What’s a Good Return on Ad Spend?
In this post we’re going to answer a super common question, “What’s a good return on ad spend?” AND we’re even going to give you access to our handy-dandy calculator, so you can plug in the numbers at home.
Return on ad spend
Whatever you want to call it people are always wondering, “Is ours good?” “Is it bad?” “What should it be?”
The answer is… it depends. I know, that’s really not what you were looking for, and I promise I’m going get to that in a minute, but that’s the truth.
Your Margins Dictate Your ROAS
If your margins are sky high and incredible a return of 2x is pretty good.
Now if your margins are a little tighter, maybe you need something more of a 5x.
What I can say that based off of spending millions of dollars each year on behalf of eCommerce clients is that if you’re spending over $50,000, a 3x return is pretty good.
Now if you’re spending $50,000, you’re making $150,000 that would be a 3x return and if your margins are decent, you should be pretty profitable with that.
Don’t Get Greedy with your ROAS
A lot of times we see CEO’s, founder’s and marketing managers getting really, really hung up on getting the highest return possible. We’re all for getting the highest return possible. We’re all there with you, but it’s important to remember that a 10x is not always possible. Especially when you’re spending a lot more money.
You usually only see a 10x ROAS when:
A. You’re not spending really anything.
B. OR you’re just focusing on retargeting.
Unfortunately, those two strategies can only get you so far.
Unveiling the ROAS Calculator
It’s the moment you’ve been waiting for. We’re ready to bust out the calculator!
Grab your copy so that you can follow along: grab your copy here.
Let’s dive me and let me show you how it works.
Let’s say that our average order value is $50 and that our average cost of goods sold is $12.
Now let’s input our ad spend and we’re going to say that we’re going to spend around $50,000 a month and we will place the return at 2x. You’ll see that the profit comes out to $26,000. That’s not bad, but it’s probably not gonna cover your overhead on its own.
Let’s see if we bump that return up to a 3x instead. Low and behold $64,000 in profit. That looks way, way better.
Now let’s see what happens when we scale. Lets put it at 100k in spend and maybe just for the purpose of testing, let’s see if the return on ad spend drops just a bit. We’re gonna drop the 3x to a 2.5. Whoa! You’ll see that even though the return dropped we actually made way more profit. $90,000.
The main takeaways are
1.) Try not to get too hung up on having the highest return on ad spend possible. I know that it feels tempting, but as you can see with our calculator you can spend a lot of money and have a lower ROI and still make a huge amount of profit.
2.) There is no one size fits all for a return on ad spend, but from our experience after working with tons of eCommerce companies and spending millions of dollars each year we have seen that if 3x is a really good range to be in. If you’re there you’re doing great. It’s working. Don’t worry.
Don’t forget to download your calculator here.
After reading all of this you’re like “I just don’t care. I don’t care about that dang calculator. I just want someone to do this for me.” We’d be happy to. Go here to reach out and get in touch with our CEO about how we can help scale your campaigns.