[Meta / TikTok] How to increase / troubleshoot ROAS (Return on ad spend)
⚠️ Problem
The ratio from the advertising budget you are spending to the revenue it is generating is too low. Low ROAS (Return on ad spend) requires analyzing key metrics that influence performance. If ROAS is low, it is essential to identify bottlenecks in the funnel.
👉 Key Takeaways
- ROAS is determined by multiple metrics, including CPM, CTR, CPC, Conversion Rate, and AOV
- Testing and iteration are crucial for optimizing ad performance and maximizing profitability
- Addressing the weakest metric in the funnel can significantly improve overall ROAS
Identifying the metric(s) which is causing low ROAS
- CPM (Cost per 1,000 Impressions)
- High CPM may indicate:
- Competitive market or niche targeting
- Low ad quality scores
- Recommendations to improve CPM:
- Broaden targeting to allow more flexibility for the algorithm
- Test different creatives to enhance relevance and engagement
- High CPM may indicate:
- CTR (Click-Through Rate)
- Low CTR might mean:
- Weak Hook Rate or poorly targeted messaging
- Irrelevant visuals or copy
- Recommendations to improve CTR:
- Enhance Hook Rate with compelling scroll-stoppers and clear messaging
- A/B test ad creatives for better engagement
- Low CTR might mean:
- CPC (Cost per Click)
- High CPC is usually a result of high CPM or low CTR
- Recommendations to reduce CPC:
- Address underlying CPM and CTR issues
- Conversion Rate
- Low conversion rates could indicate:
- Poor landing page optimization
- Lack of trust-building elements or unclear value propositions
- Recommendations to improve Conversion Rate:
- Ensure the landing page follows sales psychology principles (trust, value, benefits, differentiation)
- Test simplified and more focused messaging within the ad funnel
- Optimize the offer to encourage immediate action
- Low conversion rates could indicate:
Your customers are not spending enough with you
Problems:
- A low AOV is limiting overall profitability, as customers are just spending too little with you to achieve a good ratio
Recommendations to Improve AOV:
- Introduce upsells or product bundles
- Offer higher-margin products or exclusive deals
Identify & prioritize the Bottleneck
- Focus on the weakest of these three KPIs in the chain:
- If CTR is low, improve ad creatives
- If Conversion Rate is low, optimize the landing page and marketing angle
- If AOV is low, revise product bundles or pricing strategy
Quick win tactical improvements
- Improve Ad Quality
- Test multiple creatives to find the best-performing ones
- Focus on audience-specific pain points and unique solutions
- Landing Page Enhancements
- Optimize for speed and mobile usability
- Add trust elements (e.g., reviews, guarantees)
- Use clear and compelling benefits and value propositions
- Adjust Offer Strategy
- Introduce urgency with limited-time deals or exclusive offers
- Highlight the value and benefits clearly
How an optimization workflow can look like
- Identify the issue
- High CPM? Adjust targeting or improve ad quality
- Low CTR? Test new creatives and hooks
- Low Conversion Rate? Improve the landing page
- Low AOV? Optimize offers and bundles
- Test systematically
- Focus on one metric at a time
- Use data from A/B tests to refine campaigns
- Iterate and Scale
- Once bottlenecks are addressed, scale successful campaigns while monitoring ROAS closely
