User acquisition teams are well-acquainted with ROAS. In fact, for many of them, it’s the most important metric they measure and allows them to know which mobile ads are performing well and which should be shelved.
The faster UA teams can understand the ROAS of their ads the better, as the longer they let ineffective advertisements run, the more money they lose for their companies.
In this article, we’ll take an in-depth look at what ROAS is, how it’s calculated, and how to tell if the ROAS for your ads is “good” or not. Then we’ll explore ways in which to boost your ROAS and how app store optimization affects this important metric.
What is ROAS?
ROAS, short for Return On Ad Spend, is a marketing metric that measures the success of an advertising campaign. In the world of mobile apps, “success” usually equals revenue generated via in-app purchases, subscriptions, and in-app ads.
ROAS is an incredibly important KPI to track and optimize. Without it, you won’t know whether your advertising efforts are effective or not, which could lead to wasted time and funds.
How is ROAS Calculated?
Calculating ROAS is fairly easy, it just requires a bit of basic math. First, tally up the amount of revenue generated from a specific ad campaign. Then divide that number by the amount of money you spent to run the advertisement.
For instance, if one of your ads generates $1,500 after $500 spend, your ROAS would be 300% (1,500/500 = 3). This is an example of an ad campaign with a positive ROAS. But, if you were to generate $1,500 after $2,000 of spend, your ROAS would be 75% (1,500/2,000 = 0.75).
As UA teams aim to understand ROAS as early as possible, a short-time frame for calculating ROAS was adopted. For example, 3-day ROAS, 7-day ROAS, 15-day ROAS, or 30-day ROAS (the list goes on).
These metrics simply take the revenue generated by users 3/7/15/30 days after installing the app through a mobile ad.
By working with data teams to develop predictive models that predict the user’s lifetime value, UA teams set early ROAS goals. For example let’s assume that a predictive model concludes that a ROAS lower than 7% after 3 days means the users’ quality is too low to justify the cost of the ad, and they’ll likely never generate enough revenue to reach a positive ROAS.
This will mean that the UA teams will aim to divert budgets from campaigns/ads that fail to achieve that 7% 3-day ROAS threshold.
Tracking ROAS For Your Company
To accurately track ROAS, you’ll need to use a Marketing Measurement Partner (MMP) like AppsFlyer or Adjust to connect the dots between a user’s exposure to a specific ad and the in-app purchase behavior exhibited after clicking on it.
In other words, an MMP will use attribution technology to properly attribute app downloads and in-app purchases to the particular ad campaigns that generated them.
To get a deep dive into how attribution works, read this article.
Following Apple’s announcement of iOS 14 new privacy guidelines, MMPs ability to use their attribution technology the same way they used before (on iOS) will be more limited. Read this article to learn more.
What’s a Good ROAS?
A good ROAS depends on the monetization profile of the app or game or in other words on how well the app manages to monetize users.
There is no such thing as a benchmark for good ROAS, as some apps will find out that a 3% ROAS after 3-days is enough to predict a profitable ad, and some will need 12%.
It all depends on how well the app monetizes, retains, and how early is it able to generate revenue from the user.
Boost ROAS For Mobile User Acquisition Campaigns
Boosting ROAS for your app’s mobile user acquisition campaigns requires you to do two things:
First, you need to improve your ad targeting ability in order to generate higher quality users who will spend more money on your app. And second, you need to improve your monetization efforts to increase overall revenue potential. Let’s look at both of these individually.
Improved Ad Targeting
One of the best ways to boost ROAS is to improve your ad targeting abilities. By showing your ads to the people who are most likely to engage with them, you’ll quickly see your ROAS metrics rise. Here’s how to optimize your ad targeting efforts:
- Know Your Ideal User: You can’t generate high-quality users if you don’t first understand who your ideal audience is. Take time to study your current quality users. What are they looking for in the apps they buy? And what makes them hit the back button without downloading? Once you really know your ideal users, you’ll be able to improve your ad targeting. Leverage smart campaigns (such as those offered by Facebook) by channels that allow you to optimize your ads for users that are likely to perform a high-value action within the app (AEO campaigns) or spend a certain amount of money (VO campaigns).
- Optimize Your App Page: Using what you know about your target audience, you then need to take time to optimize your app page in the Apple App and Google Play stores. This is the creative optimization side of App Store Optimization (ASO) and we’ll talk more about it in a later section of this article.
- Craft Compelling Ads: When you’ve researched your ideal users and optimized your app page to better convert them, you can begin crafting ads that are designed to attract high-quality users. To create these ads, use the information you have on your target audience and ensure your ad and app page messaging is consistent and work together to tell a compelling story to the user
If you follow these three steps, you’ll be able to craft more effective ads and boost your ROAS. But this isn’t the only way to make your mobile user acquisition campaigns more effective. You can also improve your monetization efforts.
Improved Monetization Efforts
Improving your monetization efforts refers to increasing the amount of money each of your users spends on and in your app. There are a few different ways to do this:
- In-app ads: according to Braavo, more than 50% of app revenues are generated by ads. Although a great in-app ad strategy needs to be carefully thought out in order to not hurt the user experience (and thus, hurt retention) it still poses a large opportunity to improve monetization.
- In-App Purchases: You can also better monetize your app by increasing the number of in-app purchases available to users. In-app purchases range from character costumes to additional app capabilities. This is generally the first monetization strategy that app developers consider. In fact, 50% of non-gaming apps monetize via in-app purchases. Besides offering more in-app purchases, you can also optimize your paid user conversion rates by improving the first time user experience as well as the time in which you offer an in-app purchase to the user and tie it to a moment the user experienced the value of the app or reached a high-moment in a game. LiveOps events are also a great way to encourage in-app sales.
- Subscriptions: Lastly, you can, of course, monetize your app by offering an app subscription. This will create a recurring and more predictable revenue stream from your users. Even if you do offer a subscription, improving the way you convey the value of a subscription to the user (and show him value over time) will likely allow you to improve the overall monetization of the app.
The monetization strategies you choose to use will depend on your target audience and the nature of your app. Tactics that work for some developers might not work for others. We encourage you to study your market and experiment to find the right monetization balance for your app business.
The Benefits of App Store Optimization For ROAS
App store optimization (ASO) is one of the most overlooked areas when it comes to boosting ROAS. Without an effective app store page in place, your ads — no matter how well-crafted they are — won’t be nearly as effective as they could be.
Here’s what a typical user generation funnel looks like:
- First, a user stumbles across an advertisement for an app. This ad could be on social media, on a website, or displayed inside another app.
- Second, the user clicks on the ad and is taken to the app’s page in either the Apple App or Google Play stores where they can learn more about and download the solution.
- Once the user decides the app is worth having, they tap the install button and begin exploring the solutions or playing the game on their mobile device.
According to our data, 50%-80% of users who click on an advertisement never download the app it links to. This leads to lower ROAS as the ad is less efficient in getting installs as opposed to app store product page views.
The question is, why? There are two main reasons:
- Mismatched Ads: Oftentimes, an advertisement fails to secure a conversion because it doesn’t match the app page it sends traffic to. Imagine clicking on an ad that depicts a specific character in a mobile game. The character looks awesome and you can’t wait to play them. But when you land on the app page, there’s no picture of the character or mention of him in the description. When the ad doesn’t match the app page, conversions will be low because the experience won’t feel cohesive.
- Missing Messages: Users who click on advertisements are looking for a solution. It might be a source of entertainment or a solution to a pressing problem. If your app page doesn’t immediately show them what they want, the conversion will also be low. This is what we call a “missing message”. The only way to avoid missing messages is to understand your audience and what they value, and then craft an app page that conveys the messages that are the most likely to drive them to install
The key to optimizing conversion rates and boosting ROAS is knowing where in your app funnel most users drop out. Does your ad not match your app page? Have you included a screenshot that turns users off? Are your app’s USPs stated clearly enough?
You won’t be able to answer these questions with confidence until you run app store tests, which is easily done with Storemaven. Here’s what the process looks like:
Anatomy of a storemaven test image
- Create Hypotheses: Take a look at your current app page. What do you think is wrong with it? The best tests start with data-backed hypotheses.
- Design Variants: Create an alternate app page that reflects the hypothesized changes you need to make. The StoreMaven platform will help guide you in this process.
- Drive Traffic: Using StoreMaven’s proprietary testing algorithm, StoreIQ, you’ll be able to send audience segments that represent your paid traffic to your test app store page at a reduced cost.
- Analyze Results: View the Storemaven analytics dashboard to monitor your tests. Then use the actionable results to improve your app’s performance in the app stores.
Beyond Direct ROAS
The ROAS metric displayed in MMP dashboards, while useful, won’t tell you the full story. That’s why it’s imperative that you go beyond direct ROAS and look for true ROAS, which analyzes the entire incremental effect of an ad.
For example, running ads, even if they aren’t clicked on, creates brand awareness. Users that see your ad may then search for it in the Apple App or Google Play stores of their own volition.
Running ads will also drive traffic to your app store page and significantly increase your number of first time installs. This will trigger the app store algorithms and allow your app to rank higher in search results for specific keywords. This is a great benefit that direct ROAS is unable to measure.
Unfortunately, it’s nearly impossible to measure the true ROAS of an ad without a holistic view of growth in one centralized hub. The Storemaven team is working hard on developing a solution for that, so stay tuned.
Knowing and optimizing ROAS is vital when attempting to acquire new users for your app. Without a strong understanding of the revenue generated because of your advertising efforts, you won’t know which ads to stop and which to double down on.
One of your lowest hanging fruits when working to increase ROAS is to optimize your app store product page for your paid traffic, so you can learn how to convey to them exactly the message they expect after tapping on your ads.
If you want one of our experts to review your paid growth strategy and help you pinpoint which changes and tests you should be implementing as well to see our testing platform in action, simply book a demo here.