Return on Ad Spend (ROAS) has become a standard for measuring the success of campaigns in digital ads.
But is it giving us the full picture? According to Leigh Buttrey’s recent article on Search Engine Land, relying solely on ROAS can be deceiving.
Here’s why you might want to rethink your focus on ROAS:
1. Profit Margins Matter: A high ROAS might sound great, but you could still miss out on big profits if your profit margins are low. For example, if a skincare brand has a 600% ROAS but only a 10% profit margin, the actual earnings might not look so rosy.
2. Short-Term Gains: Many high ROAS campaigns, like retargeting ads, target existing customers or those ready to buy. While effective, they don’t help expand your customer base for long-term growth.
3. Inflated Success: Ads for branded searches often report high ROAS, but many conversions could happen naturally without the advertising spend. This means you might be paying for success that doesn’t need the extra push.
So, what should businesses focus on instead?
– Profit per Impression (PPI): Assess how much profit each ad impression generates, especially for campaigns designed to build brand influence.
– Customer Lifetime Value (CLV): This helps estimate the total revenue a customer will bring over time, steering your efforts towards long-term gains.
– Incrementality: Measure how many conversions are genuinely due to your ads. Techniques like geo-based tests can be insightful here.
Let’s start measuring what truly matters!
