Why ROAS is Keeping You from Scaling

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When we talk with businesses about their marketing efforts and plans to scale, we commonly find that brands are too focused on their ROAS, or return on ad spend. They are consumed with raising their ROAS to 7x or 10x and lose sight of their original goal: growing their business. If this describes you, do not fear – We’ve been there too. Let’s take a look at how you can measure your marketing efforts and grow your business well.

“The brand that’s willing to spend more upfront…to acquire customers is going to win. They’re going to beat the other brand and that’s just focused on a high return on ad spend on the front end.” (5:34)

Defining Terms

We’ll be using a couple of terms that might be confusing if you are new to the marketing world, so let’s take a moment to define them.

ROAS – This is an acronym for ‘Return on Ad Spend,’ and it is calculated by taking the amount of money generated from sales driven by an ad campaign and dividing it by the amount of money you spent on the aforementioned campaign.

For example, if you spent $1 on a campaign that generated $3 in sales, you would have a ROAS of 3x.

Attribution Window – This puts a timeframe on when a sale can be attributed to an ad campaign because it is rare for someone to see an ad and immediately buy the product. Instead, consumers will see multiple ads for a product over the course of several days before deciding to purchase the product.

For example, if a consumer sees an ad for a new bike on Facebook and purchases the bike later in the attribution window, the ad will still be credited with the sale.

Why You Shouldn’t Be Using ROAS to Measure Success

As we’ve said, we believe many companies are struggling to scale because they prioritize increasing their ROAS. So, what’s wrong with using ROAS to determine whether or not an ad campaign is effective?

First of all, we don’t think that ROAS is the most accurate measurement of a campaign’s success. For example, brands with higher average order values will score a higher ROAS. There’s a larger margin on a $1,000 item, and spending $50 per sale on ad spend leaves you with an incredible 20x ROAS. If your average order value is $50, you have a much smaller margin to reach a ROAS that is half as high.

Similarly, when Apple released iOS 14, ROAS became much less reliable as a measurement of effectiveness. iOS 14 introduced new privacy features that limited tracking ability and Facebook decreased its attribution window simultaneously. Ultimately, these changes made ROAS less trackable and accurate.

Measuring the Success of a Campaign

So, if you can’t trust ROAS, how do you know whether or not your business is growing successfully?

“I think it always comes back to the two metrics that we always have known. What’s your cost per acquisition across all marketing channels? And what’s your lifetime value of your freaking customers? What are you doing on the backend to keep them?” (11:29)

At Shopanova, we prefer to zoom out and look at the larger picture of your marketing strategy. Ask yourself questions about your strengths and weaknesses, and evaluate your strategy as a whole.

Am I saturating the market with my content? Do people see my ads? Are they learning about my brand? Am I increasing sales year over year?

“To recap some of the things to know if you’re growing successfully is basically, you’re reaching more people, you’re increasing your orders, and you’re entering the minds of the masses…if you’re doing that, it really starts to open up the conversation of brand development.” (12:13)

While these questions don’t provide you with a pretty number to flaunt across the industry, we believe that they help your brand grow effectively.

Trusting Brand Development

As we’ve grown to be less reliant on ROAS, we’ve turned our attention to brand development, and we encourage our clients to do the same. Throughout the pandemic, brands saw incredible success through Facebook and Instagram ads, but now that the world is transitioning back to normal, they must focus on the bigger picture.

“If we still solely relied on Facebook and Instagram in that model, we’d have been kind of screwed. But since we had other channels, we were able to tap into Google, freaking YouTube, email – We’re able to still pull in leads and keep our sales guys busy…and we’re seeing the same thing for eComm stores that only rely on Facebook and Instagram. When that cuts out, they go out of business almost.” (15:55)

Another way to grow sales through brand development is through your website. Does it draw people in? Is it easy to navigate? Where are people clicking as they explore your site?

“Everybody can build a beautiful website these days. Not everybody knows how to take that beautiful website, run it through a process, and make sure it’s generating sales in the most efficient way possible…Develop heat maps. Record sessions of people shopping your store. See where they’re bouncing, see where they’re clicking out, make sure that your buttons are easily navigable.” (18:12)

If you are worried about spreading yourself too thin as you zoom out and focus on brand development, don’t be hesitant to outsource in areas like marketing and paid ads. You can always jump straight in and learn as you go, but we assure you that growth will not happen quickly if you choose this avenue.

“Learning through experience is the slowest way to learn.” (22:14)

Are you interested in speeding up your growth process? Contact us today to learn more about how we can help your brand grow!

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