Using ROAS (Return on Ad Spend) as a crucial metric to understand the effectiveness of your ad spending comes with caution. Miscalculating ROAS can lead to poor decisions, such as over-investing in underperforming campaigns or cutting budgets for strategies that actually work. To avoid this misaligning your marketing priorities, take note of these common mistakes when calculating ROAS:
Ignoring Hidden Costs
You need to be careful of overlooking essential costs like platform fees, creative production, and team salaries when calculating ROAS. This can result in an inflated metric that misrepresents true profitability, leading to misguided marketing decisions.
Overlooking expenses like platform fees, production costs, or salaries skews profitability calculations. To ensure accurate ROAS, account for all direct and indirect costs associated with your campaigns. Use detailed budget tracking tools to capture these hidden expenses and prevent inflated metrics.
Improper Tracking
Failing to properly track which campaign or channel drives sales can lead to incorrect ROAS results. Relying solely on last-click attribution often undervalues top-of-funnel activities that contribute significantly to customer conversions.
Inaccurate tracking of campaigns can misrepresent which channels truly drive sales. Implement advanced attribution models that factor in customer touchpoints across the funnel. Tools like multi-touch attribution can help you understand the broader impact of upper-funnel efforts on conversions.
Overlooking Refunds or Cancellations
Including revenue from refunded or canceled orders inflates ROAS metrics, leading to false profitability insights and poor marketing decisions. Regularly audit your revenue data to exclude these transactions from your calculations. Automating this process using CRM tools ensures your revenue figures align with actual sales performance.
How to Calculate ROAS Let’s go back to the basics. In order to calculate ROAS accurately, let’s look at the formula.
You need to make sure that all costs are included in “Total Ad Spend”, including:
Platform fees (e.g., Google Ads, Meta Ads).
Creative production costs (vendor/agency/talent)
Additional tools or resources used to run campaigns.
"Revenue from Ads" should only include sales directly attributed to campaigns being analyzed. So, you need to be as specific as possible to make sure you calculate ROAS accurately.
Accurate ROAS Calculation for Higher Profitability
Accurately calculating ROAS is essential to optimize your marketing efficiency and profitability. By avoiding common pitfalls, like overlooking hidden costs or misattributing revenue, you can gain a clearer picture of campaign performance and make more informed decisions.
Tools that provide advanced analytics and streamlined data can make this process much easier. Platforms like INDICO Engage empower marketers to refine their strategies with actionable insights.
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