Have you ever watched a YouTube video and noticed that all of the ads on the video seem related to what you’re watching? From a marketing standpoint, it seems like a good idea, in theory. You create a product and then attach ads to media that’s consumed by an audience of people who are interested in topics related to that product.
But, how many ads have you actually clicked?
I’ll be the first to admit that I have an ad blocker on my PC and have probably only found a handful of in-app ads on my phone compelling enough to click. Mostly, I’m just annoyed that my experience is being interrupted by a commercial.
Does the fact that I’m also involved in digital marketing make me feel guilty about this behavior?
Sometimes. But, I also understand things from UX POV.
If you’ve been involved in any aspect of branding over the past decade or so, you’ve heard the importance of optimizing the social media planks of your marketing platforms. Google, Facebook, and YouTube all promise to move eyes to your pages for just a small investment, and they’ll even give you the tools and analytics you need to optimize and monitor your efforts. LinkedIn has transformed from a database of CVs and networking opportunities to the top B2B marketing platform.
The usual metrics are KPIs like click-through rates and conversions. But, these numbers on their own are meaningless when you need to understand the bigger picture.
The harsh reality is that views and clicks don’t always translate to sales. What happens when you spend thousands of dollars to target ads and you don’t see an appreciable return? How can you even gauge the return on your ad spend?
More importantly, how can you improve the ratio and turn the situation around?
Social Media ROAS and ROI: What’s the Difference?
In business, you expect a certain return on your investment (ROI). You put X amount of dollars and effort into building a business and, hopefully, receive an exponentially larger amount back in terms of sales.
As a formula, it looks like this: ROI = (Net Profit/Net Spend) x 100
Analytics dashboards can provide insight into the number of visitors, conversions, and click-through rates. However, they don’t really tell you how much each dollar invested in ads directly results in a dollar amount of revenue.
That is your Return on Ad Spend (ROAS), and it looks like this: ROAS = (Revenue Generated from Ads/Advertising Spend) x 100
It’s a more granular metric that provides a detailed look into how much sales revenue you’re generating per every dollar you spend on a specific marketing activity.
In short, ROI tells you how well all of your marketing efforts are paying off, while ROAS gives you a dollar-per-dollar breakdown of the effectiveness of a particular ad. One provides a long-term image of profitability, while the other is good for retooling short-term strategy.
Separately, these metrics tell you a lot about the profitability of your efforts overall and in specific instances. However, they have more meaning when used together to calculate how much of that advertising investment directly results in profit to your business.
For example, are you expending resources in terms of staff, design, PPC, and other marketing efforts to generate more site traffic only to see that additional traffic result in a 2 percent increase in revenue? Maybe you’re relying on word-of-mouth from social media posts, but those efforts are generating a buzz that increases sales-per-transaction without a lot of financial expenditure. What if you’re actually losing money?
Without calculating ROAS, you would never know if you’re reaching your audience in a meaningful way or just pouring money into a void.
Looking at this in terms of numbers, we can analyze the same activity by calculating both ROI and ROAS. In this example, Enterprise Z has invested $25,000 on ads for their new product, in addition to about $80,000 on personnel, software, and other activities/items that are included in their overall ROI. This particular campaign resulted in $100,00 of sales revenue.
The ROAS in this case is pretty straightforward: (100,000/25,000) x 100 = a 400 percent ROAS. On the surface, that’s a pretty good return.
However, further analysis on the overall ROI determines that the company has experienced a nearly 5 percent loss rather than seeing a positive ROI: (-5,000/105,000) x 100 = -4.76 percent.
Ideally, you should be able to strategically market ads in such a way that the ROAS and ROI both increase at about the same ratio.
Three Sure-Fire Ways to Optimize Your Social Media Marketing Investment
Advertising serves two purposes. First, you want to raise brand awareness. Next, you want to convert that awareness into sales.
You can A/B test landing pages and analyze metrics on your dash board all day long. But, unless you can determine which of your activities translate to dollars, you could be throwing away profit on marketing schemes that look good on a graph but don’t actually boost your bottom line.
1. Optimize Your Accounts
Social media marketing campaigns rarely spring fully formed to reach the ideal audience persona. You have to lay the foundation first by optimizing your accounts.
First of all, include complete, accurate, and up-to-date contact information on all social profiles. Next, make sure that all messages, images, logos, etc are unified across all of your platforms. Test all links to ensure that they work and direct users to the correct landing page. Include a clear, highly visible CTA with actionable steps for what you want your viewers to do next.
2. Align Your Goals and Actions
Your goals are most likely to generate leads and convert them to customers. But, how well are your activities aligned to these goals?
In order for your efforts to bear fruit, you have to identify the channels that are actually working and put your efforts into them. Are you keeping abreast of trends in social media marketing? Which platforms are driving traffic, and how much of that traffic is converting to sales? In addition to ROAS, are you improving customer satisfaction and Net Promoter Scores (NPS)?
3. Run the Right Kind of Ads
Testing can tell you what kind of ads are working on your social media campaigns. But, there are certain kinds of ads that help you obtain qualified leads once you’ve passed the initial awareness that the typical post or video generates.
Lead ads (or Lead Gen Ads for LinkedIn advertisers) are a type of opt-in activity that takes away a major pain point that prevents traffic from converting: the need to fill in a form and formally engage in the process. This new-ish type of ad offers pre-filled forms utilizing information already stored on the platform that interested prospects can simply submit.
The anticipated result is a higher level of more qualified leads who are further along in their journey.
Social media can be a very effective marketing tool. It allows to you to personalize your brand and engage with your audience at various points along their path from awareness to loyal customer.
In order for those efforts to be profitable, you need to know what’s actually generating revenue and which marketing efforts are simply wasting your limited resources.
Learning and using all of the tools and metrics at your disposal will provide you with a more comprehensive look at where you are so that you can better plan where you need to go in order to reach your goals.