Why ROAS Is The Worst Metric To Measure Your Campaign Performance
Setting ROI targets can result in overfocusing on cost-efficiency and short-term budget cutting that will boost apparent ROI mainly by lowering the investment. As a result, it will harm long-term profitability.
However, focusing say on profit factors in cost-efficiency by default as to make a profit you need to sell more, for more, or spend less.
As a performance marketer, part of my job is to compile weekly reports outlining campaign performance across key advertising metrics including return on ad spend (ROAS) for each major marketing channel. After sending reports to clients, I often get asked:
"Hey Mantas, how can we improve our ROAS?"
Well, my answer is usually the same:
"Higher ROAS does NOT mean better performance".
Let me give you an example.
Say there are 2 campaigns Alfa and Beta. On one hand, we have invested $100 on the Alfa campaign which then helped us to generate sales for $300 with an amazing ROAS of 300%. 1$ spend to generate 3$ in sales.
Now, on the other hand, we have a Beta campaign that has a ROAS of 150%. However, this campaign helped us to generate sales for $1500 by spending $1000. 1$ spend to generate only 1.5$ in sales.
ROAS is not as great, right?
Now, let's look at the actual revenue:
Alfa $200 vs Beta $500.
So all in all, although the Alfa campaign had a much better ROAS, the Beta campaign performed much better and is a better place to invest your cash.
Marketing needs to focus more on profit and less on return on investment (ROI). There is much talking about focusing on ROI, and some of it leads to poor marketing decisions and so better alternatives are market share (sales value, not quantity), market penetration, and ultimately profit (not revenue).
Schedule a demo call with the dabdabClick team today to get your business in front of new customers and drive more revenue.