Guide for SMEs: How much ROAS should I expect from my digital advertising spends?

It’s probably no surprise that the digital marketing budget for SMEs varies from that of large corporations. Small-to-medium enterprises have fewer resources than the latter.

Due to that, SMEs may also have different considerations when it comes to absolute ROAS (Return on Ad Spend). This article will explore that as well as the strategies for controlling SME advertising cost in Singapore.

Understanding ROAS

What is ROAS? Return on Ad Spend is a key performance indicator for measuring ad campaign results or effectiveness. There’s also a simple formula for it: 

ROAS = Revenue / Ad Spend

(Revenue divided by Ad Spend)

Here’s an example: say a business spends $1,000 on ads. It generates $5,000 in revenue afterwards. 

The ROAS would then be 5 because that’s $5,000 divided by $1,000. Some will write this as 5:1, but it’s the same thing as saying 5 or 5x.

What does that mean? That for every dollar that business spent on ads, it earned five more dollars in return.

Industry benchmarks for ROAS

Industries differ, so their average expected ROAS does too. For example:

• E-commerce - about 2.87x

• SAAS - about 4x

• Insurance - about 1.2x

Why do you need to know this? Because this variance across industries helps you set your own expectations. 

An absolute number may seem low at first, but could be high when contextualised through comparison to your industry’s average ROAS. 

Going from the data above, for example, you might think your ROAS is very low if it’s 1.3 or so. If you’re in the insurance industry, however, it would actually be slightly above average!

Factors influencing ROAS

A number of things can affect your ROAS. You should know them if you want to figure out how much to spend on digital advertising.

• Quality of targeting - This is important even outside of advertising! With precision, you can improve relevance and engagement.

• Ad creative effectiveness - The better your creatives (visuals, content, copy, etc.), the more likely you are to get good click-through rates.

• Channel differences - Different platforms will give you different responses to ads because of the differences in their audience behaviours.

• Seasonality and market trends - This may affect some industries more than others, e.g. educational services have seasonal peaks, pet supply services don’t.

Setting realistic goals

When setting ROAS goals, think about the stage your business is in. Are you a startup? Are you established and working on growth? 

Your ROAS may change drastically based on which stage you’re in:

• Startup phase - Focus on brand awareness over immediate profits, which will mean lower initial ROAS.

• Growth phase - Business maturity allows for greater refinement of marketing strategies, which can lead to higher ROAS aims.

You should balance short-term gains with long-term growth here. Competitive analysis can also help you further contextualise your decisions. 

By looking at what the competition experiences, you can get a better sense of what your own campaigns may achieve. It will tell you what expectations are realistic based on present market conditions.

Measuring and optimising ROAS

So, how do you measure and optimise your ROAS? There are quite a few ways to do it! Here are some tools and tips we recommend for SMEs working on this:

1. Analytics tools

We can’t say this enough. Given that platforms like Google Analytics now provide insights into campaign performance, make sure you take advantage of them!

2. A/B testing 

Advertising is about continuous monitoring, tweaking, and improvement. Don’t be afraid to experiment with different ad creatives, for instance. You can even try different targeting strategies to see what works best in your case.

3. ROAS-based budget adjustment 

Since you’ll be monitoring your campaigns, you can do this too. You want to allocate marketing funds dynamically so that high-performing campaigns always get the most injections. Scale back on underperforming ones to avoid wasting dollars!

Balancing ROAS with other KPIs

Here’s the thing: you want to consider ROAS in conjunction with other key performance indicators. You can’t focus on ROAS to the exclusion of those other markers or you’ll end up with marketing problems. 

The fact that you have limited funds as an SME makes this even more important. Every dollar has to be used wisely, with understanding of the benefits it earns in its expenditure.

Here are other key performance indicators you should consider when viewing ROAS. We use these ourselves when building advertising and marketing campaigns for clients!

1. Lifetime value

Customer lifetime value (sometimes shortened to LTV) is an indicator of how valuable a customer is to your business. It considers the total earnings from the customer over the duration of the business’s relationship with him. 

The point of measuring this is to gauge the long-term profitability of customer acquisition efforts. As ads typically fall under this bracket, this is definitely worth looking into.

2. Customer acquisition cost

Customer acquisition cost is also called CAC. It basically tells you how much your business is spending in order to get new customers. 

CAC considers a lot of expenses, from sales and marketing to property costs. As long as it’s used to convince a consumer to turn into a customer, it goes into this bucket. 

The idea behind monitoring CAC for your ads is to give you a better sense of marketing efficiency. Compare it to your ROAS for useful insights.

3. Profit margins and ROI

This part’s pretty simple. Profit margin is just the percentage of pure profit from your revenue, with costs subtracted. Meanwhile, ROI is the value of an investment minus cost. 

You want to evaluate these alongside your ROAS to make sure your ad spend aligns with your bigger goals.

Let us help you manage and boost your ROAS

Ultimately, understanding ROAS and how to manage it is critical when figuring out a digital marketing budget for SMEs. If you need help with that and your own SME advertising cost in Singapore, reach out to us at ROMI.

We handle ad and marketing campaigns for many SMEs like you here in the country. In fact, we specialise in working specifically with SMEs who need help with marketing. Get in touch with us today to learn more!