5 Things That ROAS Has Lied About
Statistics are open to interpretation. That's the one thing you can be sure of. If someone has an agenda they can bend the results fore or against their cause. So, when you review you core metrics there is always going to be a bit of 'artistic license' when it comes to disecting the results and planning for the next quarter. The problem with using ROAS to set your targets is that... it has a few 'deceptive' qualities.
The Mind Of The Consumer
Do you really know why your customer chose to click on your ad, visit your website or make a purchase? Of course, you can say "yes - we put out a new ad campaign, look at all these extra sales!" However, justifying ROAS this way doesn't show the full picture. In fact, ROAS results may blinker you as to how you really received those clicks. For example, you may have some new creatives out there, you've invested in some animated ads and new placements across social media... but did the customer actually see that specific ad and click solely because of it?
MarketingWeek tells us that; "ROAS can foster a sense that channels ‘compete’ rather than work together. Imagine a football manager believing their centre forward is entirely responsible for every goal so ditching their defence and midfield for 10 centre forwards. ROAS is only measuring what happens in the final third of the pitch."
The click you received was the last part of the journey. You have no idea whether the customer was given your brand details by word of mouth, and just happened to see the ad (they were going to head over to your website organically anyway), or they may have been following you on Instagram and they were simply waiting for the right moment to start their Christmas shopping... Essentially ROAS makes you treat every channel as if it's competing against the next, there's rarely any cohesion.
Lowest Hanging Fruit
Want to create some buzz amongst your stuff and investors? Return On Ad Spend can really drive those quick and easy sales. What we mean is, following on from the first point - if someone is already at the stage of their journey where they are willing to buy a product and your ad pops up - they'll click on it and likely purchase. This is great, but who are you targetting here?
To sustain and grow your solid regular customer base you should be looking at marketing that connects with people on a different level. You most certainly benefit and need one-time buyers, as a percentage of these will turn into repeat custom... however, looking at ROAS for daily stats and targets creates a false impression that you are making money hand over fist. Think about it. The ads you place on social media will usually be for high profit items, these aren't going to be the larger products or more detailed services that you offer.
In this way you get small, high-margin sales from the easiest customers to attract. Again, this isn't a 'bad' thing to do, it just means that instead of investing in customer retention, or customer service quality, you can be hooked on trying 'not to lose money'. The allure of using ROAS as a main metric is not as fool-proof as you may think.
Profit & Loss... Restricted Growth
As we mentioned, focussing your brand's energy on the ROAS metric for long-term targets is not always a good idea. We should prefix this with "depending on what services and products you sell, and what your business model is". Though we are pretty sure that the majority of businesses are looking for a balance between customer lifetime value and increasing the bottomline.
The issue with ROAS is that it can limit the growth of your company, and therefore you will lose out on potential profit. If we look at the main three stages of growth you want to be:
- Building - getting people to notice you, measuring your impressions
- Nudging - Post-view ROAS, people are encouraged to visit your site
- Connecting - Post-click ROAS, the people that visit your site then make a purchased
If you are constantly chasing parts two and three, you may find that the core customer base for your brand remains small. ROAS is designed to entice you to keep advertising those products that make you the most, quick profit. If you take your foot off the pedal to switch to a more holistic method of advertising to gain engagements, it can falsely make it look like you are 'losing' profit. Over all, how many of the people purchasing from you would have clicked on your site anyway, without the advert? Sometimes you need to take a step back and reassess.
Click-Fraud Affects ROAS
Globally the cost of click-fraud in 2020 was estimated between $6.5 - $19 Billion. Even if you take the lower estimate, that is an increcibly large number. The problem is that bots from all kinds of countries can steal your views and clicks, The Wall Street Journal carried out an investigation which showed that the highest cases of fraud were on Microsoft and Google platforms... the main contenders in digital marketing!
Knowing this information, and the unfortunate fact that in 2022 the likelihood of more fraud has increased - do you really believe that ROAS results are giving you the full picture? PPC adverts will always be at the mercy of fraudsters, this is because it is not always easy to detect what's happening. This is especially true if your ROAS rating is sitting above or close to average. You may just assume that your campaign is mediocre.
Who Made ROAS So Big?
Judging by the many, many articles we have read, and the sources we have checked out... it seems that it was a combination of digital marketers and brands. As the popularity of PPC campaigns grew, and people wanted to display their effectiveness, the simple calculation for ROAS meant that it was an easy metric to track. It does have some redeeming qualities, and until iOS14 came onto the scene ROAS was hailed as a bench mark for setting targets.
Just as myths are perpetuated by their popularity - think of urban legends such as Slender Man or Bloody Mary - the simple act of people mentioning Return On Ad Spend so much, created a snowball effect online. More people searched for the term, more people started to predominately use ROAS because it made their stats look good... it was inevitable that through changing times the appeal of ROAS would soon wear off.