Facebook
Twitter
LinkedIn
Pinterest
Reddit
Email

Debunking ROAS Myths

Claims like “I have a 15X ROAS” are misleading and desires like “I want a 3X ROAS” are flawed.

ROAS and ad spend have an inverse relationship.

Think of ROAS and ad spend like picking fruit from a tree. At first, you grab the low-hanging fruit, which is easy to reach and abundant, giving you a high ROAS.

As you pick more fruit, you need to reach higher, requiring more effort (or ad spend) for less reward. This represents targeting more expensive or less likely buyers, causing your ROAS to drop.

Just as the effort increases and yield decreases with higher fruit, your ad spend rises and ROAS falls as you increase ad spend.

You might be able to get a 15X ROAS, but only if you spend $10/day and generate $150 revenue per day, which won’t move the needle for your business.

Or, you could have a 2X ROAS while spending $10,000/day and generate $20,000 in revenue per day.

ROAS without the context of ad spend level is arbitrary.

Here is how we think about advertising:

Ideal ROAS:

For Meta Ads, it’s ideal to be profitable at a 2X ROAS.

If a 2X ROAS is not profitable, we can still adjust pricing, create bundles, or create upsells to increase AOV and achieve profitability at a 2X ROAS.

Halo Effect of Advertising

Advertising often creates a halo effect, increasing revenue from other sources (like Organic and Social Media) and to other channels, such as Amazon.

Need Help?

Have questions about how to improve your ROAS? Reach out for a complementary strategy session!*

We charge a percentage of ad spend so that our interests are aligned with yours. If your ad spend remains low, it’s not profitable to you and it’s not profitable for us either.

We both benefit from scaling your ad spend profitably and significantly.

*Must be spending $5K minimum on Meta Ad

Terms used above:

  • Profitability: (LTV-COGs)/CAC > 1
  • LTV: lifetime value
  • CAC: customer acquisition cost
  • COGS: cost of goods sold
  • USP’s: unique service propositions
Facebook
Twitter
LinkedIn
Pinterest
Reddit
Email

Comments