Return on ad spend (ROAS) for Facebook is one of the most misunderstood topics within digital community.
You are still not sure how to measure your digital marketing efforts?
Are your digital advertising campaigns really working?
In other words…
Are your campaigns making your client or company money $$$ ???
Most people don’t know how to answer this question.
Understanding Return On Ad Spend (ROAS) has slowly become one of the most important metrics to use and calculate in order to measure the direct effect of your advertising campaigns.
As marketing transitioned from traditional to digital, ROAS has become the main focus in order to measure conversions (money!).
Are you still NOT sure how to use ROAS in your marketing campaigns?
Keep reading…
Make sure you watch our YouTube Video to learn more about Facebook Return On Ad Spend:
1. What Does Return On Ad Spend (ROAS) For Facebook Mean?
As defined by Facebook:
Return on Ad Spend is a metric used to measure the effectiveness of a Facebook marketing campaign. We prefer to measure how much revenue is generated for every dollar spent on Facebook advertising.
ROAS is essential for quantifying the investment you are making in online advertising relative to the revenue they generate.
Measuring your ROAS can help you plan your tactics and day-to-day better.
However, the term varies depending on what objective businesses have. For example for an eCommerce, you are trying to measure conversions through Facebook pixel and attribution to your campaigns.
For example for an eCommerce, you are trying to measure conversions through Facebook pixel and attribution to your campaigns.
However, for a mobile app, what you are trying to measure is mobile app installs.
2. Why Return On Ad Spend For Facebook Matters?
Becuase positive ROAS means you should continue investing in the ads campaign.
While negative ROAS means that the revenue you are generating through your marketing campaigns is not even covering the costs of those same campaigns.
A concept that is different than the return on investment (ROI – more below).
Also, Facebook has become one of the most successful channels for online retailers to scale profitable customer acquisition.
According to a recent report “Global Facebook Advertising Benchmark Report Q1 2017” for Naningans, for large-scale eCommerce companies, return on ad spend (ROAS) increased an average of 31% year-over-year in Q1 2017.
Another study by Kenshoo, one of Facebook Marketing Partners, demonstrated who Facebook advertising can increase revenue and KPI’s across the board:
So yes…
Facebook can help you increase revenue and profitability!
3. What Is The Difference Between ROAS vs. ROI?
As Tim Mayer, president at Heddle Marketing explained in an article on this topic:
ROI optimizes to a strategy while ROAS optimize to a tactic.
Return on Investment
Measures how profitable an advertising campaign is relative by the costs of those ads:
ROI = Profit – Costs x 100 / Costs
When you are looking at ROI, you are measuring profitability. In order to measure return on investment (ROI), you need to take into account taxes, shipping costs, production costs, and so on.
Return on Ad Spend
Measures gross revenue generated directly for every dollar spent on the advertising campaign:
ROAS = Revenue From Ad Campaign / Cost Of The Ad Campaign
or more precisely…
ROAS = (# of new customers acquired from Campaign x LTV of a New Customer) – Cost of Ad Campaign
When you are looking at ROAS, you are measuring revenue over costs of marketing campaigns. You are only looking at costs directly related to that specific marketing campaign.
The next question you are probably asking is…
Is Return On Ad Spend (ROAS) Better Or Worse Than Return On Investment (ROI)?
They are just not the same!
For starters, one is a percentage (ROI) and the other a ratio (ROAS)…
so comparing both metrics are not necessarily the best way to go.
For some companies, ROAS is nice to know.
But ROI is what really drive business decisions.
ROAS is just easier to calculate and it’s a metrics that digital agencies can keep track of on a daily basis to optimize campaigns. ROAS will help you determine profitability on a single marketing channel.
ROI is just harder to keep track off.
You need to have more data and financial results from the company. And keeping track of that data is just more difficult to measure. ROI will give you overall profitability of your campaign.
Is one better than the other?
Not really. They are just two differnet ways to measure the effectiveness of your campaings.
4. What Tools Can You Utilize in Facebook To Measure Return On Ad Spend (ROAS)?
Depending on the type of objective and business you have, there are several ways in which you can measure Return on ad spend (ROAS) within Facebook.
There are 3 tools main within Facebook that allow you to measure direct marketing efforts and calculate the return on ad spend (ROAS) from your marketing efforts:
#1 Facebook Pixel
The Facebook pixel is probably one of the best tools out there to track conversions.
In other words, what happened as a direct result of your advertising campaigns.
- You can add standard events in order to track purchases or direct actions: checkout pages, add-to-cart pages, registration pages and much more
- You conversions are tracked across mobile phones, tablets, and desktops
- You can build audiences based on your best-converting campaign
#2 Mobile SDK
Facebook SDK is the best way to track the success of your App Ads.
- You can add app installs, app opens, add deep linking to your ads, bring people back to your app, measure in-app conversions, and much more
- You can work with Mobile Measurement Partners who can provide performance metrics like attribution, lifetime value, downstream conversions, ROI and analysis across acquisition channels.
#3 Offline Events
With the offline conversion, you can measure and track when transactions occur in your physical retail stores and offline channels.
Facebook will match your transaction data from a customer database to your advertising campaigns across all objectives (Facebook, Instagram and Audience Network).
- You can upload databases of transactions and match view and click attribution to your advertising campaign
- You can build custom events with your database and measure custom conversions
#4 Extra: Facebook Conversion Lift
Facebook conversion lift is not necessarily a direct marketing tool but you might get questions related to branding campaigns.
The Facebook conversion lift will allow you to measure the impact of the Facebook ads as it addresses several challenges:
- Last-click attribution is one of the most used measurements for search marketing; however, it might not be the best way to measure the impact of your ads. Conversion lift will to randomized and control test groups in order to better understand the impact of your ads.
- You can measure conversion lift across multiple devices.
You can use a conversion lift study in conjunction with your Facebook Pixels or App Events in order to have a more thorough comparison in the number of conversions, people converting to specific actions, and sales revenue generated between test and control groups.
Those are the main tools you need to know and understand how to use in order track and correctly correlate you advertising campaign efforts relative to your investment.
5. How To Calculate Return On Ad Spend (ROAS) For Facebook?
#1 Facebook Pixel – Website Conversions – eCommerce
- Did my ads generate sales on my website? or conversions on the website?
- Did my ads drove business outcomes? Contribute to the bottom line?
ROAS = Purchase Conversion Value / Total Amount Spent
For example, an eCommerce spends $1,500 on an online advertising campaign to convert users to customers. In the same month, the company generated $6,000 in revenue from the same marketing campaign.
The return on ad spend (ROAS) for this campaign would be $4 or a ratio of 4:1 ($6,000 / $1,500).
So for every $1 dollar that the company spends on its campaign, it generated $4 worth of revenue.
#2 Mobile SDK – Mobile Apps
- Did my ads generate mobile app installs? or activations on your mobile app?
- Did my ads drove business outcomes? Contribute to the bottom line?
ROAS = Mobile App Purchases Conversion Value / Total Amount Spent
For example, a Mobile App spends $1,500 on an online advertising campaign to convert mobile app users to customers within the app. In the same month, the company generated $3,000 in revenue from the same marketing campaign.
The return on ad spend (ROAS) for this campaign would be $2 or a ratio of 2:1 ($3,000 / $1,500).
So for every $1 dollar that the company spends on its campaign, it generated $2 worth of revenue.
Other formulas and examples you might get on the exam:
Here is a list of formulas that are also part of the direct response marketing efforts within Facebook.
Its not just about Return on Ad Spend but also about specific activities within you mobile app:
- Cost per Mobile App Purchase = Total Amount Spent / Mobile App Purchase
- Cost per Install = Total Amount Spent / Number of Total Installs
- Cost per Credit Spend Action = Total Amount Spent / Credit Spends
- Cost per Mobile App Add = Total Amount Spent / Mobile App Payment
- Cost per Mobile App Checkout Initiated = Total Amount Spent / Mobile App Checkouts
- Cost per Mobile App Add To Cart = Total Amount Spent / Mobile App Adds To Cart
- Cost per Mobile App Add To Wishlist = Total Amount Spent / Mobile App Adds To Wishlist
- Cost per Mobile App Rating Submitted = Total Amount Spent / Mobile App Ratings
- Cost per Mobile App Session = Total Amount Spent / Mobile App Starts
You won’t need to know all of the for your exam but they are all part of Facebook’s direct response marketing solutions.
Extra: Branding Campaigns – Attribution
Keep in mind that for branding campaigns, there is really no ROAS per se, as you are trying to gauge the impact of your campaigns with your target audience.
However, I’ve seen some questions related to this topic.
- Did the campaigns generate any brand awareness?
- Did the ads change the perception of the brand?
- Were the ads memorable to the target audience?
There are basically two metrics that Facebook takes into account with regards to attribution:
Clicks
A person clicked your ad and took an action. This is called click-through attribution.
Impressions
A person saw your ad, didn’t click on the ad but took an action within the attribution window. This is called view-through attribution.
What tools do you use:
- Brand lift
- Estimated Ad Recall Lift
- Conversion Lift
For more info on this topic, read Everything you need to know about the Facebook brand lift study
6. How to improve your Return On Ad Spend (ROAS) For Facebook?
As I explained above, return on ad spend (ROAS) is a tactic.
Tactics should be optimized constantly.
Depending on how you run your marketing sprints, you should be improving your Facebook marketing campaigns on a daily, weekly or bi-weekly basis.
I will not go over details on this blog post, however, there are a number of aspects of a marketing campaign that affects the overall performance of your return on ad spend (ROAS):
Audience
Broadening or using a variety of different audience types (custom, lookalike, or saved) can have a huge impact on your marketing campaign. If you are not getting the results you wanted, narrowing your audience and focusing your niche market might help you improve your results.
If you are not getting the results you wanted, narrowing your audience and focusing your niche market might help you improve your results.
Creative
Images, texts, copy, titles, sub-titles, and call to actions.
They are obvious but it’s probably one of the most effective ways to optimize your campaigns. You should (in general) launch 3-4 variations of your ads in order to have the ability to improve your campaigns quicker.
Type of Ads
Carousel Ads, Dynamic Ads, Video Ads, Lead Ads…
They can all have different results depending on your niche market and objective. Some ads have better performance than others depending on the country you are launching your advertising campaign.
Bidding
Yes! How much you are willing to pay also plays into your ROAS. Think about it, if you place a bid of $2 versus $4; your costs will automatically increase.
Increasing or decreasing your bidding will only affect the bottom of your equation, so keep track of how much revenue you are generating in order to determine if you should increase or decrease your bidding.
Placement
We’ve seen super low costs with Audience Network but horrible conversions. In other words, the costs are much lower than placing ads on the Newsfeed, but the final costs per conversion are much higher.
Why?
Not sure but we think that people tend to click on banner ads more but not continue with conversions.
7. Questions From The Practice Exams Explained
There are several questions related to ROAS in the Facebook Certification practice exams.
You will also get a number of questions related to this topic where you will have to do some calculations during the exam.
Question #1
Answer
Keep in mind that you are trying to measure revenue. So conversions to checkouts, adds to carts or initiate checkouts do not make sense.
They are drivers or KPI’s for your marketing campaign but will not necessarily generate revenue! I can have 1,000 conversions to initiate checkout but 0 customers. So you want to measure end results (purchase conversion value).
Question #2
Answer
We get this question a lot in our Facebook Group.
How do you get to $15,600?
There are different ways in which you could get to the same number:
Option 1
- Step 1: You need 9,000 new users or 9,000 installs
- Step 2: With a 15% conversion rate to app installs, you need 60,000 (9,000 / 15%) clicks on your ads
- Step 3: How many impressions do you need then? With a 5% impression to click rate, you need 1.2MM impression (60,000 / 5%)
- Step 4: Your CPM is $13. Every 1,000 impression, costs you $13. So the total amount of money you need in order to generate 1.2MM impression is $15,600 (1.2MM * $13 / 1,000)
Option 2
- Step 1: You need to understand how many apps installs you get per CPM. In other words, for 1,000 impressions, how many app installs do you get. There are a number of ways but this is how I would do it: 5% times 15% is 0.0075% => For every 1,000 impressions, you get 7.5 app installs. For every 1,000 impressions, 50 people will click on the ad. From those 50 users, 15% will convert to app install. So 7.5 app installs.
- Step 2: You need to calculate how many CPM’s you need or impressions in order to get the 9,000 new app installs. How do you calculate that number? You divide 9,000 / 7.5 => 1,200 (So you need 1,200 x 1,000 impression in order to get the 9,000 app installs).
- Step 3: How much will 1,200 CPM cost me? You need to multiply 1,200 times $13 (average CPM). So 1,200 x 13 => $15,600 (YOUR ANSWER
)
Conclusion
There you have it!
Measuring the return on ad spend (ROAS) on your digital marketing campaigns can be fundamental to your business.
Yet very few businesses or agencies do.
Facebook has become one of the most effective and primary marketing channels for any business. In developing countries, it might be the best one.
If you are not making money on your campaign, you might just be losing money. Investing money without getting any real ($$$) results.
So stop losing money and start measuring the direct effect of your marketing efforts.
Do you still have questions or not sure about how to use ROAs for the exams???
Ask them below….