Cpa vs Roas

CPA vs ROAS: differences, advantages, disadvantages, How to optimize google ads accounts for Roas? Marketing attribution is also an art and science guiding how much revenue and credit you will receive for your initial ads from the customers.

There are different attribution models for assigning revenue. Simply, a customer clicks on the ads and the person running this business gets this money. But sometimes it happens that customers click on the ad but don’t get the right way and return after two or three days and at this point, you may argue that customers should be counted when it first comes to the campaign.

For instance, you may argue that you should be credited for ads on Facebook since the last click.

Let’s say that you are using three different platforms: Facebook, Google, and Ad Roll and you have to calculate based on your attribution model and the Cpa of the above-mentioned three platforms are $94.70, $132.98, $153.06 respectively. It is clear from the values that Facebook has the lowest CPA. The logic seems simple: which platform that generates quality conversion has the greatest CPA.

Whereas ROAS (return on ad spend) is the revenue that is generated by you concerning the advertising costs and the calculated result of ROAS of the same three platforms Facebook, Google, and Ad Roll seems like 200%, 200%, and 105%. ROAS of Google and Facebook are the same with different CPA means that if you focus on CPA, you would be persuaded to bid down on Google which can affect your overall marketing performance.

Contents

Cpa

Cost Per Acquisition or CPA is a marketing metric that is used for the measurement of the aggregate cost to receive one paying customer on a channel level or campaign. CPA is an essential measure of marketing in which you can achieve success doubtlessly moreover, it is differentiated by the Cost of Acquiring a Customer based on its small size application.

Cost Per Acquisition is a financial measure used directly for the measurement of the revenue impact of marketing campaigns. CLV (Customer Lifetime Value), online business, and AOV (Average order value) can ascertain an acceptable CPA for e-commerce acquisition. CPA provides a business perspective for the success of the campaign.

The paid marketing mediums in which Cost Per Acquisition is used are the following:

Content Marketing

Display
Social Media
Affiliate

If you want to use it without advertising cost it can be used for email, eCommerce SEO, and other platforms but it still requires overhead (labor, and indirect expense including content production, etc.). Every online business has its prices, operating expenses, and margins. To know about the quality of a CPA you must be well aware of how much you can reasonably afford to pay for acquiring customers.

Roas

Return on ad spend is another marketing metric that measures the amount of profit earned for every dollar spent on advertising. It is similar to return on investment (ROI) as ROAS measures the ROI of money invested in digital marketing.

In addition to the measurement of ROAS of the whole marketing budget, it can be measured for specific ads, campaigns, targeting, and many others.

The determination of the cost of ads can be done in different ways. Sometimes you only want to track the actual amount (in dollars) spent on a specific ad platform whereas sometimes you may want to know the additional advertising costs such as Vendor costs, salary costs, affiliate costs, and other different costs.

The different values of these costs determine what type of campaign that you are running. It is often useful to calculate ROAS for two different times. Firstly, you may calculate ROAS for the pure cost of the ad, and secondly, ROAS for the additional advertising expenses for getting a complete picture of the profitability of the campaign.

ROAS measures how exactly the advertisement is contributing to the bottom line. Tracking ROAS across ad platforms and campaigns helps you to calculate the effectiveness of your advertising campaign.

Differences

ROAS is the revenue calculated by you about advertising cost whereas CPA is the number of total assets divided on the number of conversions.

If you want to measure the profit earned or returned to you on the marketing speed, then ROAS is the most beneficial metric that you should look for. Moreover, if your purpose is to drive a specific volume, then CPA is the metric that you should look at.

ROAS uses data that relates to eCommerce for the selling of products and through this revenue, you can have a clear view of how your business is impacting the marketing choices you generate. When ROAS values increase incredibly it means that your business is performing well.

CPA can be used in a campaign where your purpose is to sell items of variable price like insurance plans that are ultimately dependent on volume of generating revenue. You should use CPA in a lead campaign too where payment is not returned immediately, perhaps through the help of the call center, a sales team, or an in-person transaction. CPA is the ideal marketing metric when your goal is a higher volume of conversions.

It is contrary to ROAS as the lower the value of CPA the better it is for you as the campaign is performing well.

Advantages

Cost Per Acquisition is also known as Cost Per Action across the world. There are plenty of benefits that you may get when you get in to check your cost per acquisition. The success of your business is dependent on how you are advertising your product and services.

If you are operating your business without Cost Per Acquisition you are running your business with a constant risk of overpaying for your customer acquisition. Every business must keep their customers in high regard but something following this principle you may realize that you have paid more than necessary to acquire a customer.

The advantage of understanding CPA is that you may come to know about the efficiency of your conversion rate and the practicing of SEO makes the awareness of your CPA more relevant.

Moving to the advantages of ROAS, allows the business to measure the effectiveness of individual campaigns based on their performance. Capitalizing on the campaigns with the highest ROAS will increase your revenues.

ROAS calculation results help you in the identification of the ad sets and campaigns on which you have spent more than was required and in this case, you can lessen your budget to protect the business from losses.

If you are dealing in a business dealing with an advertisement on Facebook, then it is recommended that you should look for Automated Rules on Facebook Ads Manager for the reduction of budget or you can also turn on ads that drive low ROAS.

ROAS is also helpful in refining your business strategy as you will be permitted the effectiveness of an individual campaign on your business and you are provided with reliable information for important decisions in regards to your next marketing actions.

Disadvantages

Following are the disadvantages of Cost Per Acquisition:

So if you want your CPA to become more effective then you need to figure out how much certain actions of customers are valuable for your business.

You must invest proper time in the optimization of all channels as you are creating different ads and campaigns.
For high-value products, high budgets are likely needed for the achievement of target sales goods.

Whereas, following are the disadvantages of Return on ad spend:

ROAS fails to provide proper service due to other promotion methods.
It is blind to the advertising method that being measured may not have been successful or which methods have performed at a lower level.
Some companies simply end the advertisements to ROAS as these advertisements were due to an onsite promotion or even a retargeting ad that means inaccuracy behind a good looking ROAS number.

ROAS is a statistic that is difficult to be measured with accuracy. To measure it precisely you will need to have some back-of-the-envelope estimation.

How to optimize google ads accounts for Roas?

On Google, the calculation of ROAS is done by dividing the conversion value by the ad spend and if you want to find the revenue then click on the Ecommerce tab.

The effectiveness of a ROAS is dependent on the objectives and profitability of your business. Moreover, 4.00 is the common benchmark for ROAS which means that profit of $4 in every $1 ad in spending but the meaning of the number is not the same for everyone. For instance, if you deal in a web store with low operating margins, then 4.00 is commonly very low.

On the contrary, if you are operating in high operating margins such as 70% or more then you can be killed with a ROAS whose value is 4.00.

For a startup or business that is trying hard to get market share, it might not be able to tolerate losses for setting up a new business. In such a difficult situation, a ROAS of low value should be accepted for success over new customers.

Thank you for the support.

External resources: Searchdiscovery

This post is also available in: English Français (French) Deutsch (German) Dansk (Danish) Nederlands (Dutch) Svenska (Swedish) Italiano (Italian) Português (Portuguese (Portugal))