AKA, “How Are We Doing?”
Remember when we simply used our Average Cost Per Click (CPC) to determine “How are we doing?” (HAWD).
Then we moved on to Conversions or Cost Per Acquisition (CPA), and now we are finally at the zenith of our ability to determine HAWD by calculating Conversion Value / Cost, AKA Return On Ad Spend (ROAS) AKA ROI.
The question on everyone’s mind then is, “What is the best Target ROAS for my business?“.
Of course profitability varies, and size of business is the second factor we have to consider.
The later, size of business, ad spend is at least widely understood to range between 6% for very large businesses and 20% for new / small businesses.
Profitability is the one thing unique to your business that you will have to calculate into your formula for success, but Target ROAS can be understood in general terms so you can apply the following to your business.
First we want to understand that in Google Ads, you will set Target ROAS in percentages instead of the ratios used in advertising-speak. (almost everyone speaks in terms of ratios, which is another one of those advertising industry adopted complexities that makes no sense, but why fight it? I just made up HAWD to see if it goes viral so as to create another unnecessary acronym.)
10:1 to 1:1
The scale is 10:1 to 1:1. Which translates to 1000% ROI to 100% ROI. Got that?
A Target ROAS of 200% (2:1) is a good place to start. 200% ROAS usually covers COGS and operating costs. ROAS of 100% (ratio 1:1) likely means your ROI is below the waterline and your boat is taking on water. You will sink eventually. So you can see how profitability is very important in your calculations down here by the waterline. No one wants to run a breakeven operation, so we need to get our advertising running well out of this danger zone.
A Target ROAS over 400% (4:1) is what I call “normal” because it should be achievable.
Anything over 400% means you can probably grow your online business rapidly.
Anything over 700% (7:1) is exceptional and deserves special praise. Give your advertising guru some special recognition!
So there you have numbers with which you can judge your ROI based on that one thing unique to you, your profitability.