How to Calculate ROAS Google Ads

Introduction

When it comes to advertising with Google Ads, understanding the effectiveness of your campaigns is very important. This is where Return on Ad Spend (ROAS) comes into play.

ROAS is basically a method used to measure the revenue which is generated from the Google ads campaign as compared to the campaign that is spent on each campaign. In simple words, ROAS is the ratio of revenue generated with the amount spent on Ads.

ROAS plays an important role in the Google ads campaign as  it allows advertisers to measure the success of their campaigns.By calculating the ROAS advertisers easily get to know which campaign is performing better and based on that they can set the campaign.

ROAS can also be used to set realistic campaign goals and optimize campaigns for better performance.For the business who is running their Google ads campaign understanding how to calculate the ROAS is very important.

ROAS Calculation Formula

The formula for calculating ROAS is relatively simple. It is:

ROAS = Revenue / Ad Spend

In this formula, “Revenue” refers to the total amount of revenue generated from the Ads Campaign, and “Ad Spend” refers to the total amount spent on advertising for that campaign. The resulting ratio is a measure of the effectiveness of the campaign.

Let us explain to you in simple words, let’s say you run a Google Ads campaign and spend $500 on advertising. During the campaign, you generate $2,000 in revenue. To calculate the ROAS, you would divide the revenue by the ad spend:

ROAS = $2,000 / $500 = $4

This means that for every dollar spent on advertising, the campaign generated $4 in revenue.

It’s important to note that the ROAS calculation only takes the account which is generated from the ads campaign, and does not factor in other indirect revenue sources such as referrals or repeat business.

Additionally, ROAS can be influenced by various other factors, such as market demand and competition, so it’s important to monitor ROAS over time and adjust strategies as necessary.

Also Read: Tik-Tok Ads vs Facebook Ads

Tracking Revenue in Google Ads

Tracking revenue in Google Ads is essential to calculate the ROAS accurately and effectively optimizing campaigns. There are some simple steps to track the revenue effectively:

1. Install Conversion Tracking: 

Conversion tracking is basically a tool by the Google Ads that allows advertisers to track specific actions users take on their website after clicking on a Google ad. To install these conversion Tracking advertisers should add a tracking tag on their website.

Also Read: Subdomain Tracking in Google Analytics

2. Choose Conversion Action: 

After installing conversion tracking the next step is, advertisers need to select the specific actions on their website they want to track as conversions. This could be a completed sale, a form submission, or any other specific action that’s valuable for their business.

Also Read: User-Acquisition Vs Traffic Acquisition 

3. Assign a Value to Conversions: 

To accurately calculate ROAS, advertisers need to assign a value to each conversion. This value should represent the total revenue generated from the conversion.

There are different types of conversion tracking available in Google Ads, including:

1. Website Conversions: This type of tracking to track specific actions which users take in the advertisers websites, such as form submissions or Purchase of any product.
2. Phone Call Conversions: This tracking allows advertisers to track phone calls generated from their Google Ads campaigns.
3. App Conversions: This type of conversion is used to track specific actions which users track within the app. 

 To ensure accurate revenue tracking, here are a few tips:

1. Proper Setup: Ensure that conversion tracking is installed correctly. Additionally, please confirm that the selected campaign is effectively generating revenue..
2. Track All Conversions: To get a complete picture of revenue generated from campaigns, track all relevant conversion actions.
3. Assign Accurate Values: Assigning accurate values to conversions is crucial for accurate ROAS calculation.

4. Monitor Performance: 

Do properly Monitor the revenue which is generated from campaigns regularly to know the performance of the campaign.

By setting up conversion tracking and carefully monitoring the revenue generated from the campaign, advertisers can easily calculate ROAS and optimize their Google Ads campaigns effectively.

Also Read: Why SEO Audit is Important to Enhance Online Success

Calculating Costs in Google Ads

Calculating the cost of Google ads campaign is very important for determining ROAS accurately and optimizing campaigns effectively. There are various costs which is associated with Google ads Campaign:

1. Cost per Click (CPC): This is basically a cost advertisers have to pay when any users click his ads.
2. Cost per Impression (CPM): This is the cost an advertiser has to pay each time when the ad is shown to the users.
3. Cost per Acquisition (CPA): This is the cost an advertiser pays for each conversion generated from their campaign.

To calculate costs for a Google Ads campaign, advertisers need to first access their Google Ads account and view their campaign performance metrics. The cost calculation is calculated on the type of cost that is being recorded.

For example, to calculate the total cost of clicks for a campaign, advertisers can multiply the total number of clicks by the CPC.

To ensure accurate cost calculation, here are a few tips:

1. Monitor Campaign Performance: Do regularly keep an eye on the campaign performance metrics to ensure accurate cost calculation.
2. Set a Budget: Set a budget for campaigns to control costs and ensure accurate tracking.
3. Adjust Bids: Adjust the bids based on performance as it indirectly helps  you to optimize campaigns for better cost efficiency.
4. Understand Conversion Attribution: Understanding how conversions are attributed to different campaigns and how ad groups can help with accurate cost calculation and optimization.

By accurately tracking and understanding the campaign performance, advertisers can easily calculate ROAS and can optimize their Google Ads campaigns for better results.

ROAS Benchmarks

Industry benchmarks for ROAS depend on various factors, including the product and services being advertised, as well as the specific audience targeted for that product.

However, it can be helpful to understand typical ROAS benchmarks in your industry to gauge the effectiveness of your specific campaign. Based on this understanding, you can then optimize and set the campaign accordingly.

For example, according to a study by Sujit Shukla, the average ROAS across all industries is 2:1, which means for every dollar spent on advertising,$2 revenue is generated.

However, some industries, like retail and E-commerces set higher benchmarks, while others, such as healthcare and education, may have lower benchmarks.

So for that reason, for each industry understanding their campaign and effectively setting up ROAS benchmarks is very important.

First, it will help you to know how effectively your campaigns are performing compared to your competitors. It can also help you set realistic goals for your campaigns and adjust your strategies accordingly.

Additionally,Understanding the industry benchmarks will help you to identify where you are overspending and how you can diversify your money in a more effective way.

To set realistic ROAS goals, consider the following tips:

1. Understand Your Industry: Research industry benchmarks for ROAS to get a sense of what’s realistic for your specific industry product or service.
2. Analyze Your Historical Data: Analyze your past campaign performance to understand your own benchmarks and set goals based on previous success.
3. Set Incremental Goals: Set realistic, incremental goals that would help you to get long-term success.
4. Adjust Strategies as Needed: if you are not able to meet your ROAS goals, adjust your strategies, such as targeting, ad copy, or bidding, to improve campaign performance.

By understanding industry benchmarks and setting realistic goals, advertisers can optimize their Google Ads campaigns effectively to get better results.

Using ROAS to Optimize Google Ads Campaigns

ROAS can be very useful to optimize Google Ads campaigns. By measuring the Return-on-investment of each campaign, advertisers can take data-driven decisions to improve the performance and to achieve various goals.

Here are some of the way to utilize ROAS to achieve success in the Ads campaign:

1. Adjust Bids: By analyzing ROAS data, advertisers will get to know about the high performing keywords and can set the bid accordingly. For example, if a keyword is generating a high ROAS, advertisers will increase the bid to drive more traffic.
2. Target Different Keywords: Not only high performing keywords but also low performing keywords can also be identified, so that if you want you can pause or adjust bids to improve your ads performance. Alternatively, they can use the data to identify new, high-performing keywords to target.
3. Optimize Ad Copy: By analyzing ROAS data, advertisers can identify which ad copy is generating the highest returns and optimize underperforming ads. They can also use this information to test different ad variations and improve performance.
4. Adjust Targeting: By analyzing ROAS data, advertisers can identify which audience segment generates higher returns and can set the demographics accordingly.

To use ROAS effectively in campaign optimization, consider the following tips:

1. Use Accurate Data: Accurate data is essential to calculate the ROAS effectively. Make sure your tracking and reporting are set up correctly to ensure accurate data.
2. Focus on Long-Term Success: ROAS optimization is not a one-time process, it’s a continuous process.  Focus on long-term success by continually monitoring and adjusting campaigns based on performance data.
3. Set Realistic Goals: Set realistic ROAS goals based on industry benchmarks and historical data. Aim for long term success rather than short term success.
4. Consider the Entire Sales Funnel: ROAS can effectively measure the revenue generated from the ad spend, but it’s also important to consider the entire sales funnel and the impact of advertising on overall revenue.

By Following these steps effectively, advertisers can achieve better results of their ads campaigns

Conclusion

In summary, ROAS (Return on Ad Spend) is an important metric for measuring the effectiveness of Google Ads campaigns.

It effectively measures the revenue generated by an ad campaign compared to the amount spent on the specific campaign. To calculate ROAS, divide the revenue generated by the cost that is spent on a specific campaign.

Using ROAS, advertisers can easily adjust bids, target different keywords, optimize ad copy, and adjust targeting strategies based on the data which is provided.

Accurate data, a focus on long-term success, setting realistic goals, and considering the entire sales funnel are all important factors in effectively using ROAS to optimize campaigns.