Mention PPC ads to the average business owner or marketing manager, and they’ll assume you’re talking about Google Ads.
But aside from Google, there are other ad platforms that you can use to generate more conversion and sales for your company. Take Facebook, for example.
Now, if you’re currently running Facebook ads, that’s a great first step — you’re already ahead of the pack.
From here, you’ll want to focus on optimizing your Facebook ad campaigns so that you can get a higher Return on Ad Spend (ROAS) and maximize your profitability. Optimizing your ads for ROAS also helps you look at the big picture, and ensures that you’re not penny wise, pound foolish (more on this later).
In this Facebook Ads guide, I’ll walk you through everything you need to know about Facebook ROAS, including:
- How to calculate your ROAS
- ROAS vs Cost Per Conversion
- How to increase your Facebook ROAS
Read on to find out more!
How to calculate your Return On Ad Spend (ROAS)
If you’re not 100% sure what ROAS refers to, this is basically how much you get back for every dollar that you invest in online ads.
To calculate your ROAS, simply use the formula:
ROAS = Ad revenue / Ad spend.
For example, say you’ve generated $50,000 worth of revenue via your Facebook ads this month, and you’ve spent $10,000 on your ads.
Here, your ROAS = $50,000 / $10,000 = 5.
You can express ROAS as a multiple, percentage, ratio, or dollar amount — so in this example, you can say that your ROAS is 5x, 500%, 5:1 or $5.
Pretty straightforward, right?
ROAS vs Cost Per Conversion
Now that you understand how to calculate your ROAS, let’s move on to discuss the differences between ROAS and other metrics, such as Cost Per Conversion.
If you’ve been running ads for quite some time now, you might’ve heard that your ‘Cost per Acquisition’ or CPA (also known as ‘Cost Per Conversion’) is one of the best metrics that you can use, and that it’s preferable over Cost Per Click (CPC) or Cost Per Impression (CPM).
There is some truth to that statement — the Cost Per Acquisition does paint a more accurate picture as compared to CPC and CPM. That said, it still falls short in some areas, which is where ROAS comes in.
For instance, consider the following example, where two of your ad groups incur the same amount of cost and generate the same number of conversions:
Both ad groups have a Cost Per Acquisition (CPA) of $100. If you were to decide how to split your budget only based on the CPA, you’d split it evenly between both ad groups.
But when you take ROAS into account, you realize that Ad Group 2 has generated more revenue and a better return. Bearing this in mind, it makes more sense to funnel more of your ad budget into Ad Group 2 instead.
The bottom line? Cost Per Acquisition IS more effective than other metrics (CPC, CPM, …) to measure performance, but it still doesn’t give you the full picture.
Instead of simply optimizing your campaigns using only your CPA, be sure to look at your overall return on ad spend as well.
How to increase your Facebook ROAS
Awesome — you’re now up to speed about exactly how important your ROAS is. Next, let’s discuss a couple of strategies that you can use to increase your Facebook ROAS.
1. Improve upon your targeting
Your targeting can make or break your campaign — and no, I’m not exaggerating here!
One tactic you can use to maximize your return on ad spend is to layer audiences so that you can craft hyper-targeted campaigns.
For example, say you own an eCommerce store selling fitness gear, and you want to find people who would be interested in buying fitness products. Here are a few “layers” that you can work with:
- Layer 1: Basic demographic information: target by gender, age, location, and other demographic criteria. This is the most basic form of audience targeting. 99% of advertisers use demographics to segment their market, so if you want to level up your campaigns, you need to do more than this.
- Layer 2: Interest targeting: target by interests like fitness, sports, or yoga. This is a step in the right direction, but you can go even further.
- Layer 3: Target based on brands: target people who like the pages of relevant brands, e.g. Nike or Adidas. This is a great way to narrow your targeting.
- Layer 4: Target based on consumption habits: target people who read sports-related blogs, or follow sports influencers. Again, a great way to drill down and show your ads to a highly specific audience.
- Layer 5: Use lookalike audiences: target people who are similar to those who have already visited your website, made a purchase, signed up or engaged with your brand on social media.
Layering two or more of these options will probably get you smaller, but more refined audiences that are more likely to be interested in what you offer and more likely to buy.
Another commonly-used strategy (especially in eCommerce!) is to run remarketing or retargeting ads.
Here, you’re showing your ads to people who have previously visited your site, but failed to make a purchase.
Fun fact: The average Click Through Rate (CTR) for retargeting ads is 0.7%, which is 10x that of standard display ads. Also, website visitors who are retargeted with display ads are 70% more likely to return and convert on a retailer’s site.
Basically, retargeting ads are an absolute godsend for eCommerce store owners, and they’re great for boosting conversions and revenue very quickly.
2. Analyze breakdown by platform, placement, and device
Another thing you can do to increase your ROAS is to analyze your ads and campaigns, and figure out which types of ads perform the best.
Here are some factors that you can take a look at:
Analyze by Platform
Facebook owns Instagram, so apart from running ads on Facebook, you can also use your Facebook ad account to create Instagram ads.
If you’ve set up ad campaigns on both Facebook and Instagram ads, make sure you look at the results across both platforms to figure out how you should optimize your ads.
To do this, log into your Ads Manager, then click on the “Breakdown” tab above the reporting table. From there, choose the “Platform” option:
You’ll get a breakdown of how your ads performed on Facebook and Instagram.
Some businesses might notice a difference in performance on the different platforms. For example, brands that have a strong visual appeal may perform better on Instagram rather than Facebook, while a B2B advertiser may find that Facebook is the stronger platform to reach and convert customers.
Analyze by Placement
In terms of placement, here’s a complete list of where your Facebook ad may appear:
- Facebook Feed
- Instagram Feed
- Facebook Marketplace
- Facebook Suggested Video
- Facebook Right Column
- Facebook Stories
- Instagram Stories
- Messenger Stories
- Facebook In-stream Videos
Inboxes and Messaging
- Messenger Inbox
- Messenger Sponsored Messages
- Facebook Instant Articles
More Apps and Sites
- Audience Network Native, Banner and Interstitial
- Audience Network Rewarded Videos
- Audience Network In-stream Videos
If you choose the “Automatic placements” options when setting up your ad, Facebook will serve your ad across a range of the above placements, and test what works best.
To take a look at the different placements your ads have been served over (and optimize your campaign from there), click on the “Breakdown” tab, then select the “Placement” option.
Analyze by Device
Are your consumers viewing your ads on desktop or mobile, and how does this impact the conversion rate of your ads?
For example, say you realize that your ads served to mobile users get more click throughs, but your ads served to desktop users generate more conversions and sales revenue.
Bearing this in mind, you might try to optimize your landing page so that it’s more mobile-friendly and reduces any friction associated with a purchase.
If you manage to do this, you’ll potentially get the best of both worlds – a high CTR and a high conversion rate.
To find out which device performs best, navigate to the “Breakdown” tab above the reporting table in your Ads Manager. From there, choose the “Device” or the “Platform & Device” option.
3. Use Dynamic Creative to test best performing creative and copy
With Facebook’s Dynamic Creative feature, you can test your different assets (creatives, copy, etc) to find out what resonates with different audiences.
How do you do this? It’s fairly simple:
- Upload multiple ad components (images, videos, titles, descriptions and CTAs).
- Set up your campaign, making sure that the “Dynamic Creative” toggle is switched on.
- Sit back and let Facebook generate ad combinations. The algorithm will mix and match the creative and copy you provided and deliver the best combination for each campaign, audience and placement.
Quick aside: Facebook’s Dynamic Creative is not the same as its Dynamic Ads, so make sure you don’t mix them up!
4. Battle ad fatigue
So you’ve let the Dynamic Creative feature do its thing, and you now know which are your best performing ads. Does that mean you can invest 100% of your budget into those few ads, and keep running the same ads over and over?
Unfortunately, that’s a no.
Regardless of how compelling your ad is, there will come a point where your customers are tired of seeing the same old ad, again and again.
In the advertising world, this is known as “ad fatigue”, and it can have a disastrous impact on your ROAS:
How do you deal with ad fatigue? Well, one solution is to keep refreshing your creatives, so that your consumers aren’t seeing the same ad everyday.
You can still use the insights you’ve learnt from Facebook’s Dynamic Creative feature — now that you know what angle/type of creatives your audience is partial to, make sure your new creatives and copy fall within the same category or angle.
Another option is to set a frequency cap on your ads to limit the number of times consumers see your ads:
To learn more about frequency caps and how they work, read Facebook’s guide.
5. Run remarketing ads
We’ve discussed remarketing ads briefly, and you probably already know that these are exceptionally effective in bringing you more revenue and a higher ROAS.
There are two types of remarketing ads that you can run on Facebook — “static” remarketing ads and dynamic ads.
With static ads, you’re serving the same ad to all customers in your ad group. Imagine running a remarketing ad about your SaaS tool to everyone on your email list. You might choose to show a single image with a customer testimonial in your ad. In that case, everyone who sees your ad will see the exact same version of it.
With dynamic ads, on the other hand, your customers see unique ads based on their browsing activity on your site.
For example, say you own an eCommerce store and you want to serve dynamic ads to people who have browsed your site. If Customer A looked at a pair of boots on your store, Facebook will serve them an ad that’s customized with that very same pair of boots:
Generally speaking, dynamic ads tend to be more eye-catching and appealing, simply because they feature items/products that have already caught your consumers’ eyes.
To learn more about how Facebook’s Dynamic ads work and how you can set them up in your account, read this guide.
A final word on increasing your Facebook ROAS
Congrats, you’ve made it all the way to the end of this Facebook ROAS guide… go ahead and give yourself a pat on the back!
We’ve covered a lot of ground in this post, so here’s a quick recap:
- ROAS formula: ROAS = Ad revenue / Ad spend.
- Cost Per Acquisition vs. ROAS: Only looking at the CPA doesn’t give you the full picture, so take ROAS into account as well.
To increase your Facebook ROAS…
- Improve upon your targeting
- Break down campaigns by platform, placement, device to compare performance
- Use Dynamic Creative to test best performing creative and copy
- Run remarketing ads
One final takeaway — assuming you’ve just set up your store, and you don’t have much traffic yet, try to optimize for conversions that happen higher up the funnel. If you don’t have enough traffic to start off with, Facebook doesn’t have enough data to optimize for purchases accurately, so it’s actually more effective to start off by getting more traffic before gunning for sales.
Alright, over to you. Go ahead and start optimizing your campaigns, so that you can skyrocket your ROAS and campaign revenue!