Most business owners running digital ads are trained early on to focus on ROAS. By definition, “return on ad spend” sounds like it MUST be the holy grail metric of digital marketing. You’ve spent money on advertising with the expectation that in return, you will receive revenue.
However, few words sum up the panic and despair you feel when, in the early days of your ad campaigns, you see $150 in Shopify revenue on one tab and $500 in ad spend on the other. For most business owners, it’s impossible not to lose sight of almost anything else.
In that moment, it’s important to take a step back and consider the bigger picture of what you’re trying to achieve, both as a company and in your digital campaigns.
Spoiler: The internet isn’t a money in, money out kind of place.
The digital marketplace is complex. There are countless variables that influence whether or not someone buys from you.
Ad creative, ad copy, price, promotions, free shipping, the purchase process, trust in the brand, trust in the website, customer service, other sites selling the same product, other sites selling similar products, people who sit on a cart to decide – and then forget.
Every one of these variables – and many more – have a direct impact on whether you will get a return on your ad spend. And whether your company will be around in 6 months.
However, it’s impossible to know, much less get these critical factors right if your sole mission statement is to increase ROAS month over month.
Knowing and understanding what creates a growing and sustainable buying process requires time, iterating, testing and repeating – all of which requires some ad spend.
The ugly truth: You’re going to have to spend some money on knowing your market.
No one wants to hear this: investing money to know your buyers’ process and what will make your company successful will lower your ROAS as some of your money is diverted to testing. But invest, you must.
Founders are engineered to trust their gut, sometimes to a fault. They don’t want to spend money – much less time – on iterating and testing because they are sure their assumptions are correct. The unfortunate reality is that the longer you begrudge ad spend on testing, the more money you waste on less effective ads, the lower your ROAS, and the longer you’re wasting money and suffering a low ROAS.
For instance, you may have perfected a BBQ rub that you sell out of every weekend at the local farmer’s marketing. You’re positive that as soon as you get your online store up and some ads running, your greatest obstacle will be keeping up with inventory. I mean, people LOVE this stuff.
You get a Shopify account and start to run some ads. The ads are driving a lot of traffic to your site – you may even be getting some adds to cart. Unfortunately, your orders are bumping around 3 a day.
You may have forgotten to account for some of those critical variables or external factors we mentioned – like trust-building elements, shopping flow, technical issues and shipping issues. No one is buying from you for one or many reasons.
This is a classic case of "You don’t know what you don’t know."
However, now that ads are driving traffic to the site, testing various usual suspects, you come to understand that people need some convincing with testimonials, BBQ awards logos, reviews, free samples – and they need free shipping to push past the finish line.
These external factors can be smoked out as quickly as possible (pun intended, see what we did there?), removing obstacles to people buying – and increasing that flow of ROAS back to you. But more importantly, you’re building a stronger company and a brand with staying power. You now know what’s important to your customers and are removing barriers that frustrate them.
Beyond ROAS, though
Let’s say your investment in market research by way of ad traffic pays off, and you get to a comfortable ROAS. It’s tempting to assume you’re good to coast into retirement on the back of your world class BBQ blend.
You may have hit a ROAS that makes you happy, but it’s important to continue viewing that number as one indicator metric of many. Even when it’s trending upward, it cannot become the focal point of your business.
As a growing company, it’s important to turn your attention and an allotment of your ad spend to understanding bigger metric fish: like the lifetime value of each customer.
And what makes one customer more valuable than another, and how do you specifically target more valuable customers?
Which customers are more likely to advocate for your product, resulting in more customers and more sales?
What this means for you starting out
Your main objective for the first few months of any digital campaign should be to come away with a deadly accurate pulse on your market conditions, your purchasing audience, what compels them to pay for your product and any obstacles getting in the way of paying for your product. Armed with this knowledge, you can make critical decisions around HOW to market your product in digital ads, through a keen understanding of your audience’s pricing tolerance, preferred messaging and detailed targeting.
For the first phase of your digital campaign, ROAS is simply the cherry on top. You’re eating the sundae from the bottom up, starting with:
- Detailed demographic, interest and behavior-based breakdown of what groups of people are eager to buy from you, those who can be coaxed into buying from you and those who aren’t worth your ad spend
- Average number of impressions it takes for a person to reach the purchase tipping point
- What X price point you need to set to achieve Y ROAS under non-cyclical conditions
- Accurate comparison of how messages perform (and compel to purchase) with various audiences
- How other channels might be brought in to assist in a conversion – and to increase the longterm value of the customer by upsell and repeat purchase
- Which customers are most likely to purchase again (and again) and why
While any business owner would jump at the above information, few actually get there. Far too many are dissuaded from the testing it takes to uncover this valuable information by one difficult truth: These kinds of objectives are often at odds with increasing short-term ROAS.
It’s a hard pill to swallow, but unlocking seven or eight figures of revenue might mean taking a hit on the first few months of ad spend. Brace yourself – it may be even more with big ticket items or those with a long purchase path.