Introduction
This blog will be a simple and concise one, addressing common questions about Shopify ROAS, such as what is a good ROAS, how to calculate ROAS, how to increase ROAS, and more. By the end of the article, all your doubts about why we specifically focus on 'minimum ROAS' as a benchmark will be completely cleared. If you're looking for more expert insights and advanced, platform-specific strategies on ROAS, you can refer to the following resources.
📚Measuring Success with Google Ads ROAS in 2024
📚Mastering ROAS Formula: Key to Optimizing Your Marketing Strategy
📚Understanding ROAS: Your Facebook Ads Success in 2024
What is ROAS?
Ok, let’s start with the meaning. ROAS, or Return on Ad Spend, refers to the revenue generated for every dollar spent on advertising. In simple terms, it helps you understand how effective your ad spend is in generating sales for your Shopify store.
🔹ROAS Formula: Revenue from Ads / Cost of Ads = ROAS
🔹How to calculate ROAS: To calculate ROAS, divide your total revenue from ads by the total ad spend during a specific period.
What is a Good ROAS for E-commerce?
Maybe we can talk about the ideal, average, minimum, or maximum ROAS by industry and country. But there is no such thing as a globally perfect or standard ROAS.
Why❓
Because for e-commerce businesses like Shopify stores, a good ROAS depends on several factors, including industry standards and advertising goals. For example, companies that emphasize direct response advertising are likely to achieve a higher ROAS than those that focus on brand awareness.
Factors affecting ROAS can also include the cost of goods sold, competition within the industry, ad targeting effectiveness, and the overall marketing strategy.
While many aim for a ROAS of 3:1, which means $3 in revenue for every $1 spent, some industries may require a higher or lower ratio. At this point, the industry-specific ROAS perspective comes into our picture.
Average ROAS by Industry
As we talked about it before, different industries have varying ROAS benchmarks. Understanding these averages can help set realistic goals, and thus higher profit for your Shopify store.
The average ROAS across industries is approximately 2.87:1, meaning most businesses generate $2.87 for every $1 spent.
Industries with Lowest and Highest ROAS
Low ROAS industries
- Apparel
- Food
- Beverage
- Retail
- Hospitality
These industries often face intense competition and have thinner profit margins, which can make it challenging to achieve a high ROAS. Additionally, frequent promotions and discounts can further squeeze profitability.
High ROAS industries
- Finance
- Software
- Healthcare
- Technology
- Real Estate
On the other hand, these sectors typically enjoy larger profit margins and higher customer lifetime value. Services and products in these industries often require less frequent purchases, leading to more stable and profitable customer relationships, which boosts ROAS.
What is the Minimum ROAS for Shopify?
While the minimum ROAS depends on your business margins, a general guideline for ROAS is to aim for at least 1.5:1 to cover costs.
Shopify Store Profitability. For a Shopify store to remain profitable, the ROAS must exceed the cost of goods, marketing, and operations. To illustrate:
Optimal ROAS Shopify store: Our marketing and data experts recommend aiming for a ROAS of 2:1 or higher to ensure profitability after accounting for expenses.
ROAS Benchmarks by Industry 2024
2024 is shaping up to be a year full of uniqueness and innovations for e-commerce and retail in many ways. While global fluctuations in the economy continue, the online sales market is maintaining its growth. Looking at updated industry-specific benchmarks for 2024 can provide a clearer picture:
In 2024, the expected average ROAS for e-commerce remains around 2.5:1. However, industries like electronics and luxury goods may need to aim for a higher ROAS of 4:1 or more to account for their higher cost per acquisition (CPA).
How to Increase ROAS for Your Shopify Store?
Improving your ROAS involves strategic planning and optimization. Here are some tips:
Target the Right Audience
Ensure your ads are reaching the audience most likely to convert. This is perhaps the most fundamental rule for increasing ROAS. When discussing the most effective ROAS-boosting method for 2024—method that are likely to maintain their dominance into 2025 and beyond—we need to mention AI Lookalike Audiences.
Use High-performing Creatives
High-quality ads can dramatically increase the number of people who click on your ad and make a purchase. If you have a talented graphic designer and a large budget for ad design, that's great. But what if you don't? That's where artificial intelligence (AI) in marketing can help.
AI allows you to create more ads, more quickly, and at a lower cost. This can lead to significant growth in your online sales.
If you want to learn more about AI Creatives that are perfect for your Shopify store, you can explore these resources 👇🏼👇🏼👇🏼
AI Ad Creatives for Facebook: Boost CTR and Sales on Black Friday
Ad Creatives for Shopify: Easy Catalog Design with AI
Optimize Ad Spend
By regularly monitoring your ad performance on platforms like Facebook, Google, or Instagram, you can identify which campaigns are generating the highest returns.
This data-driven approach lets you shift your budgets to the campaigns that are really performing well, making sure your resources are focused where they'll deliver the best results.
For Shopify stores, this optimization is particularly important because it directly impacts profitability. When you invest more in high-performing ads, you're not just increasing visibility; you're also driving more qualified traffic to your store.
This can lead to higher conversion rates and ultimately boost your ROAS.
FAQs: Common ROAS Questions
1) What ROAS is profitable?
A ROAS greater than 1:1 indicates that your campaigns are generating more revenue than you're spending, but to be truly profitable, aim for at least 2:1.
2) Why is my ROAS so low?
Low ROAS could be due to high ad costs, targeting the wrong audience, or poor ad creatives. Consider adjusting these factors to improve performance.
3) What is the average ROAS rate?
The average ROAS rate across all industries is typically around 2.87:1, but this varies based on factors like the cost of goods and industry standards.
4) Can AI help increase ROAS?
Yes, AI Ads can enhance your ROAS by analyzing data to identify high-performing audiences, optimizing ad placements, and creating personalized and attention grabbing ad content that resonates with your target market.
You can explore success stories of brands that have made AI ads a crucial part of their marketing strategies, significantly exceeding industry benchmarks in their ROAS.
5) Is a higher ROAS always better?
Not necessarily. While a higher ROAS indicates better performance, it's essential to consider the overall context, including profit margins and customer lifetime value, to determine the true effectiveness of your campaigns.
6) How often should I review my ROAS?
Regularly reviewing your ROAS—ideally weekly or monthly—can help you quickly identify trends, optimize your ad strategies, and make informed budget adjustments.
7) What role does customer retention play in ROAS?
Customer retention can significantly impact ROAS, as returning customers often have a lower cost per acquisition and tend to spend more over time, contributing to higher overall revenue.
