4 Ways to Optimize Return on Ad Spends (ROAS) in Uncertain Economic Times | Industry Insights | All MKC Content | ANA

4 Ways to Optimize Return on Ad Spends (ROAS) in Uncertain Economic Times

By Nick Carrabbia

With federal interest rate hikes coming in hot and inflation top-of-mind, the digital advertising industry is on edge, trying to plan effectively for upcoming quarters. Pile on the continued economic uncertainty, layoffs, and tech takeovers; understandably, budgets are tightening while the pressure to perform intensifies.

For marketers and advertisers facing tightening budgets, advertising campaigns and strategies are being evaluated closely and scrutinized to determine which spending should stay and which needs to go. This evaluation leans heavily on reviewing data, specifically return on ad spends (ROAS), and determining the best way to avoid deep cuts while keeping advertising campaigns active.

This is the perfect opportunity to focus on ad spend optimization.

Ad Spend Optimization

When attempting to optimize, the first steps include evaluating current ad spend performance, identifying the optimal ROAS campaign benchmarks, and pinpointing campaigns that may be falling behind.

Evaluating the current ad spend performance can be done through various data points. However, the most common are click and conversion rates and comparing those to the actual dollar amount spent executing the campaigns.

When reviewing the results, remember that ROAS targets vary based on industry, company size, business objectives, and several other determining and company-specific factors. That said, the general rule of thumb to show a positive ROAS result is 2-to-1 (meaning the return is $2 for every $1 spent on advertising). Determine the specific ROAS targets for the current campaigns, which will help identify which may be performing well and which may not.

Lower Costs Through Bidding

Another digital ad campaign optimization strategy to explore is to find ways to lower ad costs – and this doesn't necessarily mean just cutting back the total spend. Instead, consider testing bidding strategies and exploring the potential use of a mix of manual and automated bidding for campaigns, such as Google ads.

Manual bidding enables adjustments to the maximum bid without hurting conversions, keeping total costs down without sacrificing conversions (although the total number of conversions may dip due to the controlled budget). Automated bidding is another option for optimizing conversions. Machine learning algorithms help create efficiency and ensure campaigns are accurately placed to target and reach the identified audience. Consider using a digital ad platform that will adjust bids based on the value and potential of specific audience segments. This leads to a more targeted campaign focused on reaching the audience segments most likely to convert.

However, buyers beware of automated bidding since it doesn't come without pitfalls, and the strategy is susceptible to other outliers. For example, certain functions, such as identifying appropriate conversion targets that need to be updated occasionally, will still require manual intervention.

Exploit Future Ad Revenue Payouts

Another optimization strategy for digital advertising campaigns to improve ROAS is implementing the philosophy of "striking while the iron is hot" by exploiting future ad revenue payouts. If an active campaign delivers positive returns on the spend, pouring additional ad dollars into that campaign will likely improve the results. In other words, by investing future ad dollars into an existing campaign, the increased ad spend will accelerate the results.

However, one hurdle to consider when applying this strategy is if there is enough cash flow and, if not, whether cash flow gaps will slow capabilities (because it is challenging to scale ad spend when the cash runs out unless there is access to additional funds).

One way to ensure cash flow doesn't become a blocker is to secure funding by trading future ad revenue payouts for upfront capital. Instant access to on-demand liquidity creates the opportunity to capitalize on the positive campaign return.

In short, ways to overcome cash flow limitations can include the following:

  • Borrowing funds from a lender
  • Using credit or VC investments
  • Acquiring digital media financing backed by future receipts

To maximize the return and keep cash flowing, investigate the options and determine which makes the most sense based on the business's financial health, associated risks and obligations, and the motivation toward achieving campaign goals.

Focus on Lifetime Value

A less direct but still very valuable strategy is to refocus on lifetime value (LTV). This strategy is about maximizing the opportunities within the existing audience through retargeting campaigns and increasing touches.

For example, this approach might include activating retargeting ads on social media that reach those in the direct audience who already expressed interest. In addition, activating email campaigns, loyalty programs, and upselling are ways to get the most from those currently engaged. Because retention is often less costly than acquisition, tapping into existing customers and increasing the LTV is a more direct and often cost-effective way to increase revenue quickly.

While each paid digital advertising campaign is different and may require a mix of strategies to truly optimize, these and other strategies are worth considering. And although budgets may be a consideration right now (but aren't they always a consideration?), it is absolutely in a company's best interest to ensure that every advertising opportunity yields the greatest possible return.

The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.

Nick Carrabbia is EVP at OAREX.