If you are in the eCommerce industry or own an online business, ROAS (Return on Ad Spend) is one of the key metrics you should evaluate before any others. ROAS Facebook Ads helps you understand the effectiveness of your campaigns and determines whether your business is profitable. Facebook Ads has already included this metric in their reports within Ads Manager. Therefore, in this post, I will show you how to make this metric visible, how to calculate Facebook Ads ROAS, and when you can expect to see a profit from Facebook Ads based on ROAS.
Table of Contents
What is ROAS in Facebook Ads?
ROAS (Return On Ad Spend) is simply calculated by dividing the revenue generated from ads by the total ad spend.
There is no different in Facebook Ads, ROAS measures the return by dividing the total value generated from Facebook by the ad spend across all campaigns.
The formula looks like this:
Example:
You spent $500 on the campaign.
Your campaign generated $2,000 in total sales on Facebook Ads. So:
So your ROAS is 4. This means that for every $1 you spent on your Facebook ads, you generated $4 in revenue. This is a positive ROAS, indicating that your campaign is profitable.
However, if your campaigns only generated $400 in total sales when you already spent $500, it will be a total loss.
Why?
Because the ROAS is 0.8, which is lower than 1, any campaign that has an ROAS lower than 1 will be counted as an unprofitable campaign.
What is A “Good” ROAS for Facebook Ads?
The term “good ROAS” can be misleading. There isn’t a universal standard for what constitutes a good Return on Ad Spend because it’s all about context. It boils down to two outcomes: profit or loss. And that’s the crux of the matter for any business looking at ROAS Facebook Ads.
After you’ve calculated your ROAS, the decisions boil down to two:
- Is it time to scale up our Facebook Ad campaigns?
- Or is it better to shut them down?
But the big question is, how do you determine if your ads are performing well based on ROAS? It’s simpler than you might think. You need to figure out your break-even ROAS.
But how to do that?
Well, just pop your numbers into the calculation below. It will tell you the break-even ROAS for your business.
Calculate your Break-even ROAS
If you’re into manual calculations, here’s the formula you’ll need:
For example, let’s say you’ve spent $200 on ads and sold 10 products at $40 each. This means the ad cost per product is $20. Using the formula, the break-even ROAS would be:
$40 / ($40 – $20) = 2
This means that for every dollar you spend on ads, you need to earn two dollars in sales to break even. A ROAS of 2 indicates that you’re earning exactly the amount you’re spending on ads, hence breaking even. If the ROAS is greater than 2, you’re making a profit; if it’s less than 2, you’re at a loss.
So, calculate yours, and then you will know whether your Facebook Ads ROAS is good or not.
How to Set Reasonable Facebook ROAS
Setting a reasonable ROAS goal helps Facebook’s algorithm to meet that target throughout the campaign, using dynamic bidding to optimize results.
To determine the right ROAS goal for your campaign, consider the following 3 factors:
- Facebook Ad Benchmarks
- Historical Facebook Ad Data
- Business Objectives
Truly, this is not an easy task, so you need to carefully read the instructions and notes I provide below.
Use Facebook Ad Benchmarks
Each industry has unique demographics and competition levels. Facebook ad ROAS benchmarks not only provide you with the industry average figures but also help you analyze the industry’s size and user demand. By comparing your ROAS to the Facebook Ad benchmark, you can assess industry standards to set realistic ROAS expectations.
Adjust your goal based on what similar companies in your industry are achieving, and keep your expectations moderate, especially if you’re new to the market.
Analyze Your Historical Facebook Ad Data
Another important consideration is your average ROAS for similar conversion campaigns. You can use this historical data to adjust your ROAS goal up or down based on past performance.
A useful practice is to include an ROAS column in Ads Manager reports for previous campaigns to easily access historical ROAS data.
Compatible with Business Objectives
ROAS that isn’t aligned with your business goals can lead to wasted ad spend.
If your business objectives are to grow your brand awareness and increase customer engagement. You can set your goals at 1.00 to break even.
Why?
- The advertising campaign will cover its costs, ensuring it doesn’t negatively impact your business’s finances.
- It’s also an effective way to test your advertising strategies without incurring any losses.
- From this point, you can focus on optimizing future campaigns to achieve a positive ROI and boost ROAS.
If you want to make a profit, you need to set your goal above 1.00 for a higher profit.
Why?
You can understand simply through this example. You set a Facebook ROAS goal of 1.2 means you’ll earn back 120% of the money you’ve spent on the ad campaign.
For every $100 spent, you’ll make $120, netting you $20 in profit.
How to Check Facebook Ads ROAS?
Step 1:
Access Facebook Ads Manager.
Click on column Performance and then, select Customize Columns.
Step 2:
Look for and select the ‘Purchase ROAS’ metrics.
Check the boxes for the metrics as shown.
Step 3:
Unselect minor metrics in the boxes: Purchase, Purchase Conversion Value, and ROAS (Return on Advertising Spend) for purchases.
Step 4:
Then, set your reporting window for a true performance picture. Then click Update.
Step 5:
Finally, click Apply.
You’ll receive a report on ads performance. It will give you a clear picture of your advertising performance and help you make informed decisions about your ad strategies.
3 Reasons Make ROAS Facebook Ads Low
Before implementing methods to improve your ROAS, you need to accurately identify the causes of your low ROAS. I suggest you use the formula ROAS = Revenue / Cost to pinpoint the reasons below:
Incorrect data
Once the data is incorrect, any actions or optimizations to improve the ROAS metric become meaningless.
Therefore, the first thing you need to do is check if the data, revenue, and cost are correct.
Increased advertising costs
The formula for calculating ROAS is Revenue / Cost. Therefore, increased advertising costs are the direct cause of decreased ROAS. So why does the cost increase? Let’s revisit the formula for calculating Cost.
Cost = CPM * Impression / 1000
So, the cost increases due to an increase in CPM. But why does CPM increase?
Audience, Competitors Market, Ads Score directly influences CPM
Decreased Revenue
You have the formula of Revenue:
Revenue = Order * AOV = Impression * CTR * CR * AOV
Thus, decreased ROAS is related to 4 metrics:
- Impression
- CTR (Click-Through Rate)
- CVR (Conversion Rate)
- AOV (Average Order Value)
3 Methods to Increase ROAS
Based on the reasons I analyzed above, there will be 3 aspects you need to adjust to achieve the ROAS you have set:
- Ad Targeting
- Ad Creative
- Product
So, what exactly do you need to do for each aspect? Let’s explore this in detail below.
#1. Set Right Ad Targeting
Expand Audience Size
A small target audience size is the main reason for your high CPM. So, expanding your reach strategically can unlock a larger pool of potential customers and boost your return.
Benefits of this method
- Reaching new people injects fresh interest and can lead to a surge in conversions you weren’t tapping into before.
- Expanding allows you to discover new demographics or interest groups that resonate strongly with your product.
How to do it
- Begin by incrementally increasing your audience size while closely monitoring performance
- Test different audience segments against each other to see which ones convert best.
- If the Audience list performs well despite its small size, I fully support spending money on this list, but also try to expand the list as much as possible!
Use Lookalike Audiences
Lookalike audiences are a fantastic way to scale your campaigns efficiently. No more starting from scratch with new audience research.
Benefits of this method: Less wasted ad spend and more conversions.
How to do it
- Choose the right seed audience through your website visitors, and app users,… The more specific the audience, your Lookalike Audience will be more targeted.
- You acquire new customers and add them to your seed audience to keep your targeting fresh and relevant
#2. Enhance Ad Creative
Increase Facebook Ad Relevance Score
The Facebook relevance score is a rating system designed to assess how well your Facebook ad resonates with your target audience.
Benefits of this method
When your Facebook Relevance Score is higher, meaning more users interact positively with your ads, so CPM will be cheaper.
How to do it
Therefore, you can compete with competitors through creative content including the following factors:
- What is your Product/Service? Does it have any outstanding features compared to competitors?
- Is the Angle Content/Message content friendly, hitting user insights?
- Are the images/videos more eye-catching than competitors?
- Is the promotion attractive enough?
Create Engaging Ad Content
By crafting truly engaging ad content, you can turn scrollers into stoppers and stoppers into conversions.
Benefits of this method
- Boosts your ad’s reach organically
- Strengthens brand awareness
- Call to future interactions
How to do it
- Using high-quality images and videos
- Use a strong call to action (CTA) like “Shop Now” or “Learn More.”
- Keep your Facebook ad copy short and clear messaging
Match Your Landing Pages to Your Ads
To improve conversion rates, ensure your landing page content aligns perfectly with your ad’s message.
Benefits of this method
- Enhanced user experience
- Higher conversion rates
- Better ad performance
How to do it
- Create different landing pages for each ad campaign: Use tools like Unbounce to manually craft landing pages that align with each ad campaign. However this method can be time-consuming and hard to scale.
- Manually personalize your landing pages: Utilize features like OptiMonk’s Dynamic Content to easily tweak landing page elements without manually updating each version.
- AI-Driven Personalization: For the ultimate solution, use AI to dynamically personalize landing pages based on customer data, offering highly tailored experiences for multiple ads.
For example, Obvi ran two distinct Facebook ads—one for hair loss and another for reversing aging signs—and personalized their landing pages to match each ad’s focus.
>>> Read more: 15 Proven Strategies to Optimize Facebook Ads for Maximize ROI
#3. Increase the AOV (Average Order Value)
By increasing AOV, you can significantly boost your revenue without necessarily increasing your customer acquisition costs.
Benefits of this method
- Increase profitability
- Optimize ad spend
- Improve customer lifetime value
- Reduce acquisition costs
How to do it
Offer Upsells and Cross-Sells
Encourage customers to add complementary products or upgrades to their cart. This can be done through strategic product placement, targeted recommendations, or using tools like Shopify’s upsell feature.
Encourage Bulk Purchases
Incentivize customers to buy in larger quantities by offering discounts or free shipping for orders over a certain dollar amount or quantity.
Free Shipping Thresholds
Set a minimum order value for free shipping. Customers will often add more items to their cart to qualify for free shipping, thereby increasing the AOV.
Loyalty Programs and VIP Benefits
Implement a loyalty program where customers earn points for their purchases that can be redeemed for discounts or free products.
Conclusion
We hope that this blog has shared with you everything you need to about Facebook Ads ROAS. However, in case you have tried all that but it doesn’t change anything, just keep in mind that we are here with you. As the top Facebook Ad Agency in APAC, we can help you analyze your current data, and give you some recommendations to improve your ROAS, and expertise to run your ads for you.
We do have some free consultant services in terms of Facebook Ads. Just submit your information by clicking the link below and we will handle the rest.
