Guide To Setting Your Target ROAS

ROAS are an extremely important calculation, and it should be up to you to calculate this number accurately. We do not know your particular costs, so this is not something BackerKit can do for you. However, we are happy to make suggestions on how you can do the math on your own.

Whether you do your own advertising, or work with a crowdfunding marketing service like BackerKit Marketing, the key to success in paid marketing is knowing what returns you need to see to justify the effort.

ROAS, or return on ad spend, simply refers to the ratio between money spent on advertising vs. pledges driven. For example, you might spend $100 to drive $400 in pledges. Your ROAS in that case would be 4x.

No other metric in marketing your live crowdfunding campaign really matters. It doesn’t matter if your cost per click, cost per impression, etc. are very high or very low. All that matters is the cost you’re paying for a driven pledge. ROAS is how you measure that.

No ROAS is inherently “good.” A very high ROAS might mean that you’ve failed to spend enough to reach your audience and left money on the table during your campaign. A low ROAS might mean that you are losing money on each pledge you drive.

So, how do you determine your target ROAS?

Let’s suppose I am launching a Kickstarter to make the most stunning high quality chicken book photos ever made. First, I expect to see an average pledge of $100. Next, I have to look at my cost breakdown for the project:

$20 goes toward printing and manufacturing the rewards

$20 goes to everything involved in taking the photos — equipment, travel to get to the chickens, etc.

$15 goes to shipping and fulfilling the orders

$10 goes to services (Kickstarter, payment processing through Stripe, and BackerKit'a marketing and pledge management costs)

In this example, total costs per pledge are $65. That means I have $35 in margin per pledge. If I plan to do paid marketing, and it costs me any more than $35 to drive a pledge, I lost money on those pledges. So, first I must calculate my break-even ROAS. To arrive at that:

Average pledge divided by Margin per pledge= Break even ROAS

In our example:

$100 average pledge/$35 margin per pledge= 2.86x break even ROAS

If I spend $1 on Facebook, I need to make at least $2.86 back in pledges to break even. Since I’d like to make a least a little for myself per pledge, I might decide to set my target ROAS a bit higher at 3x.

You will need to do the math for your particular project. Be careful to identify every cost you can think of, and gross the goal up a bit if you’re not sure. You don’t want to set your ROAS goal too low and end up losing money!

There are some other things to consider in choosing your ROAS target:

Pledge behavior will fluctuate throughout a campaign. People tend to pledge more in the first 3 days and final 3 days of campaigns. Your advertising returns will tend to be much more efficient at the very beginning and end. Your target ROAS shouldn’t change during these periods, but your spend should.
Your ROAS target determines how much volume you can drive. If your ROAS target is low, you’ll be able to spend more and drive proportionally more pledges. If your ROAS target is high, your ad spend will be constrained and you won’t be able to drive as much pledge volume. Don’t select a ROAS target that is too much higher than your break-even point.
If your target ROAS is very high, say, over 6x, your project might not be a good fit for paid marketing. It’s very unusual to see a project achieve ROAS that high while driving a meaningful number of pledges. The time and effort running advertising may not be worth it if your ROAS target is too high.
Do your costs get better if you get more backers? It’s often the case that manufacturing costs come down if the number of units produced go up. There’s a possibility that growing your campaign bigger leads to lower costs per unit! You may want to check in with manufacturers how ordering more units impacts your costs and factor that into your marketing plans.
Consider the long term value (LTV) of gaining a new backer. A backer that learns about you and pledges from a paid campaign likely has much more long term value than just their single pledge. They’re likely to purchase add-ons in BackerKit and to support you on any future campaigns. The benefit of meeting new backers and fans is about more than just their first pledge! You may want to reduce your target ROAS if you expect these new backers to support you in the future.