Decoding the Average ROAS for eCommerce Success

Running a successful eCommerce business depends on carefully monitoring and optimizing a wide range of KPIs. One of the most crucial metrics for measuring the effectiveness of your marketing efforts is Return on Ad Spend (ROAS).

ROAS demonstrates the revenue generated by your ad campaigns, making it vital to understand, track, and optimize. Keep reading to learn more about how you can use this KPI to grow your business.

What is Return on Ad Spend?

Return on Ad Spend (ROAS) is one of the central KPIs to track and understand in order to maximize your eCommerce profits. ROAS is calculated by measuring the cost of a campaign in relation to the revenue generated by the campaign.

ROAS allows you to understand the effectiveness of ad campaigns differently than other KPIs. Metrics like conversion rates or click-through rates are certainly helpful but don’t give you the complete picture. This KPI is described as a percentage or decimal directly reflecting the success or failure of your campaigns. 

After calculating ROAS, you’ll then understand if they lost money, broke even, or generated more than they cost. You can optimize and refine each campaign to maximize ROAS as your marketing efforts evolve. We’ll explore ways to dissect ROAS to drive more sales as below.

The Return on Ad Spend Formula

How do you calculate ROAS? It’s similar to the ROI formula but focuses on ad spend, which is:

ROAS = (Total sales generated / total cost of the campaign) * 100

The result is a percentage describing the campaign's revenue based on its cost. So, for example, if you spent $100 on a campaign and it generated $200, your ROAS would be 200%.

Additionally, be aware that some business owners and marketers prefer to remove the percentage calculation (multiplying it by 100) and instead keep it as a decimal number.

ROAS is intended to focus on individual campaigns rather than all marketing efforts. You should instead use the Marketing Efficiency Ratio (MER) for a higher-level evaluation of all campaigns.

Average ROAS by Platform

The average ROAS varies by platform, industry, and campaign type. Relying on sporadic reports makes it challenging to gauge your own performance, but it can still be helpful. 

One study found that the average ROAS by platform was:

• Google Ads - 13.76
• Facebook Ads - 10.68
• Instagram Ads - 8.83
• Twitter Ads - 2.7
• TikTok Ads - 2.5

As discussed above, this study uses the decimal notation and considers all advertisers — they are not ROAS benchmarks by industry. Every industry and business model has different price points, motivating factors, and consumer demand, so comparing your results to your peers is important.

What is a Good ROAS for eCommerce

It’s important to highlight that this figure considers every advertiser on the platform. It’s not specific to eCommerce stores and certainly not broken down by eCommerce industries. 

The average ROAS for eCommerce will vary from the above study’s results, which can be further divided by industry. You need to use an accurate eCommerce ROAS benchmark to gauge your own success.

That’s why using a platform like Varos that provides real-time competitor benchmarks helps gauge your results in relation to other eCommerce stores in your industry.

Below you can see how Varos provides tiered breakdowns of vital eCommerce KPIs:

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Best Practices to Maximize ROAS

Your goal is for every dollar spent to generate the most revenue possible, and that will take some time optimizing key aspects of your ad campaigns and conversion funnel. Let’s explore some of the best practices to make the most of your ad budget.

Ad Creatives

You can change and optimize other aspects of your campaigns in vain if your ad creatives are not effectively designed. You’re striving to maximize how much revenue is generated by your ads, so refining the ads themselves should be intriguing and effective.

What makes a great paid ad? The answer will vary depending on the industry and ad platform, but some general guidelines are:

• Generates intrigue about your products
• Concise and clear messaging
• Use the right visuals for the platform and products
• Compelling copy, including both the script and caption
• Tell the viewer what to do next with a compelling CTA

It’s worth hiring copywriters, graphic designers, and video editors depending on the creative. These experts have made it their career to create compelling ads — let them handle the creatives so you can focus on everything else.

Most successful eCommerce businesses are constantly experimenting with new creatives to determine which route will ultimately provide the best results for their organization.

Campaign Configuration

Pricing Strategy

Pricing is of the utmost importance to maximizing ROAS, as the metric is a balance of spending and results. How you price your products will play a large role in how willing a customer is to buy them. 

Determining the right pricing for your products depends on understanding and analyzing a few key factors:

• Market conditions: External factors can affect your entire industry or specific products. For example, supply chain issues can decrease the demand, allowing for you to charge more as one of the few sources of the given product.
• Competition: How many other companies sell similar products? Competition drives prices down, so you need to be aware of how many stores you’re competing with and how your peers are pricing their own products.
• Customer demand: Demand plays a significant role in your overall pricing as well. You’ll need to reduce the price or highlight what’s unique about your offering if there’s a relatively small demand for your type of products and existing competition.

It’s challenging to stay aware of each of these factors to optimize pricing, but it’s vital to stay competitive. Pricing too high can drive customers away, and pricing too low can greatly affect the revenue generated by your ads.

Product Quality

The quality of your offering impacts both reputation and repeat purchases. Low-quality products can often still earn a first-time customer but will struggle to generate repeat business.

Additionally, you may earn a reputation in your industry for offering low-quality products. As a result, you’ll also struggle to gain new customers. This negative reputation will greatly affect conversion rates and revenue.

So it’s important to provide the quality of products that your customers expect. Your product pages should be accurate and create the right expectations for what the customer will receive.

Below, you can see how the Varos platform shows tiered averages of the average order value for repeat customers. We show your results right alongside your competitors, allowing you to gauge whether you're better — or worse — at retaining customers than the industry average.

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Shipping Time Frame

Customers expect rapid shipping speeds from any eCommerce platform, and this can significantly affect your ROAS. Having a long shipping estimate may dissuade customers from checking out, opting for someone with faster shipping options instead.

Consider offering multiple shipping options and potentially a threshold for free expedited shipping. Instead of losing customers, you can increase their average order value (AOV).

Site or App Design

It’s crucial to have a streamlined application or website that encourages visitors to become customers. Your campaigns are certainly crucial, but your potential revenue will be capped if your site is frustrating to use or is not optimized for conversions.

Let’s quickly touch on some ways to ensure your eCommerce site is optimized for conversions after your campaigns are effective:

• Site speed: It’s of the utmost importance that your site loads quickly on desktop and mobile devices. Traffic from paid ad campaigns will quickly navigate away if your site simply isn’t loading. Use a variety of third-party tools to test your site’s speed, and be aware of any customer complaints about load speeds.
• Landing pages: While there are exceptions, most campaigns should direct traffic to a specific landing page designed just for that campaign. The page should follow up on the ad’s messaging, whether that’s elaborating on something unique to the product or providing sale pricing.
• Identify any bottlenecks: A bottleneck is any point in the conversion funnel that drives potential customers away, and only a few make it through. Monitoring your analytics will shed light on where you’re listing customers, as well as advanced tools like a heatmap. Drill down into the causes of each bottleneck and solve them — whether it’s high shipping costs or a confusing return policy.

Your ROAS is a culmination of the entire customer journey, from when they see the ad to when they process the transaction. Much of that journey takes place on your site, so rigorously evaluate how users move through your site and find opportunities to improve.

Leverage Varos for Advanced Data-Driven Decisions

Tracking and optimizing your ROAS for every campaign can create scalable growth for your business, as you won’t be overspending on advertising and maximizing every visit to your store. It will likely take time and experimentation to make the most of your ads, but as long as you calculate and track ROAS, you’ll keep generating more revenue with your ads.

Additionally, you can gain deeper insights into your results with real-time peer benchmarking from Varos. Our platform grants insights into other competitors’ advertising and eCommerce KPIs to help you understand if you’re leading the pack or lagging behind.

Below, you can see how Varos compares your own Facebook Ad results right alongside other eCommerce stores in your industry.

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Is it time to unlock real-time benchmarking to maximize your ROAS? Sign up for Varos or request a demo today to get started.

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About the Author

Yarden Shaked

Co-founder & CEO at Varos

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