Introduction In today's digital age, social media has become an essential platform for businesses to reach their target audience and generate leads.
Among the various social media platforms available, Instagram has emerged as one of the most popular and effective channels for advertising.
With over 1 billion active monthly users, Instagram offers a vast potential audience for businesses to showcase their products or services.
One of the most powerful features on Instagram for advertising is its Stories feature.
This feature allows businesses to create short videos or images that appear in a user's feed for only 24 hours before disappearing.
Since its launch in 2016, Instagram Stories have gained immense popularity among users with more than 500 million daily active users worldwide (Statista, 2020).
This presents a huge opportunity for businesses to tap into this engaged audience and drive conversions through targeted ads on Instagram Stories.
In this paper, we will discuss how calculating the potential return on ad spend (ROAS) can help businesses estimate the revenue generated from ad-driven conversions on Instagram Stories.
We will also compare this revenue to the ad spend invested to determine if it is a profitable investment option.
Calculating ROAS Return on ad spend (ROAS) is a metric used by marketers to measure the effectiveness of an advertising campaign by comparing the revenue generated from ads against the amount spent on those ads.
It helps advertisers understand how much they are earning back in revenue per dollar spent on advertising.
The formula for calculating ROAS is: ROAS = Revenue Generated / Ad Spend For example, if a business spends $1000 on an advertisement campaign and generates $2000 in sales from that campaign, then its ROAS would be calculated as follows: ROAS = $2000 / $1000 = 2 This means that every dollar spent resulted in two dollars' worth of sales - making it a profitable investment with an ROAS of 2:1.
Estimating ROAS for Instagram Stories Ads To estimate the potential ROAS for Instagram Stories ads, we need to consider various factors such as the cost of advertising on this platform, the average conversion rate, and the expected revenue generated from those conversions.
Cost of Advertising The cost of advertising on Instagram Stories is influenced by several factors such as audience targeting, ad format (video or image), and bidding strategy.
According to a study by AdEspresso (2020), the average cost per click (CPC) for an Instagram Story ad ranges from $0.
50 to $2.
00.
However, this can vary depending on your target audience and industry.
For our calculation, we will take an average CPC of $1.
00.
Average Conversion Rate The conversion rate refers to the percentage of people who take a desired action after seeing your ad - in this case, making a purchase or completing a lead form.
The average conversion rate for e-commerce businesses on social media platforms is around 3% (SmartInsights, 2020).
Expected Revenue Generated To estimate the revenue generated from ad-driven conversions on Instagram Stories ads, we need to consider two variables - average order value and total number of conversions.
Average Order Value: This refers to the average amount spent by customers when they make a purchase.
For example, if your business sells clothing items with an average price point of $50 per item and customers typically buy two items per transaction – then your average order value would be $100.
Total Number Of Conversions: This includes both purchases made directly through advertisements as well as any additional sales that may have resulted indirectly due to brand awareness created by those ads.
Let's assume that our hypothetical business has an AOV of $100 and achieves 500 conversions through its Instagram Story ads campaign.
Calculating Potential ROAS Based on these assumptions and using our formula above: ROAS = ($100 x 500) / ($1.
00 x 500) = $50,000 / $500 = 100 This means that for every dollar spent on Instagram Stories ads, our business can potentially earn $100 in revenue – making it a highly profitable investment with an ROAS of 100:1.
Comparing Revenue to Ad Spend Now let's compare the estimated revenue generated from ad-driven conversions with the ad spend invested to determine if this is a profitable investment option.
Total Ad Spend: For our example, we assumed an average CPC of $1.
00 and achieved 500 conversions.
Therefore, the total ad spend would be calculated as: Total Ad Spend = CPC x Total Conversions = $1.
00 x 500 =$500 Revenue Generated: As previously calculated, the estimated revenue generated from these conversions would be: Revenue Generated = AOV x Total Conversions = $100 x 500 =$50,000 Profit (or Loss): Based on these numbers, Profit (or Loss) = Revenue Generated - Ad Spend =$50,000 - $500 =$49,500 Based on our calculations above, investing in Instagram Stories ads has resulted in a significant profit of almost fifty times the amount spent on advertising – proving to be a highly effective and profitable marketing strategy for businesses.
Conclusion In conclusion, calculating potential return on ad spend (ROAS) can help businesses estimate the revenue generated from ad-driven conversions and compare it to their ad spend invested.
In this paper, we discussed how ROAS can be used specifically for Instagram Stories ads by considering factors such as cost of advertising and expected conversion rates.
We also compared the estimated revenue with the ad spend invested to determine if it is a profitable investment option.
Our analysis showed that investing in Instagram Stories ads has great potential for driving high returns on investment – making it an essential platform for businesses looking to reach their target audience and drive conversions through social media advertising.