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With Facebook having the second largest market share (after Google ads) when it comes to digital ad spending, the question isn't whether you should be advertising there.
But instead, how you can optimize your ads for the highest ROI.
ROAS (return on ad spend) measures how much revenue is generated for every dollar spent. It's not only a great KPI but also a critical metric for measuring your campaign performance, especially from Facebook ads. Why Facebook?
Facebook is the biggest social media platform, with a staggering 2.93 billion monthly active users. It's also one of the best advertising platforms, boasting some of the strongest targeting options and robust paid adverting features.
It's also easy to run ads on Facebook. But if you're not careful with your spending limits, you could exhaust your advertising budget in no time without seeing any increase in revenue.
So, how do you actually optimize your ad spend? And most importantly, what is a good ROAS for Facebook ads? We'll address all these questions in this guide. But first, a quick primer on ROAS and how it differs from ROI.
When you launch a new advertising campaign, you track key performance indicators (KPIs) to gauge the performance of your campaign.
Popular marketing KPIs used include conversion rate (CR), click-through rate (CTR), and cost per acquisition (CPA). While these KPIs will paint a clear of your campaign's impact and reach, they don't help you understand the monetary success of your advertising.
ROAS (return on ad spend) calculates the total revenue generated for a specific marketing channel (such as Facebook) per every dollar spent. Hence, it provides you with a clear understanding of whether your advertising campaign is paying off.
Facebook ROAS is the revenue your Facebook ads campaign generates. It's often expressed as a ratio or a percentage of the total cost of ads. For instance,
if you generated $500 in revenue from a Facebook ads campaign that cost you $100, your Facebook ROAS would be 5:1.
ROAS shows how effective your ads campaign is and how effectively you've communicated your advertising message to the right audience.
The more impact your advertising messages are, the more revenue you'll generate. By comparing revenue generated with the amount of money spent, you can gauge the health of your business and the efficacy of your advertising.
Your Facebook ROAS should matter to your team and business for a few reasons.
- Facebook Advertising can improve revenue and KPIs across the board.
- A study by Kenshoo, one of Facebook's marketing partners, demonstrated how Facebook advertising could help companies increase revenue. It was found that Facebook ads influence improvement across multiple paid search KPIs.
- It helps you evaluate the average performance and financial returns of your campaign
- It gives you deep insights into your campaign performance, ad spend increases and ad groups data
- It gives you a benchmark average for your ads to measure future campaigns against
- It gives you insights into your most valuable and high-performing ads so you can allocate more budget to the right ads
ROI stands for "Return on Investment," and it measures an investment's performance. Essentially,
ROI evaluates the profitability of an investmentor multiple investments to enable organizations to determine whether they've made a good investment decision.
ROI = Net Profit / Net Spend x 100
It's important to note that ROI calculations include all costs, including the cost of software, design, labor, etc. It takes the entire project costs into account.
In contrast, ROAS doesn't take the entire project cost into account. Only the cost of ad spend is included so it’s a much clearer measure of marketing effectiveness but a much poorer measure of business effectiveness.
ROAS = Revenue from Ad Campaign / Cost of ad Campaign x 100
Simply put, ROI calculates how much your business makes from advertising (or any other channel) after deducting all the expenses, while ROAS determines how much your business earns from advertising only. Hence, ROAS is similar to ROI, but it only looks at the monetary return from a specific ad campaign.
As you can see, ROAS is different from ROI in two ways:
- ROAS uses revenue, not profit
- ROAS takes into account ad spend, not the entire project cost
Here's an example to bring this point home.
Company X made $10,000 in revenue and incurred $5,000 in ads. The company's production, labor, and software costs amounted to $7,000.
In this case, ROI is equal to:
ROI = Net Profit / Net Spend x100
= (-2000 ÷ 12,000) x 100
= -16% (negative)
ROAS = Revenue from Ad Campaign / Cost of Ad Campaign x100
= (10,000 ÷ 5,000) x 100
As you can see, the ROI is negative (-16%) while the ROAS is positive (200%). It means your advertising efforts are yielding results based on the ROAS, but the project is not profitable, as seen in the negative ROI. Perhaps if you spend more the addiitonal costs would stay fixed and your overall ROI would go up as you spent more on ads, or perhaps your marketing efforts overall need a complete overhall.
The bottom line: ROI looks at the productivity of the entire investment. On the other hand, ROAS looks at your spend with a specific platform (outside of people, software, and management fees) to determine if the campaign was profitable on an ad-to-ad spend basis.
Also, ROI won't help you determine if your campaign was successful. Meanwhile, ROAS will help you choose the ads or campaigns generating sales.
A "good ROAS" can be difficult to determine as no industry is the same. ROAS also varies between different channels and is also affected by profit margins, pricing, advertising costs, business maturity, etc.
That said, a ROAS of $4 (i.e., $4 in revenue for every dollar spent) or higher suggests a successful campaign. A 2016 Nielsen research found that 4:1 was the average ROAS ratio for many brands in the e-commerce industry. Some businesses may need a ROAS of 10:1 to remain profitable, while others can do well with just a 3:1.
Your ROAS should depend on your product's gross margin, the industry, and the advertising channel. A big profit margin means you can afford a low return on ad spend. If your profit margin is low, your advertising costs need to be low so you can achieve a higher return on ad spend.
When benchmarking your ROAS target for Facebook ads, ask yourself the following questions:
- What are your profit margins?
- What is your customers' lifetime value?
- What's your ROAS for other advertising channels?
Most companies work with a baseline Facebook ROAS of 500% or 5:1. If your company has a tight profit margin, you may need a ROA of at least 700% to be profitable. However, having a ROAS of less than 3:1 usually indicates the campaign needs attention.
If you expect a customer to spend a lot of money over time than you might expect a really poor ROAS on their first purchase knowing that their LTV (Life Time Value) is well worth the cost. In this case you might want to compare the fully loaded cost of acquisition to the life time value.
Calculating Facebook ROAS is pretty much straightforward.
By definition, ROAS is the ratio of the revenue generated from an ad campaign to the cost of the ad campaign.
Facebook ROAS = Campaign Revenue / Cost of Ad Campaign
For example, if your total sales are worth $5,000 and you spent $500 on Facebook paid ads, your ROAS would be 10 (or 10:1)
Facebook ROAS = (5000 ÷ 500) = 10 meaning for every dollar spent on advertising, you earned $10 back. A high ROAS means your advertising is bringing in many website visitors and conversions. Conversely, a lower ROAS means your campaign isn't bringing in money and is worth changing or terminating.
A ROAS of one means you're breaking even, i.e., your ad earns your dollar back.
A Facebook ROAS less than one means you're losing money on your ad. Essentially, you're spending more on advertising than you're earning. This could result from targeting the wrong audience, poor timing, investing too little, poor landing page experience, etc.
Depending on your business objectives, there are various tools you can use to measure ROAS within Facebook. Three tools within Facebook can help you effectively measure your return on ad spend. These include:
The Facebook Pixel is undeniably one of the best tools you can use to measure ROAS within Facebook. This robust ROAS tool has many advantages over other tools. Some of its striking features include:
- You can add standard events to track purchases or direct actions
- You can build audiences based on your best-converting campaign
- You can track conversions across mobile phones, tablets, and desktops
With Offline Events, you can measure and track when transactions occur in offline channels, such as your physical retail store. Facebook will match your transaction data from a customer database to your ads campaign across all objectives.
With Offline Events, you can:
- Build custom events with your database and track custom conversions
- Upload all transactions, match view, and click attribution to your advertising campaign
Facebook SDK is a great way to track the success of your App Ads.
With Mobile SDK, you can:
- Add app installs, add deep linking to your ads and bring users back to your work. You can also track and measure in-app conversions.
- Work with Mobile Measurement Partners who provide performance metrics such as conversions, lifetime value, attribution, ROI, and more.
While ROAS calculation is simple, gathering the data used in the calculation can be tricky, especially if you don't have the right tools. Here are the steps for measuring ROAS for a business that sells on Facebook.
The first step in measuring Facebook ROAS is setting up and installing Facebook Pixel on your website and any other relevant conversion events.
The Facebook Pixel is a code you place on the backend of your website to track visitors to your site. The Pixel helps you run highly targeted ads, so it's crucial that you set it up before running Facebook ads. Each ad account should get one default pixel to use.
To install the Pixel code:
- Launch Facebook Ads Manager
- Click the hamburger menu (three-dotted lines) and select Pixels from the Assets column.
- Alternatively, you could go straight to the Facebook Pixel page and launch it from there.
- Select the "create a Pixel" and follow the on-screen instructions.
If you run an e-commerce business generating sales through Facebook, you'll need to have the e-commerce event actions set up, which include add to cart, initiate checkout, etc.
Once you've installed the Pixel and your events, check to ensure they're firing correctly. You can easily achieve this by navigating to your Pixel's dashboard via the Ads Manager main menu. You'll see the actions that are firing under the graph view in the full dashboard.
If Pixel was correctly installed, the "status" column will read "active," and you should also be able to see when various events were last received. If any event reads "inactive" in the Status column, you can diagnose it by clicking on the diagnostics option above the graph view.
If you use purchase events to track sales, measuring ROAS requires you to track the purchases' value through Facebook.
To check whether the value of orders is being sent via the Pixel to your ads account, click "View Details" under the purchase event action.
A pop-up window will show up. Select Parameter and look for the value and no. of items parameters, along with content IDs and accuracy.
Next, create a custom reporting column in Facebook ads manager that displays key metrics, including conversions value, no. of purchases, and ROAS.
To do this, navigate to the Ads Manager Dashboard. Next, click the "Columns: Performance" drop-down, scroll down the list and select the "Customize columns" option. A new reporting creation window will pop up consisting of three columns.
Here, you'll want to remove the unwanted metrics (in the right column) to make it less cluttered and easy to track the key metrics. In the right column, remove all except these 11 key metrics relevant for measuring ROAS.
Ad set name
Cost per results
Last significant edit
Next, we're going to add conversions and ROAS metrics.
Navigate to the left column and select "Standard events" under conversions. Scroll down to the purchase ROAS in the middle column and select the "Total" checkbox. Next, select the Total, Value, and Cost checkboxes in the Purchases row. Lastly, choose your preferred reporting window by checking the checkbox next to 28 days under the view column.
Lastly, you'll want to determine the purchase ROAS and other metrics in your reporting column. Start by setting the date range via the date picker in the top-right corner.
If you're just starting, select "Lifeline." But if you want to measure the ROAS for the previous month, select "Last month" to perform a monthly ROAS analysis. Your ROAS will be expressed as a decimal, such as 4.5, at the bottom of the page.
You've set up Facebook Pixel and determined your ROAS goals.
You've been running campaigns for now but realized you're not hitting your ROAS targets. What can you do to improve your Facebook returns on ad spend? Here are some practical tips to help you improve your ROAS for Facebook ads.
The secret to succeeding in any advertising channel, Facebook included, is targeting the right audience. You could have the best product or service, but if you're not targeting the right people, your ads won't convert.
Luckily, Facebook offers many targeting options you could utilize to your advantage. With Facebook paid ads, you can target your customers by:
Facebook allows you to target your customers by state, ZIP code, locality, country, etc.
As you get more specific in your targeting choices, you increase your potential to uncover highly qualified leads. Depending on your product type and market, you could go local, national, or international.
With Facebook ads, you can target people based on their interests, likes, and preferences, which can prove very helpful.
For example, suppose you own a company that sells vintage and antique cars. Your goal would be to find people who like classic cars to vehicles over 30 years old. You can find people who follow the classic, vintage, and antique car pages on Facebook.
The keyword in demographics is population, which can be narrowed down by age, gender, marital status, education, job title, income level, etc. Facebook offers a huge selection of demographics to choose from.
You can also target your customers based on their activity on your Facebook page. If someone likes, comments, or shares your content with their followers, they're engaged with your brand. Targeting these people can often lead to quality leads and high conversions.
Targeting customers by behaviors has always proven effective because you display ads to people who behave in certain ways. For example, you might display ads to people who often visit your product pages. Such people are likely interested in your products, and proper nurturing can lead them down a path to conversion.
This advertising method displays ads based on the customer's search history. For example, if you're a car dealership, you can show your ads to customers who have searched for cars online or visited any car dealership site.
With this option, Facebook will offer ad optimizations based on the information you provide.
Facebook custom audiences offer some of the best targeting options available. A Facebook custom audience is a targeting advertising service that helps businesses find their existing customers/audiences on the platform.
You can use sources such as:
- Customer emails or messenger contacts
- Website or app traffic
- People who have ever engaged with your business on Facebook, like those who have attended an event or watched a video.
Once you've created a custom audience, you can engage with them in various ways:
- Upsell to recent customers – Have products that sell well together? (Think PlayStation and games or tennis racket and tennis balls) You can display ads for complimentary products to recent customers for profitable upsells.
- Address Browser Abandonment – Show specific ads to people who browsed but didn't buy and those who started the purchase process but abandoned your checkout.
- Retarget an Email List – You could create a Custom Audience based on your email subscription list and let Facebook locate them on the platform. Then run ads to grow your Messenger contact list, sell products, or run a retargeting campaign if they've gone silent.
These are some of the common ways you can use Custom Audiences to improve your ROAS for Facebook. Since these targets are not new to your business, they're more likely to act on your ads as opposed to new prospects.
To successfully increase your ROAS for Facebook ads, you'll first need to understand your audience. This helps to ensure your ads resonate with your target audience.
As mentioned, your targeting can make or break your advertising campaign.
Whether you'll have a high or low ROAS will depend on the kind of audience you're targeting and whether you know them well. What are their likes and preferences? What are their age and income level? Will my product solve their problems?
Once you have answers to these questions, you can leverage Facebook's wide targeting options to target the audience most suited for your products. Demographic targeting can come in handy here. Craft hyper-targeted ads campaign based on their age, interest, income level, behavior, etc.
It's critical your ad solves your audience's pain points.
You may have a perfect product, a well-crafted website, and even a huge advertising budget. But if your product/service doesn't solve your target's problems, you'll have little to no conversions and an extremely low ROAS. The same goes for ads.
As Sam Wright, MD at Blink SEO, puts it, "Most campaigns fail because they focus on telling their audience about a product or service, rather than how it can help resolve their customers' pain points."
No amount of advertising can make up for bad positioning. So, work on your positioning, ensuring your ad addresses a genuine pain point.
Based on the ROAS formula, you can boost your return on ad spend if you can lower the campaign costs. Here are a few things you can do to lower your campaign cost.
- Reduce labor costs – If you're working with a marketing agency, you could lower your costs by doing it in-house. Conversely, if running your ad campaigns in-house proves expensive, you should consider outsourcing.
- Narrow your target audience – Facebook paid advertising costs vary depending on the size of the target you intend to reach. The larger the audience, the more expensive it becomes. Targeting a specific audience can help you funnel your dollars to the audience most likely to convert.
- Improve Quality Score – Google's Quality Score measures the quality of your ads and whether the ads are relevant to the keywords you're targeting. A good quality score can result in higher ad rankings and lower costs.
- Use negative keywords – Studies show that, on average, Google ad accounts waste 76% of their budgetary resources targeting the wrong keywords. So, ensure you get your negative keywords list right.
There are a lot of components that go into creating high-converting Facebook Ads.
One of the most important? The sales copy. Effective ad copy is easy to identify. It appeals to both the logical and emotional reasons a lead would want to engage with your brand or products. In general, a great ad copy is engaging, concise, and relevant.
However, many marketers often get it wrong when it comes to crafting compelling ad copy. Others outsource the task to pro copywriting agencies and pay hefty prices that add up to their advertising spend.
But writing a compelling copy doesn't need to be hard. Not sure how to craft a compelling Facebook ad copy that converts? Here are some tried and tested strategies to try out.
- AIDA – (Attention, Interest, Desire, Action): Grab the reader's attention, create interest in your products, ignite an emotional desire, and use a strong CTA.
- PAS – (Pain, Agitate, Solve): Target their pain points, agitate them, and provide a feasible solution with your products/services
- Make it emotional – Form an emotional bond that will draw customers and prospects to your brand/offerings. Studies show that most buying decisions are influenced by emotions. Include emotional triggers that will spur them into action.
- Address their pain points – Products that don't address consumer pain points often suffer from low conversions. Likewise, your Facebook ad copy should point to the problems your audience is experiencing and how your product/service can help solve those problems.
- Value proposition – The ad should briefly explain why your product is better than what the competition is offering.
- Call to Action – Tell them to browse, shop, buy, etc. to increase engagement
Last but not least, your Facebook ad copy should focus more on the benefits, not the features. Don't waste time describing how amazing your brand is or why it was featured on Forbes. Instead, get visitors to take action by telling them how your products will improve their lives.
Facebook dynamics ads are a great way to improve your conversions and ROAS. This service lets you show ads to people who have shown interest in your products or services by engaging with your brand in the past.
Dynamic ads are no different from conventional ads. However, the content served up in these ads is what makes them more impactful.
Creating a dynamic ad is also easy. Simply upload your product catalog and set up your campaign. It will continue running on autopilot, showing viewers' current pricing and product info. And the best part, these ads will automatically be displayed to people who have shown interest in your products, so the likelihood of conversion is pretty high.
A growing body of evidence shows the power of dynamic ads when used to promote conversions. In one study, dynamic ads resulted in a 4.2x increase in conversions in six weeks, 2.2x more purchases, and 2.6x higher ROAS.
An A/B test is an experiment. You compare different ads or assets to see which performs better. It helps answer questions like, "what messages are people responding to most? What ad types will drive the most conversions?
You can also test assets like sales copy, creatives, etc., to determine the ad combination that best resonates with your target audience.
You don't have to download third-party apps to find your best-performing ads. You can use Facebook's Dynamic Creation feature to test your brand's creative assets and find the best-performing ads or ad combinations.
To use Facebook's Dynamic Creative feature, follow these steps.
1. Upload the different ad components you have (images, video, descriptions, titles, etc.)
2. Ensure the Dynamic Creative button is on when setting up your campaign.
Facebook will use its algorithm to test various ad combinations by mixing images, copies, and other assets based on user behavior when interacting with your ads.
Personalization is key to business growth and revenue.
You'll want to create ads your audience needs and wants. Start by identifying their needs, then create ads that seek to resolve their problems.
If you can make your ads speak directly to your audience, you can undoubtedly increase engagement and conversions. 58% of consumers say personalization plays a critical role in their decision-making process.
But, how do you personalize your Facebook ads?
On Facebook, you can select your core audiences (those most likely to take action) by the relevant demographic. If you choose to target by interest, you'll need to find out what your target audience loves and what interests them most and craft your ad copy around their interests. Such personalized ads trigger emotions that compel users to take action.
These are ads on Facebook, Messenger, or Instagram that direct people into a messenger conversation after a user clicks on your ad.
You can take advantage of these ads to start conversations at scale with potential clients and find new customers for your business. Run-to-Messenger ads can help you achieve three business objectives:
- Send targeted Messenger to your audience
- Drive more traffic to your site
- Increase conversions
Whether your goal is to generate more leads or drive sales, you can tailor conversations in Messenger to meet different customers' needs.
Did you know that the CTR for display ads is 0.07%, while that for retargeted ads is 0.7%? That's a whopping 900% increase in click-through rate.
Retargeting is an excellent way to optimize your Facebook ROAS.
Customers are unlikely to purchase a product from a brand they've only been introduced to once. However, they're more likely to buy from a brand they're acquainted with. Repeatedly familiarizing customers with your company helps to build trust that leads to purchase and long-term relationships.
But how do you set up a retargeting ads campaign on Facebook?
The first thing you need to do is ask yourself why the customer didn't buy from you in the first place. Or why they went silent after the initial contact. Is there anything you can do to win them back? Often, users leave a site without converting because the price is too high or they didn't find what they were looking for.
To help address that pain point, consider incentivizing your offers, like offering discounts, coupons, free shipping, etc. Incorporating discounts and other freebies into your retargeting campaign can give users a reason to convert.
First-party cookies are still available on Facebook and other marketing mediums. You can use them to identify users who have visited your Facebook page and retarget them with competitive offers that will win them back.
To optimize your Facebook ROAS, it's critical that you monitor and track your data.
This way, you'll be able to terminate or modify your low-performing ads, work on ads that are doing okay, and allocate more budget to ads that are doing exceptionally well.
But monitoring your data is one part of the ROAS pie. You must make sure your data is accurate. Luckily for you, this shouldn't be hard. Over the past few years, Facebook has upped its game in being able to identify users who are most likely to convert.
So, as long as you have the right tracking tools and you know where to look, you should be able to get accurate data from your ads manager's dashboard.
However, you can never expect 100% accuracy from digital tools that rely on human input. At the end of the day, it will all come down to your input. The more accurate the data you provide Facebook, the more likely it will accurately scour its database and find users who match what you're looking for (your target audience).
13. Use Facebook Video Ad Format
If you're looking to successfully boost your Facebook ROAS, Facebook video ads can help. The consumption of video content grows by the day. It is estimated that the average American adult spends 3 hours and 29 minutes watching video content daily.
When it comes to advertising, you can expect a 30% increase in conversions when using video compared to plain images. You can place video ads in many different places, including.
- Newsfeed – where viewers scroll to view your content
- In-stream – pre, mid, and post video ads
- Stories – The videos show up between a user's story collections
Beekeeper's Natural is an example of a company that has leaped big from the use of video ads. The company wanted to increase orders for one of its products, sample box. They created a video ad, offering a 10% discount for those who clicked through Messenger.
As a result, the company achieved a 39% increase in product purchases and a 4.5x increase in ROAS.
The last thing you want is to terminate a campaign with great potential simply because you miscalculated its return on ad spend.
So, your first step in calculating ROAS should be to ensure that the data used to calculate the metric is accurate. Are you including offline sales? What about all the costs associated with the campaign?
At times, getting the accurate data to feed on the system can be tricky, especially when the sale was initiated online but closed offline. Also, the attribution model used can also return inaccurate values for ROAS. For instance, first or last-click attribution models are known to skew ROAS, making successful campaigns look ineffective.
A low return on ad spend could also be caused by many other factors outside your campaign.
For example, if your ROAS is low but sales are high, your pricing could be the problem. A lowly priced product can have a negative impact on ROAS. Again, if the click-through-rate is high, but the ROAS is low, it could mean any of the following:
- The ad's copy is misleading (picture clickbait)
- The product is priced too high
- The checkout process is not user-friendly
- The CTA is not well placed, or it isn't there
- The landing page is poorly designed
As you can see, there are many possible reasons outside of your ads campaign that can impact ROAS negatively. Keep an eye on these factors and ensure they're not impacting your Facebook ROAS negatively.
Return on ads spend (ROAS) is an important marketing metric that measures the efficacy of a digital marketing campaign. It differs from ROI in that it only looks at the monetary return from a specific ad campaign.
A "good ROAS" can be difficult to determine as it varies between different channels and is also affected by things like profit margins, pricing, and advertising costs.
However, a Facebook ROAS of 4:1 is a good indication of a successful campaign. A Facebook ROAS less than one means you're losing money on your ad. You could use many strategies to improve your Facebook ROAS, including targeting custom audiences, trying dynamic ads, personalizing your ads, and more.