Over the past ten years, Facebook advertising has evolved from simple banner ads and listings to become a highly complex tool to target distinct demographics. Yet despite being one of the most common marketing tools out there, many marketers still misuse and miscalculate ROI and ROAS for Facebook ads, or have questions about the difference between ROAS and ROI, and how to optimize Facebook ROI and improve ROAS.
What is the difference between Facebook ROAS and Facebook ROI?
Facebook’s Return on Ad Spend (ROAS) measures the revenue generated as compared to the money spent on an advertising. ROAS is an advertising metric that measures the direct impact of dollars spent on advertising results and allows you to assess the performance of a campaign, without taking into consideration the additional costs of operations, training, etc. In order for a ROAS to be profitable, it has to been over 100%, as the initial 100% ROAS is recapping money spent.
Facebook’s Return on Investment (ROI) measures the return on your OVERALL investment and takes into consideration not only dollars spent, but the time, energy, labor, and intangible resources spent on generating this return. One could also argue that the “return” in this case goes beyond revenue created. It is a business metric, meaning that it measures not only the performance of an ad but the performance of your effort and your team.
We have an example of how to calculate the two later in this post, but let’s have a look at what the two actually measure.
What does ROI measure? What does ROAS measure?
In the table below I outline some of the things you may (or may not) figure into your marketing analytics to get a grip on your ROAS and your ROI.
|Measures the result from money spent on:||Measures the result from money spent on:|
|Planning & Strategizing|
|Building Organic Social Media Reach (which has a compounding effect)|
|And the return includes:||And the return includes:|
|Market Share||Revenue (minus cost of product, if applicable)|
|Revenue (minus cost of product, if applicable)|
|And remember:||And remember:|
|Return on Investment will always consider the cost of product||Your ROAS should consider the cost of product, but many people forget to do this, giving misleading results.|
As you can tell, ROI measures a number of factors, and the “Return” in ROI could be defined in several ways (such as social media reach, profits, etc.), making this both the most wonderful and frustrating metric.
For more paid marketing metrics, check out our article on PPC KPIs that matter to a CMO, Director and Manager.
Is ROAS a good Facebook marketing metric?
As you can see above, the tricky thing about ROAS is that while it accurately presents the impact of your marketing dollars, it doesn’t accurately reflect the expense of the product or the marketing team, making it a much more beneficial metric for digital products than physical products.
In Google AdWords, it is possible to calculate dynamic variables (such as cost), but at the time being this isn’t possible in Facebook. Fortunately, by using Facebook Pixel you can start tracking consumer behavior on your website, giving you the necessary information to accurately assess your ROI.
How are Facebook ROI and Facebook ROAS calculated?
Here is how to calculate Facebook ROI:
ROI Formula: ROI = (Revenue – Costs) / Costs
Percent ROI = (Revenue – Costs) x (100 / Costs)
Here is how to calculate Facebook ROAS:
ROAS Formula: ROAS = Revenue / Cost
Percent ROAS = (Revenue – Cost) x (100/Cost)
The table above clearly illustrates the difference between ROI and ROAS, and how ROI can be negative while ROAS is positive. The ROAS for campaign 1 is .5, or 50%, which is not profitable. In order for the campaign to break even they would either have to lower their PPC bid by 50%, or improve their strategy to bring their ROAS higher than 1.
As ROAS is a simple ratio metric, it is possible for your ads to have a higher ROAS but generate less profit.
The misleading nature of ROAS
The next question that always comes up is: which is the better marketing analytic: ROI or ROAS? While I generally prefer ROI, there is a lot of value in understanding both and temporarily lowering ROI in order to optimize and increase long-term ROAS, and thus further improve ROI.
Allow me to illustrate:
A few years back I challenged a client to increase their sales by lowering their ROAS. Coming from a traditional background, he was convinced that larger ad budgets and greater exposure were the best ways to drive sales. But by paying a consultant, narrowing down their audience and temporarily lowering their ROAS, they were able to target more relevant clients and increase ROI in the long run. The second sample campaign took about five times as long to plan, had more employee costs, was 15x more per click and garnered 10,000 fewer likes, but it cost half as much and created a small but significant increase in sales and plugged them into an audience who loves to buy their products, rather than liking them.
So you see, temporarily lowering your ROI and ROAS (or, you could say, temporarily investing more money in market research and making informed decisions about ad spend) can dramatically increase your ROI and make your marketing efforts more scalable.
Audience building is another place where focusing on decreasing your ROAS can drastically raise your ROI. As Nash Haywood talks about in this article on Facebook’s campaign budget optimization, by spending the extra time to sort out audience types by category and creating campaigns targeting them, you will avoid having Facebook’s algorithm will quickly skew towards the highest performing audience and sinking all of your money into that one audience. Your performance may temporarily suffer, but your results will thank you for it.
Using ROI to optimize your Facebook campaigns
Facebook campaign budget optimization (item #1 in The Performance Marketer’s Guide To Facebook’s Campaign Budget Optimization) automatically optimizes your advertising budget at a campaign level, but if you are only looking at ROAS without considering ROI, you’ll miss the fact that the automation is only going after low-hanging fruit. This, as well as teams with low efficiency and projects that require complex collateral, are invisible bottlenecks that may cost you in the long run. A 10% gain in high-value customers will be much harder to gain than a 30% increase in lower-value customers, but which is more important? And which has greater potential for long-term results?
Here’s another example:
In the fall of 2017, a company named Lingokids was running ads internationally and spending a significant amount of time creating and managing those ad sets. By understanding their true investment and adopting dynamic language optimization, they were able to reduce their workload while lowering their app install cost by 26% and increased conversions by 11%.
The big picture
So which is more important: ROI or ROAS? Many people assume that there is no significant difference between ROI and ROAS, but hopefully, after reading this article, you’ll not only understand the difference but also how to strategically use these two figures to optimize both your team’s performance and your advertising budget.
For Q4 2017, we’ve analyzed over 1.7 billion Facebook ad impressions across 1700+ unique accounts in US currency to uncover the average CPM, CPC, and CTR. Compared to Q3’17, we found the average CPM for Facebook ads increased by 37%, the average CPC for Facebook ads increased by 14%, and the average CTR for Facebook ads increased by 25%.
Facebook Ads Benchmarks – Q4 2017
- The average Facebook ads CPM was $12.45
- The average Facebook ads CPC was $0.54
- The average Facebook ads CTR was 2.34%
Be sure to view the Q4 Paid Search and Paid Social ads Benchmark Report for the latest trends.
Facebook News Feed & Right Hand Column Benchmarks for Q4 2017
Facebook CPM Increased 37% in Q4
Based on AdStage data, Facebook Ad CPM increased by 37% from $9.06 in Q3 to $12.45 in Q4. The 2017 trend shows that Facebook Ad CPM increased 110% from $5.93 to $12.45 comparing Q1 to Q4.
Facebook CPC Increased 14% in Q4
Facebook CPC increased 14% in Q4 to an overall average of $0.54. The 2017 trend shows that Facebook CPC increased 109% from Q1 to Q4.
Facebook CTR Increased 25% in Q4
Facebook advertisers saw a positive CTR increase of 24% from 1.92% in Q3 to 2.39% in Q4. The 2017 trend shows that Facebook CTR increased in Q4, recovering from mid-year lower average CTRs. Year over year CTRs are relatively flat at -2%.
Facebook Audience Network Benchmarks
In Q4, we analyzed over 268 million Facebook Audience Network ad impressions. Compared to Q3’17, the average CPM on Facebook Audience Network decreased 8%, the average CPC on Facebook Audience Network decreased 4%, and the average CTR for Facebook Audience Network decreased 5%.
Facebook Audience Network Benchmarks – Q4 2017
- The average CPM for Facebook Audience Network was $3.77
- The average CPC for Facebook Audience Network was $0.27
- The average CTR for Facebook Audience Network was 1.42%
Facebook Audience Network CPM Decreased 8% in Q4
Based on AdStage data, FAN CPMs decreased by 8% from $4.08 in Q3 to $3.77 in Q4. The 2017 trend shows that Facebook Audience Network CPM increased 14% from $3.32 to $3.77 comparing Q1 to Q4.
Facebook Audience Network CPC Decreased 4% in Q4
The CPCs of Facebook Audience Network ads decreased from $0.28 in Q3’17 to $0.27 Q4’17. The 2017 trend shows that FAN CPC increased 116% from $0.13 to $0.27 comparing Q1 to Q4.
Facebook Audience Network CTR Decreased 5% in Q4
Advertisers are getting a consistent CTR from Q3 to Q4 with only a minor decrease from 1.49% to 1.42%. The 2017 trend shows that CTR has dropped 47% from 2.68% to 1.42% comparing Q1 to Q4.
Facebook Ads Q4 Trends
There were three factors that are worth calling out as they relate to Facebook ad results. According to Facebook’s Q4 earning call, the network made algorithm tweaks resulting in a 5% drop in the total amount of time users spent on the social network.
Facebook also reported its first-ever decline in daily users in the U.S. and Canada. In Q3 the network had 185 million daily users in this region and in Q4 it dropped down to 184 million.
Lastly, the number of Facebook advertisers grew to over six million at the end September 2017. That’s over 1 million new advertisers from March 2017. Based on that growth plus the holiday season, we can surmise that Facebook added more advertisers in Q4.
Take these three factors together and it’s easy to see why the ads auction is so competitive and further illustrates Facebook’s ad load capacity is maxed out. That said, the results must be positive as budgets on the social network saw a 26% increase in Q4 compared to Q3 according to AdStage data.
Looking forward into 2018, Facebook will play a bigger role in paid marketer’s mobile strategy. I predict Facebook marketers will turn to Instagram ads to drive conversions, experiment with Messenger ads to start conversations, and turn to offline conversions to measure business impact. Check out expert Facebook predictions for 2018.
Check out other ad networks
- Twitter Ad Costs for 2017 [NEW REPORT]
- Google AdWords CPC Decreased 42% in Q4 2017
- LinkedIn Advertising Costs for 2017 [Benchmark Report]
- Instagram Ads Costs in 2017 [Benchmark Report]
Get the Q4 Paid Search and Paid Social ads Benchmark Report for the latest trends across all major ad networks.
Facebook Audience Network (FAN), which reported a $1 billion run rate earlier this year, is a great option for marketers looking to scale their ad campaigns. FAN lets you run ads on third-party websites and apps while taking advantage of all the things that are great about Facebook native in-feed ads: rich targeting data, measurement, and user-friendly interface.
I know you’re probably thinking: my conversions and brand safety would really improve if I could just place more ads alongside third-party content that I can’t control. Well, with a little bit of tinkering in Ads Manager and a trusted list of exclusions, you can increase reach at a lower CPM and perhaps, even drive more down-the-funnel metrics. Below, you’ll find a complete guide to FAN and our trusted list of exclusions to make Facebook Audience Network work for you.
What’s Facebook Audience Network?
Facebook launched its Audience Network back in October 2014. This strategic move allowed Facebook to grow its footprint by boosting the volume of ad spend going to off-Facebook websites and mobile apps. Needless to say, it’s a way for Facebook to address its growing ad load challenges. FAN lets advertisers extend their Facebook campaigns outside of the social network while using the same ad targeting data.
FAN has grown quickly over the past few years. It’s not just websites and apps now; Facebook is aggressively taking aim at the TV advertising market. Facebook video ads are delivered through apps that run via set-top boxes, such as Apple TV and Roku.
Types of Ads in Audience Network
As of October 2017 (and Facebook has been moving especially fast this year), Facebook Audience Network lets advertisers place ads in the following formats:
- Native, Banner and Interstitial
- In-stream videos
- Rewarded videos
Rewarded videos currently support Unity and Cocos2DX game engines. Mobile gamers can choose to watch an ad in exchange for in-app rewards such as coins and power-ups.
Facebook’s SDK is now embedded into nearly every app on the planet. The use of header bidding and a solid inventory that includes Instant Articles makes Facebook a major challenger to traditional programmatic inventory sources and direct ad channels.
Why Advertise on Facebook Audience Network?
Facebook inventory is in high demand. Facebook’s CPMs were up 171% in 2017 and showing no sign of a slowdown, especially with the upcoming holiday season. For advertisers looking to scale spend and reach, the Audience Network could be a good option.
A few ways advertisers can take advantage of FAN:
- Drive e-commerce sales at scale
- Generate more leads by driving customers to register for something after they click
- Boost brand awareness
- Reach new relevant audiences
- Repeat your message by following users off Facebook and on their favorite websites and apps
- Target very niche audiences across web, mobile, and connected devices.
How Facebook Audience Network Works
In a nutshell, the Audience Network is Facebook’s version of Google AdSense. Here’s how it works:
- Publishers with websites or apps can join the Audience Network by submitting their application for review. They agree to allow Facebook to place ads on their websites and apps.
- Advertisers set up campaigns on Facebook. By default, ad placements with FAN-enabled campaign objectives will run on the Audience Network.
- Facebook places ads on its partnering websites and apps. Advertisers compete to get their ads on placements by bidding.
- Facebook makes money on ads and splits it with the publisher of the website or app.
Create Ads for Your Campaign Objectives
If you disable automatic placement, Facebook will recommend using Audience Network for the following campaign objectives:
- Video views (including reach and frequency buying)
- Traffic (for website clicks and app engagement)
- Product catalog sales
- App installs
Whether you’re increasing brand awareness measured by views and clicks or driving sales, you need to write Facebook ads for people in the “browse” mode. Like billboard ads, FAN creatives shouldn’t pack too much information. The simpler the message, the more powerful the effect.
Set Up Your First Facebook Audience Campaign for Success
Whenever you create a campaign using the new Ads Manager, Audience Network is selected by default for any of the FAN-enabled ad objectives.
So, unless you manually opt out of running ads on FAN in Settings, your ad will be running both in native Facebook feed and on the partner network. At the same time, you can’t select Audience Network alone. Ads must run either on Facebook or Instagram to run on FAN.
It’s possible to drive quality traffic for your direct response campaigns on FAN. Be mindful to review your placement report and not waste your ad budget on fake clicks and hurt brand image in the wrong placements. Facebook Blueprint course recommends leaving the Automatic Placements option selected, but you’ll really be better off by commanding more control. So skip the “recommended” trap and head over to Advanced Settings and Block Lists – these settings are not that “advanced” and will take you like five minutes to set up.
Protect the Brand and Improve Results with Blocklists
To set up a block list for Facebook Audience Network, go to Business Settings in your Facebook Ads Manager and find “Block Lists” under People and Assets. Upload your block lists. Apply your block lists to all or selected ad accounts. When you create a new ad set or ad, you can check if the list has been applied in Advanced Settings =>> Exclude Categories =>> Account Block Lists.
At AdStage, we built our FAN blocklist based on Seer Interactive’s blocklist for Google Display Network. You can copy and export in .csv AdStage’s blocklist for Facebook Audience Network by clicking on the link. The volatile political environment has led many programmatic buying platforms to shun many alt-right news websites, and you can certainly add such sources to your FAN blocklist to ensure the best brand representation and safety.
Note: you can add blocklists to your ad account only if you’ve been added as an advertising Admin on that account (if you have advertiser or analyst permissions, you won’t be able to add a blocklist).
You can track your campaign success on Audience Network the same way you would do for in-feed ads via Ads Manager Reporting (or your preferred PPC reporting tool).
Further Resources on Facebook Advertising
- 7 Major Updates for Facebook Advertisers
- When and How to Use Facebook Sequential Advertising
- Quick Guide to Facebook Offline Conversions
- Crash Course on Facebook Organic Reports
- The Facebook Ad Type with the Best ROI
- Facebook Ads Reporting Tool
Have you tried Facebook Audience Network? Any best practices to share? Tell us in comments!