Replace ROAS With Weighted CAC
The doom and gloom of the Return On Ad Spend metric turning out to be a bit of a flop, doesn't have to be the end of the ROAS road! Customer acquisition through analysing a combined set of metrics, and working holistically as a brand is how you will sustain your business model in 2022 and beyond.
What You Need To Know
Return On Ad Spend was just one fraction of the key parts that make up your business. If you put ROAS on the back burner, you then need to replace it with several metrics that can give you a more balanced view of your brand's progress.
ACOS = Advertising Cost Of Sales. Simply divide your total ad spend by the total eComm revenue over the period you want to monitor.
Weighted CAC = Customer Acquisition Cost. This is the total ad spend divided by the total number of NEW eComm customers.
MER = Marketing Efficiency Rating. Total eComm revenue divided by the total ad spend.
When you look at the break down of these, you will wonder why you didn't make the switch from ROAS to these slighter 'newer' metrics sooner.
Are There Any Issues With Switching Out ROAS?
The only real 'issues' are making sure that your systems are designed to pull the correct information, and then ensuring that your team understand what they are looking at. ROAS was simple to read, and because it was only one metric with one result, it allowed for a quick turn around on decisions. Using a multichannel approach will initially take some tome to get used to, however it will be more beneficial to your brand in the long run.
Let's focus on just one of these benefits CAC (Customer Acquisition Cost). This will give you a clear indication of how many new customers you have attracted, but you can also dig deeper. Say you want to class a 'new customer' as someone who has made more than two purchases. You can adapt the calculation to focus on this aspect, it will give you an honest and useful insight. If it costs you £5 to gain a loyal customer, yet they end up making you £45 in profit on large ticket items, then you are doing well. Yet, if it is costing you £5 and overall they are only buying clearance stock giving you a profit of £20 then you may want to analyse this.
The follow on for measuring your CAC is that you employ marketing methods such as email and newsletters to nudge the customer into the funnel again. For example, Pear Digital are a Klaviyo certified Master Gold Partner - this email marketing software has helped their clients generate over £7million in revenue so far, simply by making it easy to contact the customer post-sale with relevant offers and information. Measuring the CAC metric helps you to grow and develop your brand, rather than concentrating on quick one-off sales.
What Happened To Our Benchmark?
Something else you'll need to take into account is the fact that there is not some 'magic' global or industry sector bench mark for CAC, ACOS and MER. These three metrics will all have their unique properties related to your business: and that's the beauty of it. If you think about life, when has a 'one size fits all' approach ever worked?
ROAS' percentage benchmark was always misleading, but people were willing to overlook it because the metric was so easy to use and it could be manipulated into creating positive spin for sales. In our opinion it is worth investing the time and training into using multiple metrics, so that you can strengthen not only your ad campaign results, but your over-all brand image.