ROAS - or, return on ad spend.
This metric gives you the greatest insight into what the ads you're paying for are getting you back. For every dollar you spend, how many dollars are you getting in conversions? That's what ROAS tells you.
This begs the question - what is a good ROAS for Facebook ads, though? We get this question in our community all the time. And as you'll soon discover, the answer isn't one size fits all. While you should obviously shoot for as high a ROAS as possible, your breakeven ROAS will be different from every other business out there.
That's why today, we're going to talk all about the target ROAS you should shoot for. We'll explain what most brands consider a good ROAS to be - and how you can calculate your breakeven ROAS. Let's begin!
What Does Facebook Ads ROAS Tell You?
Let's get one thing out of the way first - what exactly does the return on ad spend tell you? When looking at your dashboard, you'll see this as a numerical value - hopefully, greater than 1.00. The higher, the better.
Simply put, ROAS helps you compare the revenue generated through your ads to the overall cost of your ads. To calculate ROAS, you just divide total revenue by total ad spend - pretty straightforward, right?
ROAS can be made more broad or more specific, depending on what you're trying to learn. If you just want to get a general overview of how your paid advertising efforts are performing, you can combine the total ROAS of all campaigns across different channels. You can also get more granular and assess the ROAS of particular ad sets or ads. This will help you determine where to dedicate additional ad spend, and when to kill certain ads, ad sets, or even ad campaigns.
Here's an example: say you spend $1,000 on your ad campaign to bring in $4,000 in revenue. This would be a 4.00 ROAS. And depending on your costs (besides advertising), this would be an incredible ROAS - at least, for most businesses. For some, a 2.5 may still be unprofitable.
That's why the question "what is a good ROAS to shoot for on my Facebook ads campaign?" is a tricky one to answer. Nevertheless, we're going to do our best. First, let's explain why ROAS is so important - and quickly reiterate that this is just one metric you have in your arsenal.
Why Is ROAS So Important?
When starting out with Facebook ads, all you'll hear about is the return on ad spent. Facebook advertising campaigns seem to be optimized purely by looking at ROAS - is this the right approach? Why is ROAS so important?
There is a reason the ROAS is one of the first things you'll look at when conducting a Facebook ads audit. It gives you an overall idea of performance. At a glance, you'll be able to tell if a campaign is profitable or unprofitable. And from there, you can start to find out why the efforts are unprofitable - or, why the profitable campaigns are performing so well. This will be key to further optimization.
Now, with that said - don't let ROAS be the end all be all metric. Your ad campaign has other valuable insights to offer. Don't neglect metrics such as:
- Ad impressions
- Cost per result
- Frequency
- Total number of conversions
- Cost per click
- Click-through rate
- Engagement rate ranking
- Relevance score
With that out of the way, let's get into the topic at hand today - what is a good ROAS for Facebook ads?
So, What Is A Good ROAS For Facebook Ads?
Ready to learn what most marketers deem to be a good ROAS for Facebook ad campaigns? As you are starting to realize, it varies from business to business. Your unique profit margins and costs will dictate what your target ROAS should be. And keep in mind that these benchmarks are a bit of a moving target. With the rising costs of digital advertising and inflation, a good ROAS 2 years ago is not the same target ROAS you should be shooting for today.
In general, though, most marketers believe your benchmark return on ad spend should be 4.00. For every dollar in ad spend, you should bring back $4 in revenue. As you start to scale your ad spend, you'll find that maintaining this high of a ROAS is difficult. With scale, you can start to lower your expectations in terms of ROAS. Sure, your money is being used less efficiently - but the overall profit number continues to increase.
With all this said, we believe a good ROAS is really anything where you're profitable. Sure - it would be nice to increase your return on ad spend as much as possible. But if you're making money - especially when first starting out as an e-commerce brand or media buyer? Profitable ROAS should be your goal - whatever that is.
But what is your breakeven ROAS? We're going to help you find out in the next section.
How To Find Your Breakeven ROAS For Facebook Ads
The question you're asking shouldn't be "what's a good ROAS?" - instead, it should be "what is my target ROAS?". A good ROAS for a service-based business with incredibly high-profit margins won't be a good ROAS for a product-based business with razor-thin margins. That's why we're going to help you determine your unique breakeven ROAS. From there, it's just a matter of staying on the right side of that benchmark.
This requires you to first know your average profit margin. How much do you generate in profit per sale? Don't just estimate this figure. It's important to actually know your accurate profit margin so you can make informed decisions as a media buyer. Let's call it 60% after the cost of goods sold and other associated costs. You can then plug this number into the breakeven formula below:
Breakeven ROAS = 1/60% (profit margin)
Breakeven ROAS = 1.67
With a breakeven return on ad spend of 1.67, you know that anything performing under this figure is losing you money. You can start to turn off unprofitable ads, ad sets, and even campaigns. You may even find that certain channels aren't right for you. And on the other side of the coin, anything over this figure is bringing in a profit. You can scale these up and double down on what is currently working for you.
Tips To Increase ROAS For Facebook Ads
Now - with all that said, settling for a breakeven ROAS isn't going to cut it. You need to constantly work to increase your ROAS - whether that be testing new creative, new audiences, new landing pages, or even new offers altogether.
The point is that increasing your ROAS for Facebook ads is as simple as testing. If you make the mistake of getting complacent and not touching your ads because you're happy with the ROAS, you'll find that results drop over time. You need to constantly be feeding the machine new inputs. Over time, your audiences will burn out from seeing the same copy, creative, offer, and landing pages. Here are things you can tweak/test to try to raise that ROAS as much as possible:
- Campaign structure
- Audience
- Offer
- Creative
- Copy
- Landing page
If your goal is to be as profitable as possible, there are some key tactics you can leverage to increase ROAS. In our digital marketing community, you can gain these insights from the top-performing media buyers in the industry. No matter your experience level with Facebook ads or e-commerce in general, the Utopia is a great resource along your journey - take a look and see if it's right for you.
What Is A Good ROAS For Facebook Ads? Closing Thoughts
Well, that concludes our guide on what a good ROAS benchmark should be for you. At this point, you're ready to determine your breakeven ROAS and begin taking steps to increase it. One key takeaway should be that the ROAS you see digital marketers boasting online shouldn't be the same ROAS you shoot for. Every business is different - only you can determine what a good ROAS is for your Facebook ad campaign.
And if you are looking for help scaling your ad campaigns while increasing profitability, our community is here to help you along the way. See you inside!