We’ve all seen the obnoxious YouTube ads- or maybe you haven’t, in which case lucky you and can I borrow your account for some peace please- of marketing gurus showing how they grew their online store by a million percent in 60 minutes using “a few simple Google Ads” and now they want to show you how to do it too if you pay for their extremely expensive course. How nice of them.
Those gurus are the modern equivalent of this guy, only with lives that would make much less exciting films.
Everyone’s gotta make a living, I’m not here to judge (much), but there is a fallout from this trend that agencies and solo advertisers all have to deal with, which is that it’s easy to expect miracles from your online ads. Even with the clearest, most realistic mindset in the world, it’s still way too easy to hope your store will be one of the miracle cases where you’re seeing a 10x return from day one and then 15-20x once its ads are firing on all cylinders. In reality, the stars have to align and a lot of things have to be just right before that’ll actually happen.
Luckily, we know exactly what those things are. And if we use the numbers behind your store as it stands right now, we can figure out what results you can expect, as well as understanding what you’ll need to do to hit those sky-high returns down the line. Let’s do a bit of quick maths- sorry, but it’ll all make sense in a minute I promise.
Ready to look like this, only even more handsome? That’s how I live my life already.
Let’s start by remembering what we’re really interested in: your return on ad spend (ROAS). Of course, that number isn’t just made-up, so let’s examine where it comes from:
ROAS = Revenue / Cost
Easy, right? If you spend £2 on ads and you make £10, your ROAS is £10 / £2 = 5. You made 5 times what you spent, so ROAS is 5.
It figures then, if you want to increase your ROAS, you either have to increase your revenue or reduce your costs. In reality, you’ll probably take turns doing both as the way of sustainably scaling your store.
Since they both matter, let’s go a step further and look at what influences your revenue and cost. It feels a bit over-the-top, but if we’re trying to work out what’s realistic to expect from your account this is where it gets really good. Let’s start with the nice one- revenue:
Revenue = Avg. Order Value (AOV) x No. Transactions
This one’s pretty easy to think about in real terms; if you want to make more money, you either get more customers or you find a way for each customer to spend, at least on average, more money. That could be by selling a greater number of items in each basket, or by keeping the same number of items per order but selling stuff which is more expensive.
So from a PPC perspective, you can grow your revenue by driving more conversions or by finding a campaign with a higher AOV than another one and making it a bigger part of your account (in terms of budget and conversion volume) than other campaigns with smaller AOVs.
The other side of the coin is cost, which is where lots of businesses want to start improving their ROAS- “this hasn’t converted this week so stop spending money on it”. Sound familiar? The thing is, if you run an account for 3 months, figure out what already works and what doesn’t, and turn off all the spend that’s not working, you’ll be able to achieve a really solid ROAS by cutting your costs down to the bone.
Basically, don’t do this to your marketing.
However, your revenue figure might be a bit disappointing and because you turned off all the “maybes” you’ll struggle to grow it without immediately undoing all your hard work. Anyway,
Cost = Avg. Cost Per Click (CPC) x No. Clicks
So if you want to improve your ROAS by cutting costs, you either have to pay for less clicks (by stopping ad activity which isn’t profitable enough) or pay less per click (by reducing bids, which is effective at times but doesn’t scale- you’re deliberately winning less ad auctions).
Let’s get to the point, then. Using all these broken down numbers, let’s redefine ROAS:
If you know these 4 numbers about your advertising account (whether it’s Google, Facebook or anything else) already, you can think about what really needs to change to get the higher ROAS you’d rather have.
If you’re looking at your current performance, and in your heart of hearts you think you can double your ROAS pretty soon, ask yourself;
- Can you double your AOV? It’s likely people can’t easily be convinced to spend twice as much money every time they shop.
- Can you double the transactions you get from the same ad spend? You’ll need a killer incentive, or your account might be very new with glaring inefficiencies you can quickly solve (this is usually a one-time thing in new accounts, and only if your account is off to a bad start)
- Can you half your CPC, without getting less clicks than right now? This is usually extremely difficult to do. Remember that Google Ads is an auction, and its costs experience inflation like everything else in the world. If you’re trying to lower your bids while everyone else raises theirs, you’ll run out of auctions to win, fast.
In Google Ads you can improve your quality scores to get a lower CPC, but they need to be 5 or less before you can half your CPC by improving them. Often, a higher-scoring ad won’t necessarily be more appealing to a customer anyway because you have to write the keyword so many times, so you have to choose between writing something interesting or shooting for that 10/10 Quality Score. The higher score won’t necessarily match up with a better ROAS.
These are the three questions it always boils down to, and of course in reality you’d try to do a bit of everything rather than just double one number. However, that still takes time. Months, or years, depending how much room for improvement is still left in your account.
Often, you can grow your revenue as high as you’re willing to keep pushing it; but this is best done by spending more and more money at a consistent ROAS (and hopefully growing your other channels too, like organic and email). If you’re after a quick revenue boost by lighting a fire under your ROAS, it’s always worth a go. Hopefully, now you know how to work out how difficult that’s likely to be.
In case you haven’t noticed, numbers are kind of my thing. So if reading this has made everything seem a bit ridiculous (I promise it’s not), feel free to give me a shout on my or get in touch with the whole team if you like being the centre of attention.
