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The wealth of detailed information that Google Analytics can provide is impressive. There are hundreds of ways of charting and displaying metric data. But lets face it, website marketing strategists and/or business owners, whilst being wowed with the information need to know what to look at.
As analytics experts, we need to evaluate and understand the customers true indicators of performance and reorganize the sometimes overwhelming metric data sets into a clear format so our customers can make smart business decisions!
One of the things that I like to do to measure campaign performance is a metric called Return On Advertising Spend (ROAS).
What is Return On Advertising Spend?
ROAS differs from Return on Investment (ROI). Return on investment measures the total margin that the total operation nets. This includes all operation costs rather than just advertising expenditure. ROAS measures how much revenue you are making for every dollar you spend on advertising. It offers the direct result of each advertising dollar you spend and answers that all important question:
“How much is my advertising making me?”
Try answering that question with traditional print advertising!
ROAS in Action
A proper ecommerce setup using Google Analytics offers an optimal environment for measuring ROAS. A correctly configured installation pulls actual sales data from the online receipt page into analytics. This provides huge amounts of valuable reporting. For example, linking traffic sources to revenue, a great subject for another day!
This amount of data is nothing short of confusing for a business executive and they don’t have the time to waste getting to grips with detailed information.
What we really need to do is filter this analytical data into something relevant to the decision maker and manipulate it into more meaningful representations so that business decisions can be made.
We like to call these ‘scorecards.’
Create an ROAS Scorecard
Here is how to create a ‘scorecard’ for the ROAS metric:
- Open the Google Analytics Custom Reports tool, create a new report
- Add the ‘COST’ and ‘REVENUE’ metrics and the ‘MONTH’ dimension, title your report and create
- Change the dates to your required date range
- Export this data as a CSV file
- Open the CSV file, create the ROAS measurement by dividing revenue by cost and add an optional % change so see trending.
- Sit back and admire.
The return on advertising spend scorecard below was useful for examining the level of spend to budget for the 2009 online campaign as well as measuring fruitful sales funnel improvements made in July for this seasonal based ecommerce business.
These figures may not be completely accurate figure from a bookkeeping perspective but it provides a simple and replicable measurement that can be monitored over time. Return on advertising spend is vital when making user experience and advertising campaign changes and understanding how they affect your bottom line!
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5 Responses to “The Return on Advertising Spend Metric”
I am not fully convinced about this much hyped ROAS. Yeah, I agree, it measures whether we are making more money than you are spending, but there is more to it. It’s fine, providing an initial indication of the status of our overall program and perhaps individual campaigns. But ROAS has a number of defects and even flaws, and I am not a big supporter of it. I think we need to see more about the operational costs of revenue vs expense.
March 1st, 2009 at 10:09 pm
Companies need to exercise utmost caution while spending money on advertising. It could help you scale up your sales or it could be a mere waste of money. Either way, one needs to keep a tab on the money spent on ads. Yes, Google Analytics is an extremely useful tool to measure your ROAS and can help you judge the pros and cons on your adspends.
March 1st, 2009 at 10:55 pm
David – Bang on…. measure and make intelligent decisions. Any marketing budget should be measured and tuned for maximum effect.
Mia – Thanks for the comment. I understand your reservations. Please let me clarify.
Obviously,operational vs revenue is essential for understanding ‘Business Effectiveness’ and how profitable one’s business model is.
For the purpose of specifically measuring ‘Ad Campaign Effectiveness’ operational costs introduce too many variables that clutter the effect of campaign tuning. If I’m deciding whether to adjust spend on Google Adwords or the effect of recent content changes then I do not need to see my facilities or resource costs built into this. In fact their inclusion would remove the abilibty to measure effectively.
It takes 2 minutes to create a ROAS report using analytics and gives you a simple reference point from which to tune.
Hype is irrelevant, ROAS is simply a measurement. The ‘new improved’ tape measures may be hyped but the inch is just there to measure with. The inch has no flaws unless you measure incorrectly with it!
Really, the point of this post is to say: “To get the best from your advertising dollar 1) Measure, 2) Present data in a format that allow decisions on ad campaign to be made and 3) measure the effect. Then repeat.”
March 4th, 2009 at 8:29 am
[...] Return on Advertising Spend Metric – A thought provoking blog from our newest campaign analyst – Jon Dyer. This helps you understand how to pull Google Analytics data and understand the return on advertising spend. [...]
February 2009 Rise To The Top Wrapup | Rise to the Top Blog
September 18th, 2009 at 12:00 am
[...] Return on Advertising Spend Metric – A thought provoking blog from our newest campaign analyst – Jon Dyer. This helps you understand how to pull Google Analytics data and understand the return on advertising spend. [...]
February 2009 Rise To The Top Wrapup | Rise to the Top Blog
September 18th, 2009 at 12:00 am