Driving ROAS Improvements With Data-Driven Decision-Making

By now, you probably know the return on ad spend equation. Dividing the revenue generated from your ad campaign by its cost calculates the revenue generated per dollar of ad spend. It's your marketing profitability metric.

The higher your ROAS, the more effective your ads are at converting spend into profit. As such, good ROAS for ecommerce should be a priority for driving growth.

Higher ROAS directly translates into increased margins and bottom-line profit. But making the right optimization changes relies on more than just instinct. That's where data comes in. It provides the clarity needed to make strategic improvements grounded in statistical insights.

In this article, we’ll explore techniques like benchmarking, which enable you to harness this data and put it to good use. You’ll learn all about how to turn ROAS data into actions that boost performance. Let's dive in.

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The Role of Data in ROAS Improvement

First and foremost, data helps remove our natural biases from the decision-making process. With advertising, the numbers cut through the noise to reveal what's truly working and where opportunities lie.

Relying purely on gut feel may seem easier or even more intuitive. But data doesn't lie. It offers the objectivity needed to strategically optimize ROAS. Leaning into a data-driven decision-making process is vital for unlocking real performance gains.

In short, data:

• Reveals optimization opportunities not visible otherwise
• Enables smarter choices to boost ROAS performance
• Cuts through opinions to highlight proven strategies
• Guides strategic decisions aligned to business goals

About Data-Driven Business Decisions

In today's data-rich business environment, relying on gut instincts and intuitions alone is no longer enough. Companies need to embrace data-driven decision-making in all aspects of business, not just ad spending. From product development to marketing strategy, it is the only way to remain competitive.

Being "data-driven" means leveraging facts, statistics, and business analytics to inform strategy and planning. Data provides the insights to make smarter, more objective choices aligned to performance goals.

For example, you may believe you have an amazing idea for a Google ad creative that can’t fail. Yet data may reveal a different story. Use it to show you what's connecting with audiences and driving conversions.

How to Leverage Data to Understand ROAS

There's no denying the effectiveness of utilizing clean, accurate data to inform decisions. But for many, it can be tricky to know where to start.

Let’s explore techniques to turn ROAS data into actionable insights:

Benchmarking Against Standards

Want to gauge your true potential? Compare your ROAS metrics against industry benchmarks. These are data-backed standards that reveal how your ad spend and performance stack up against competitors. It gives you a feel for what's considered typical or attainable out there.

For example, a good ROAS for ecommerce is in line with the industry average, but top performers aim even higher. If you're at 1.5 right now, set your sights higher. Return on ad spend benchmarks showcase realistic stretch goals worth pursuing.

Finding gaps between your ROAS and leader benchmarks allows you to set strategic improvement targets. Now you've got something concrete to aim for!

Connecting ROAS to Business KPIs

Next, relate ROAS performance back to other key revenue and cost metrics. Estimate how an increase in ROAS may ripple through and impact sales, margins, lifetime value, and more.

This helps quantify potential business impact. It expands perspective beyond just the ROAS metric alone. Make sure improvements align with broader profitability goals, too. Rising ROAS doesn't always mean rising profits. Keep the full financial picture in mind with ecommerce KPIs like gross margin, customer acquisition cost, and overall revenue.

Leveraging Attribution Modeling

Apply multi-touch attribution modelling to see how marketing channels contribute along the customer journey and tie back to overall ROAS. That means analyzing assisted conversions to understand channel influence across the funnel.

This uncovers who's assisting who when it comes to driving conversions. Maybe email lays the groundwork, while paid search seals the deal. These insights help optimize channel strategies.

Evaluating ROAS by Segments

Break down ROAS data by audience segments like demographics or customer types. See which are your moneymaker targets worth spending on. Get to know your VIP customers! After all, data-driven organizations are 23 times more likely to acquire customers and have retention rates 6 times higher than competitors, according to McKinsey.

Or analyze ROAS over the customer lifecycle and by geography. Find pockets of opportunity tailored to different stages and locations. Then, optimize targeting and media mix based on performance data.

Identifying Trends and Cycles

Depending on your industry, it might be wise to uncover seasonal patterns by analyzing ROAS fluctuations across the year. See how ROAS changes with new product releases or promotions and capitalize on these insights.

Compare ROAS on new customer ads versus retargeting existing ones. Allocate the budget appropriately based on what the data reveals over time.

Building Predictive Models

Finally, you can use statistical modeling. That's the practice of predicting future ROAS performance based on historical correlations. Identify factors like seasonality, ad creativity, and audience targeting and quantify their impact.

For example, you may see ROAS consistently dip 10% during the summer months. Or a specific ad copy drives 20% higher ROAS for women aged 35-44.

Plug these insights into machine learning models to forecast ROAS under different scenarios. This enables smarter budget and bid decisions aligned to projected conditions.

Optimizing Ad Campaigns Through Data Insights

Now that we've covered ways to extract those precious insights, here comes the fun part. It's time to turn those insightful moments into impactful optimizations!

Refine Targeting Strategies

Remember how we discussed analyzing ROAS performance by audience segments? Use those insights to guide your targeting decisions. Identify which customers represent your highest value targets and focus spending on reaching more of them.

Drill into demographic, interest, and behavioral cues that signal a high propensity to convert. Get strategic with placement, too - are certain platforms, sites, or apps driving better results? Shift the budget to where your targets are most active and engaged. The data holds the keys to who and where you should be targeting.

Optimize Ad Creative and Messaging

Don't get too attached to your ad creative; the data may reveal something different is needed. Run A/B testing on ad elements like images, headlines, and captions. Try different calls to action and value propositions. Monitor uplifts in ROAS and conversions to guide optimization.

It's very important that your ads and landing pages align. Mismatched experiences can tank ROAS. For example, if your ad promises 20% off, but the landing page only says 10% off, you're misleading shoppers. They lose trust. So, continuously assess the relevancy between ads and destinations. Tweak messaging based on the insights.

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Monitor in Real-Time and Adjusting

Set up reporting dashboards to monitor ROAS daily. This allows you to spot trends and changes in real time. Maybe ROAS took a dip on Tuesdays, or a new customer segment is showing promise. Staying on top of the numbers lets you rapidly respond.

Configure automatic alerts tied to workflows to make things easier. These should pause poor performers while scaling winners. The quicker you act, the faster results and learning come. Keep optimizing and adjusting based on the latest data signals.

Make data accessible

Lastly, deploy self-service BI tools and dashboards so employees can easily analyze data relevant to their roles. Security controls still apply, but gatekeeping data stifles a data culture and creates data silos. 

Giving teams direct access to data democratizes insights across the organization. When properly secured, self-service analytics tools like Varos empower employees to interpret trends, segment data, and derive meaning tailored to their functions.

This prevents bottlenecks that occur when data analysis relies solely on a centralized business analytics team to make data-driven decision making.

Conclusion

As we've explored, leveraging data is imperative for making strategic optimizations that improve ROAS performance. These insights empower you to refine targeting, messaging, platforms, and budget allocations to boost ad profitability.

While creativity, testing, and instincts play a role, letting data guide the way is key to sustainable ROAS gains. It enables removing emotions and gut feels from the equation in favor of statistically valid performance insights.

Ready to unlock greater value from your ad spend? With Varos, you gain access to a robust data platform benchmarking your ROAS against industry standards across 4000+ sources. Our industry-specific insights contextualize your performance and uncover areas primed for optimization. Let Varos be your data-driven guide to superior ROAS.

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About the Author

Sarah Clowes-Walker 

Head of Marketing at Varos

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