ROAS shows how well your advertising dollars are actually working, but the figure is only valuable if data, tracking, and the webshop experience are aligned. In the article, you will get a simple explanation of what ROAS is, why it is often misunderstood, and how focusing on conversion optimization, speed, and user experience can make your advertising more profitable and scalable.
What is ROAS?
ROAS stands for Return On Ad Spend and describes the relationship between revenue from ads and the amount you spend on advertising. The goal is to get a quick overview of whether the advertising budget is generating revenue, but the figure should always be interpreted in context.
The classic calculation is revenue divided by advertising spend. If you generate 50,000 DKK in revenue and spend 10,000 DKK, the ROAS is 5.
It is precisely the simplicity that makes ROAS popular, but also risky if it becomes the only truth. ROAS says nothing about contribution margin, returns, discounts, inventory binding, or customer service costs, and it does not automatically indicate whether you can scale profitably. Therefore, use ROAS as a management indicator alongside other key figures, not as the final answer.
How to correctly calculate ROAS
Before you assess whether your ROAS is good, you need to ensure that the measurement is consistent. Otherwise, you risk optimizing based on noise, where the number looks nice on the ad platform but does not reflect the reality of your Shopify webshop.
Three things you need to clarify first
Start by clarifying the parameters for your measurement, so you can compare across periods and campaigns in a fair manner.
- Which data source counts as revenue, for example, the advertising platform's figures or your analytics setup?
- What time window are you measuring, because purchases rarely happen in the same second as a click?
- Whether you measure the entire account or per campaign, because averages can hide problems and losers.
Once you have a handle on the three points, ROAS becomes much more useful because you can identify what truly drives results and what merely shifts numbers around between channels and time periods.
Improve ROAS with conversion rate optimization (CRO)
One of the most direct ways to improve ROAS is to get more of the same clicks to make a purchase. That’s exactly what conversion rate optimization (CRO) is about when it’s run as an ongoing process with data, prioritization, and testing, not as a one-time project.
A CRO process on Shopify typically starts with identifying bottlenecks in the user journey, formulating hypotheses, and testing changes that can lead to a higher conversion rate without increasing the ad budget. This often results in a double effect, as both ROAS and overall profitability improve when you increase the value of each visitor.
Read more about conversion optimization.
ROAS on Shopify requires speed and a frictionless user experience.
Paid traffic is expensive, and that's why it hurts even more to send users to a slow Shopify webshop or a purchasing journey with unnecessary stops along the way. ROAS is closely tied to performance and user experience, because every second and every extra click can cost conversions.
Speed is often a concrete place to start, as it affects both the experience and the likelihood that the user will complete a purchase. It can involve optimizing the theme, image sizes, and third-party scripts so that the page loads quickly and reliably. Read more about how we work with speed optimization if you want a practical boost in performance.
If you want to work more fundamentally with purchases from click to payment, the user journey needs to be designed so that it feels simple and secure. That is the essence of good.UX design, where fewer questions along the way typically mean more purchases.
Scalable ROAS strategy
A scalable ROAS strategy rarely only concerns the ad account. It’s about the connection between tracking, data, landing pages, and what the customer encounters in your Shopify webshop when they click in.
Therefore, many growth cases in e-commerce do not start with ads, but with the setup and experience on the site. A concrete example is Planet Nusa, where a new product page resulted in a 171.5 percent increase in add to cart. You can read the case about Planet Nusa and gain insight into how better pages can yield more from the same traffic.
If you want to work seriously with ROAS, you need to measure correctly and convert better. Otherwise, you'll end up optimizing based on numbers that don't reflect what actually generates profit in the business.
If you want feedback on what can realistically improve your ROAS on Shopify, please contact us at contact@mercive.com or call at+45 61 60 29 83.
