“Knowing your numbers” is absolutely critical for success in any business, no matter whether you’re an ecommerce store, SaaS company, service company, B2B, etc.
As ad campaigns become more automated and “smart” bidding strategies continue to take over, it’s more important than ever to make sure that you’re bidding appropriately, smartly, and profitably.
I’ve put together a few calculators help you figure out how exactly what targets you need to be setting if using smart bidding strategies.
What is ROAS?
ROAS is return-on-ad-spend, essentially how much revenue you can expect to generate from your ad spend. Think of it like this, if you generate $4 in revenue for every $1 you spend on ads you have a ROAS of 4, or 400%. So, for every $1 that you put in you can expect to get $4 back.
It’s a simple calculation: revenue from ad sales divided by ad spend.
Here’s a simple calculator to help you. Here’s how to use it:
- Enter your actual ad spend for a given period of time. At least 30 days is best.
- Determine how much sales revenue was generated by your ads in the same time period.
Target ROAS Bidding Strategy
Target ROAS is one of the most important elements of any smart bidding strategy. It’s absolutely critical to make sure that you set your Target ROAS high enough that you’re actually making a profit from your sales. If your Target ROAS is set to 250% but you really need 400% to be profitable (i.e. over 100% ROI) then you need to adjust.
I’ve created a handy calculator that you can use to figure out what your Target ROAS needs to be.
Here’s how to use it:
- Come up with an average profit margin on your product. If you have several different product lines with different margins, then you can do this exercise multiple times.
- Then, enter a few different ROAS Target numbers to see what your actual ROI would be if you hit those numbers.
- Play around with the numbers until you find a Target ROAS that’s both reasonable and profitable.
ROI Calculator for Lead-Gen Campaigns
SaaS and B2B companies that run lead-generation campaigns have similar calculations. You can determine what your ROI should be if you know your average cost-per-lead, lead-to-close ratio, and average customer lifetime value.
Here’s how to use the calculator:
- Determine your average cost per lead. For most advertisers this would be your cost-per-conversion directly out of Google Ads.
- Determine your average customer lifetime value. CLV is a “table-stakes” metric that you should be able to find fairly quickly. CLV is the average revenue that you could expect from any paying customer.
- Determine your lead-to-close or lead-to-customer ratio. This is a measurement of both how well your sales team can close leads as well as the quality of the leads coming through your ad campaigns. This is a simple percentage, so if you close 5 out of 10 leads to paying customers then your ratio would be 50%.
Again, a 100% ROI here is breakeven, so you want to be above that. Once you find a CPL that works for you and generates a positive ROI then you can use that as the Target CPA in your smart bidding strategy.
More Coming Soon…
I plan to keep updating this page and adding new tools over time. If you find this helpful then let me know in the Drift chat.
Have ideas for new calculators that I should add? Let me know!