest which elements resonate best with specific audience segments. By automating these processes, AI reduces the time and effort required for campaign management, allowing marketers to focus on strategy and innovation. Ultimately, the integration of AI into advertising strategies leads to more precise targeting, improved budget utilization, and higher overall campaign effectiveness.
Each platform you advertise on has its own unique strengths, audience behaviors, and performance metrics. Savvy businesses embrace a multi-channel approach that leverages the strengths of each platform at different stages of the customer journey.
Tailoring your campaigns, targeting, and objectives to align with how users engage on each platform can in turn improve ad performance and ROAS.
Start by assessing the role of each channel in the purchase process. Then, match your budgets to user intent and behavior on those platforms.
For example, you might use TikTok’s engaging, short-form videos to drive top-of-funnel awareness, then retarget those users with Google ads to seal the deal. The key is to create a seamless experience that guides customers along the path to purchase, no matter where they start their journey.
But adapting your strategies doesn’t stop at creative and targeting. You also need to set channel-specific objectives and allocate your budgets accordingly.
Here are some specific ideas for adjusting your strategies for different marketing channels:
You can boost revenue and optimize ROAS by timing your campaigns with your brand’s natural fluctuations in consumer demand and channel performance. This strategy hinges on identifying when your audience is most likely to engage and convert, so you’ll need to dive into historical sales and engagement data.
The data will help you pinpoint the months when your campaigns achieve the highest ROAS. Then, plan any major promotions or advertising pushes during these times so you can capitalize on the heightened purchase intent among your target audience. Plus, leveraging high-impact months for targeted campaigns will deepen customer relationships by offering them value when they are most receptive.
This might look like:
Entering international markets is a strategic move to improve your ROAS by tapping into new customer bases. However, achieving success abroad involves more than merely translating your content into the local language.
Localized ad creatives are essential; this means customizing your messaging, imagery, and promotional strategies to resonate with local cultures, traditions, and trends. By aligning your marketing with regional sensibilities, you build authenticity and connection with new audiences, fostering greater engagement and conversions.
Make sure your shopping experience is seamless by offering localized payment options, like popular digital wallets, local credit cards, or other payment solutions. Accommodating customer preferences can lead to increased trust and higher conversion rates.
You’ll also need efficient international shipping solutions. Partner with dependable global shipping providers to ensure your logistics are streamlined and cost-effective. Communicate clearly about delivery times and shipping costs to manage customer expectations and reduce abandoned carts.
On the other hand are tactics that boost ROAS by reducing the amount of money you’re spending on your campaigns.
To minimize your ad spend, you need to understand where each dollar can work its hardest. Leverage first-party analytics tools that go beyond the basic insights so you can see the full picture of your advertising performance across your customer journey.
Start by implementing a first-party attribution tool that supports multi-touch attribution models. This will give you a more nuanced understanding of how each interaction a customer has with your brand contributes to their ultimate conversion.
Then, use marketing mix modeling to simulate different budget allocation scenarios based on each channel’s incremental impact. For example, you might discover that shifting some spending from Meta to Google during peak months could decrease your ad spend and increase your ROAS by double digits.
But don’t just set it and forget it. The key to success with first-party analytics is continuous optimization. Here are a few ways to stay on top of your game:
First-party analytics will help you save money on competitive ad spend, but machine learning can make this process even more efficient. Machine learning algorithms further refine your efforts by dynamically adjusting budget allocations in real time across channels, maximizing ROAS by prioritizing high-performing platforms and reducing ineffective spend.
There are likely a handful of straightforward spots where you can reduce the cost it takes to develop and place your ads, as long as you look hard enough. For example:
Your business’s ROAS is a simple way of calculating the revenue you make for each dollar you spend on advertising. Broadly speaking, you can improve your ROAS by increasing your revenue and/or decreasing your ad spend, using strategies like developing customer loyalty and retention, improving conversion rates, and allocating budget using marketing attribution.
Try Triple Whale's free ROAS calculator to keep tabs on your ROAS, and talk to our team about taking your ecommerce measurement tactics to the next level.
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