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Apr 26, 2023
If you're running a Shopify store and trying to grow your business, you're probably running some form of paid ad campaign — say on Facebook, Instagram, LinkedIn, Reddit, Twitter/X, or Snapchat. One of the key metrics that you need to track is your return on ad spend (ROAS).
Why? ROAS is a measure of how much money you're making from your advertising campaigns relative to how much you're spending on them. It can give you a good picture on your ads’ conversion rate in terms of money.
OpenStore’s marketing team has created this step-by-step guide, as well as a free online tool to help you calculate your store’s ROAS.
The first thing you need to do is determine how much revenue you've generated from your advertising campaign. Start by looking at your Shopify store's sales data. Specifically, look at the sales that have come from the advertising campaign that you're tracking.
To find this number, go to your Shopify dashboard and click "Analytics":
Select the date range that corresponds to the time period you're interested in.
Scroll to the "Total Sales" section, and you'll see a breakdown of the sales that have come from different channels.
Look for the channel that corresponds to the advertising campaign and find the total revenue generated.
Ad spend is a bit more difficult to determine as merchants can run ads on many different platforms all with heterogeneous integrations into Shopify.
You will need to go into all of your ads platforms, select the same time frame as in the first step, and add up all the ad spend during that time for the specific campaign.
Now that you have your revenue and ad spend numbers, you can calculate your ROAS. To do this, simply divide your revenue by your ad spend and multiply by 100 to get a percentage.
ROAS = (revenue / ad spend) * 100
For example, if your revenue was $1,000 and your ad spend was $200, your ROAS would be:
ROAS = ($1,000 / $200) * 100 = 500%
Once you've calculated your ROAS, you need to analyze it to see how well your ad campaign is performing. A ROAS of 100% means that you're breaking even – for every dollar you spend on advertising, you're making one dollar in revenue.
Typically, for e-commerce businesses, a good ROAS is 400% where you are making four dollars for every one dollar you spend on ads.
It's important to remember that ROAS is just one metric, and you need to look at other metrics like conversion rate, click-through rate, and cost per click to get a complete picture of how well your advertising campaign is performing.
If your ROAS is below 100%, it's time to start re-thinking your campaign. There are several things you can do to improve your ROAS, including:
Target a more specific audience: If you're targeting a broad audience, you might be wasting money on people who aren't interested in your products. Follow steps to segment your target audience.
Improve your ad content: Your ad copy should be compelling and persuasive. Make sure you're using language that speaks to your target audience and highlights the benefits of your products. Be creative, or leverage user-generated content.
Test different ad formats: Different ad formats might perform better for your target audience. Try testing different formats like video ads, carousel ads, and single image ads to see what works best.
Don’t forget about retargeting: one the best ways to squeeze out more performance from an ad campaign.
Don’t run ads for brand awareness and clicks: only running these types of ads won’t drive conversions.
Adjust your bidding strategy: If you're using a bidding strategy like cost per click or cost per impression, try adjusting your bids to see if you can improve your ROAS.
Calculating and analyzing the ROAS for your Shopify store is crucial for measuring the effectiveness of your advertising campaigns.
By understanding how much revenue you generate for every dollar spent on advertising, you can make informed decisions about where to allocate your resources and optimize your campaigns to drive better results. Use the step-by-step guide and tactics outlined in this article to calculate, analyze, and improve your ROAS and grow your business.
Also, check out the free tool we made for you to help calculate your Shopify’s return on ad spend.
Spread too thin to optimize your Shopify store’s ROAS?
Turn your Shopify store into passive income. OpenStore Drive will analyze your store’s performance and calculate your monthly payments for a full year. Then, our team will handle everything from ads, customer support, inventory management, and fulfillment while you take a break.
The Yogaste team has tested dozens of Shopify stores — this is how they've effectively optimized their paid marketing.
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