May 26, 2021
3
 min read

Understanding ROAS/ROI in Google Ads campaigns

Hannah Macready

It’s no secret that returns on investment (ROI) and returns on ad spend (ROAS) form the basis of all great performance marketing campaigns.

When delving into pay-per-click campaigns (PPC),  you want to know that the money you spend is working towards your overall business health.

Yet, many of our clients report confusion when trying to understand their budget, returns, and long-term growth.

Conquering your ROI means having a strong understanding of your metrics and your audience needs.

In addition, you need a dedicated team of keyword specialists and media buyers to help you find results.

In this post, we’ll teach you how to calculate your ROI, harness it within your campaigns, and improve your return on ad spend (ROAS) across your channels.

Let’s dive in. 

The difference between ROAS and ROI

ROI = Return on investment

Your return on investment refers to the amount of money you earn after paying all expenses. The overall goal is to decide whether the campaign on a whole is a good investment.

ROAS = Return on ad spend

This is a ratio that shows how much you spend and how much you earn. The goal of determining your ROAS is to prove how effectively your marketing dollars are being spent and how you can improve returns in each campaign.

Both of these metrics are important to you when creating successful Google Ads campaigns.

But which one holds more value?

ROAS is usually a more versatile metric when it comes to online advertising. This is because it allows you to look directly at the success and opportunities within an ad set, rather than the overall metrics of a campaign which can skew your numbers.

That being said, ROI is important when building out long-term campaign plans.

For example, if you notice year-after-year your Spring promotion campaign is costing you more than you get in returns,  you can use ROI to show its ineffectiveness.

If you want to know how a particular ad set is performing in a wider campaign, stick to ROAS for more granular accounting. 

What do strong returns in Google Ads campaigns look like?

On average, Google Ad ROAS falls around 2:1. This means you’ll earn $2 for every $1 spent.

If you focus on your Google Search Network, this return can rise to $8 for every $1 spent.

Obviously, moving beyond the average is always ideal. By increasing your return on ad spend, you create a stronger growth plan for your company. Not to mention, increased profits.

A great benchmark to aim for is anything above 4:1 returns.

For ROI, we consider 3:1 above break-even for our clients on average, which is good. A 5:1 ratio is great, and anything above 10:1-- you're laughing. 

How to calculate your ROAS

ROAS = Total Revenue from Ads / Total Ad Spend * 100

That means if you spent $10,000 in your last month of ads, but earned $20,000, you’ve reached your 200% mark.

ROAS = $20,000 / $10,000

ROAS = 2:1

You can also use simple online calculators to find these results.

Here are a few ROAS calculator options:

  1. Classy Llama
  2. Vertical Rail
  3. WebFX

How to calculate your ROI

Net Profit = Total Revenue - Total Expenses

ROI = Net Profit / Total Expenses

That means if your ROI is reported as 600%, you are receiving a $6 return for every $1 spent 

Example:

Net Profit = $20,000 - $10,000

Net Profit = $10,000

ROI = $10,000 / $10,000

ROI = 100% or 1:1

It’s important to remember that the “expenses” does not only refer to your cost-per-clicks or total ad spend. If you sell a physical product, factor in the management fees, manufacturing and distribution costs to this equation.

Here are a few online ROI calculator options:

  1. Human Level
  2. Tidio
  3. Webmarketers

HubSpot also offers a predictive ROI calculator that can be helpful when setting long-term goals.

Simple fixes to maximize your ongoing ad conversions

Now that you know what a successful Google Ads campaign looks like, it’s time to understand why you aren’t reaching those marks.

Here are some of the most common problems our clients face:

  • Understanding whether the results they are seeing are good or bad
  • Trouble figuring out the right audiences and keywords to target
  • Seeing minimal conversions or fewer conversions than expected
  • High-cost per conversion

The fix? Start by continuously testing different audiences and keywords in order to identify the ideal audience for your brand. Cast a wide net initially, and then eliminate the weakest performers over time as data is gathered. 

As well, you need to know the right type of ad to use in order to achieve your business goals. 

If your goal is to build awareness, Display ads and Youtube ads are the way to go. 

If you’re looking to drive traffic, leads or conversions, go with Search ads. 

If you are an e-commerce brand, use Google Shopping ads.

Most importantly, follow your data.

The more information you gather about your customers, clicks, successful and unsuccessful conversions, the more prepared you are when optimizing your future campaigns. This, alongside detailed calculations for your ROI/ROAS will bring clarity to your results and drive your future campaign decisions. 

Prioritize your ROAS for future conversions

Google Ads allows you to measure your ROAS at the account level, the campaign level, and even by ad group.

Calculating your ROAS throughout your Google Ads account will give you a big picture understanding of your ad spend and the revenue you are actually pulling in. 

Remember to choose ROAS when looking at granular pieces of your campaign. But, don’t forget that ROI is an important part of your ongoing goals.

Still not seeing the results you’re looking for? Reach out to us. We’ve got some of the best ad specialists in the industry who would love to help you maximize your conversions. 



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