Yes, you heard that right. For me, ROAS (Return on Ad Spend) is bullshit. Many marketers love showing off their dashboards with seemingly high ROAS numbers, trying to convince the world that their campaigns are performing exceptionally well.
Headlines like “We got 4-5x ROAS from this campaign” or “We once hit 10-20x ROAS” might sound impressive, but I’m not a fan. The problem is, these numbers only represent a tiny fraction of the broader marketing and business picture.
Is it really bullsh*t?
While their campaign and ROAS metrics might actually hit those seemingly impressive numbers, there are three aspect to consider—one from a marketing perspective, one from offers and another from a business perspective.
Marketing Perspective
Is it coming from specific campaign or channel? If so, which one and why?
ROAS from retargeting or remarketing campaigns almost always ends up being much higher than ROAS from campaigns aimed at prospecting new audiences.
Not forget to mention that some marketing channel may convert better compare to other.
Example – 1
If you are running a retargeting campaign to user who already attracted to your SEM campaign (higher intent), of course they will convert better with higher ROAS value. Because they are already on the later stages of the funnel…
Example – 2
Imagine you’re a regular customer at Uniqlo, frequently visiting their website to check out the latest collections. If you get an ad from them based on your browsing history, you’re much more likely to make a purchase—and with a higher transaction size. Hence, higher ROAS…
If we combine all campaign metrics across all marketing channel, what does your blended ROAS look like?
If you combine both prospecting and retargeting campaign metrics across all channel what does it look like? Yes, it will be lower, but it will be much more representative of your business—not just some glorified ROAS numbers.
Offering Perspective
Imagine offering an 50% discount on your ad—or some kind of deal that’s too good to be true and only happens once in a while in your business. Of course, more people will click and buy!
How do you package your offer also have a huge role in your ROAS metrics. It needs to be compelling.
Business Perspective
To determine whether certain ROAS metrics are good or bad, it’s important to consider the business’s cost of goods sold (COGS) or cost of delivery. This is highly subjective and varies from business to business.
Let me show you why:
| Metrics | Scenario A (ROAS 2.5x) | Scenario B (ROAS 5x) |
|---|---|---|
| Revenue | $2,500 | $5,000 |
| Ad Spend | $1,000 | $1,000 |
From the table above alone, scenario B seems more impressive right? Well, it depends on the business COGS…..
Let me add few more row for a hypothetical scenario…
| Metrics | Scenario A (ROAS 2.5x) | Scenario B (ROAS 5x) |
|---|---|---|
| Revenue | $2,500 | $2,500 |
| Ad Spend | $1,000 | $1,000 |
| Cost of Good Sold (%) | 30% | 70% |
| Cost of Good Sold ($) | $750 | $3,500 |
| Gross Profit [Revenue – COGS – Spend] | $750 | $500 |
Now can you see what I mean? It is very subjective to your own company or business COGS structure.
The above are hypothetical, but this happens in real business scenarios. Some businesses have slimmer gross margins than others—especially in e-commerce, where retail product margins can be razor-thin. Not to mention the higher platform commissions and taxes.
Don’t Let Your ROAS Become Too Efficient
I understand that people love seeing very high and efficient ROAS metrics. However, if your ROAS is too efficient, it might indicate that you’re not allocating enough budget to your campaign..
Meaning that there is an untapped potential for growth that you’re overlooking.
By now, you should know that every business has its own ROAS range to aim for—not so low that it hurts your P&L, and not so high that you miss growth opportunities.
So, how much ROAS should you aim for? Well, I don’t know—that’s for you and your team to figure out!
What Should I Do with ROAS Metrics Now?
In my experience working with marketers, very few look at ROAS metrics this way. I think it has to do with having a “profitability mindset,” which is not an easy skill to acquire.
To be an outstanding marketing person, my recommendation are the following:
- Do not take metrics at its face value. Find out more context.
- Try to understand your company business (COGS, etc)
- Take more holistic approach and think like an owner
Now you know why I don’t believe in ROAS! It’s a meaningless metric without full context!
Thanks to Nsoed for reading drafts of this and its feedback!
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