With the ever-growing advertising market, efficiency has become crucial. Marketers are pressured to attract traffic and ensure every dollar contributes to the bottom line. Increasing ROAS (return on ads spent) has become essential to maintaining profitability and staying competitive.
This blog will discuss what drives your ROAS and how you can improve it with successful approaches.
A] How to Measure ROAS?
ROAS is a key metric that measures the revenue generated for every dollar spent on advertising using the following formula –
ROAS = (Revenue from Ads) / (Cost of Ads)
It should be analyzed with metrics, like ROI and customer acquisition cost, to fine-tune the strategies and optimize ad budget allocation.
B] 3 Key Pillars that Drive Your ROAS
Before understanding how to improve the return on your Google Ads for e-commerce, let’s discuss the key components that support your ROAS –
1. Profit Margins
Profit margins, more specifically, your gross margins, support your ROAS. Setting your ROAS expectations before understanding how your gross margins tie into it is futile. For instance, if your gross margin is 50%, you need at least 2 ROAS to break even, and if you have a 25% gross margin, the ROAS should be 4 ROAS. Thus, the lower the gross margin percentage, the higher your ROAS needs.
2. Customer Lifetime Value
Did you know that, as per Harvard Business Review, acquiring a new customer is five to 25 times more expensive than retaining the current one? Thus, you must put enough resources into keeping the current customers.
Operating under the assumption that your ads must deliver profitable results on the first purchase can help you grow faster without falling into the red. This way, your customer’s lifetime value can drive ROAS, as your acquired customers will increase profit over time.
3. Average Order Value
The average amount your customers pay at checkout (AOV) is another essential pillar that can quickly determine the difference between a low and a high ROAS. The smaller the AOV, the higher the conversion rate required to achieve a break-even ROAS.
For instance, if your AOV is 10$ and you pay 1$ per click, you need a 10% conversion rate to break even at 1 ROAS, which is a big ask. However, if the AOV is 100$, and margins and other costs amount to 65$, you don’t want to pay more than 35$ to break even. If you are paying 1$ per click, you have 35 chances to gain a conversion, bringing the conversion rate to 2.8%, which is much more realistic. Thus, strong AOV and goals focused on first-purchase profitability from paid ads go together inseparably.
The best pay-per-click management companies consider all these components to drive the best return on your ad spend. Read our guide to learn how to track and measure the ROI of PPC campaigns.
C] 5 Essential Ways to Better Your ROAS
Here are some practical approaches to support your ROAS in the long term –
1. Offset the Advertising Cost by Investing in SEO
You can offset some of the advertising costs by investing in SEO. There are two ways to do this: technical SEO and content strategy.
Focus on technical SEO and see if the title tags on your product page match how people search for your products. Offer unique and detailed content on your product page to make the buying decision easier. Outside of the product pages, ensure your content strategy includes themes the customers will care about. Remember, if you are offering nothing more than a transactional experience, customers will eventually shift to a better brand.
2. Use Chatbots to Improve the Conversion Rate
Chatbots can replicate the effect of having an in-store associate on your online store. They help customers find simple answers to common queries, which leads to better site navigation. Using chatbots can improve your site without skyrocketing customer service costs.
3. Use Email Marketing
As per Hubspot’s 2025 State of Marketing Report, email marketing campaigns can reap an average ROI of 36 times. It is the best way to improve your ROAS, as you can bring your site visitors back for a second chance to buy through email marketing. You can start a welcome series for new subscribers and create an automated sequence to follow up with cart abandoners.
4. Build Loyalty into Your Offerings
We have already established that you will generate more earnings from an existing, loyal customer. You can add spice to your customer offerings by offering subscription and membership discounts. Reward your customers, add loyalty points for every purchase, and use referrals. These small additions can attract high-value customers, improve conversion rates, and support your ROAS.
5. Choose the Highest Converting Ads and Platform
Choosing the right platform is crucial for your ROAS, as the wrong platform can be catastrophic. For instance, if you are in the cosmetics business, Twitter makes no sense as an advertising platform, but Instagram does. YouTube and Google Ads are the most used platforms as their search intent is highly specific and more targeted.
Using the right keywords and posting on the right platform can help you reach your target audience and get more ad clicks. If you need help with your Google Ads, you can employ Google Ads management services to ensure your ad spent drives effective results. Thus, these factors drive ROAS, and focusing on them can help you achieve better ad returns. You can hire services, such as pay-per-click management services, or consult our professionals to find better ways to increase ROAS.
