Why ROAS Does Not Equate To Long-term Business Growth?


Saffron Edge


Jun 5, 2022


7 min read

What is the first measure marketers use when evaluating the performance of an eCommerce ad campaign? Return on advertising expenditure, or ROAS. It is a marketing term that has become the most important KPI for growth marketing. Today, we are here to explain why relying entirely on ROAS is a myopic vision of success that will hinder your DTC eCommerce performance! DTC eCommerce Source: Pexels

There is nothing inherently wrong with ROAS as a statistic. It is essential to monitor your return on ad investment (conversion value divided by ad budget). Incorporating ROAS as a metric is pretty obvious in a D2C Marketing strategy. However, this is only part of the equation. If we are discussing marketing (specifically growth marketing), it is harmful to the firm to focus just on ROAS.

In this post, we will demonstrate a new method for measuring the performance of your sponsored advertisements and provide three steps for shifting your attention from ROAS to CLV (Customer Lifetime Value), which is the key to your business's long-term success.

First: Why ROAS Does not Work for Paid Ads 

Your sponsored advertising is not responsible for generating ROAS. Shocked?! Certainly, this is the truth. Only you can determine whether or not your sponsored adverts are effective at generating website visitors. This phenomenon applies to all forms of marketing, including traditional forms.

Your sponsored advertising is not responsible for generating ROAS. Shocked?! Certainly, this is the truth. Only you can determine whether or not your sponsored adverts are effective at generating website visitors. This phenomenon applies to all forms of marketing, including traditional forms.    pexels-monstera-6289064 Source: Pexels

The commercials serve a little influence in converting a sale. Numerous elements, including your website, product, branding strategy, source credibility, and price point, have a significant impact. Even with the best-paid advertising plan and professionals worldwide, your return on ad spend (ROAS) will be low if your D2C eCommerce store is flawed.

You can only optimize your efforts when you have total control over something. This may contradict what Facebook specialists and growth hackers say, but it is the reality. Remember ROAS, but your key metrics for analyzing sponsored adverts should be CTR (click-through rate) & CPC (cost per click).

Why ROAS is Only Part of Your eCommerce Business's Equation?

Growth marketers should present a comprehensive plan that fosters scalable, long-term business growth. However, growth marketers are more often than not media purchasers in disguise. They may be excellent media buyers who can assist you get a high CTR and CPC, as well as a 2 to 4 times return on ad expenditure (although this is beyond their control). However, media buyers lack a comprehensive approach to growth and the corresponding plan. That is the distinction.   pexels-monstera-5849577-scaled.jpg Source: Pexels Due to this, so many businesses are solely focused on ROAS, especially new client acquisition, while no one considers the wider picture.

Long-standing, successful companies understand the value of attracting consumers and the importance of retaining and optimizing client relationships beyond the sale. If you want your DTC eCommerce brand to expand, you must consider the bigger picture, which necessitates establishing a relationship with your customers rather than simply making a transaction.

This does not imply that a continuously low ROI on your sponsored advertising is acceptable. Consider where and how you are purchasing advertisements. To recruit clients, you will need to invest, especially if you're a new brand - this is a fact of beginning a business.

In DTC eCommerce, you cannot expect to pay $10 one day and receive $20 back immediately. Sometimes you will have to invest more money to educate the public about your brand and products and establish credibility. The younger your brand and the more competitive your market, the greater your investment in this will be required.

Understanding this reality and developing a business plan that can gain a consumer and turn them into a fan - a client that keeps coming back and distributes your message to the globe – is the key to success. The brands that can expand consistently and healthily are the ones who execute this tactic wisely.

What Should eCommerce firms and marketers prioritize? 

The creator of a high-growth business we were mentoring remarked, "We're incredibly good at "Rev'ing," but terrible at "Netting." It's common: a brand appears to be doing well in terms of new sales, but they're losing money in the end!

To succeed, such brands must move their primary focus from ROI to client lifetime value (CLV). ROAS is a component of customer lifetime value since customer relationships begin with a sale. However, it does not end there. After a transaction is completed, you must cultivate a connection with the customer to convert them into a true brand advocate. The objective is to generate a customer who returns to purchase again (therefore increasing their CLV).

They claim that marketing to a new consumer costs five times as much as marketing to an existing customer. Most digital companies purchase traffic from Facebook, Google, YouTube, and other ad networks. This requires ability, but it only focuses on one aspect of the equation: making sale after sale. This is much more expensive and inefficient than communicating with your current consumers.

This is why you must adopt a more comprehensive D2C marketing strategy and why our organization exists to assist brands in doing so. To build and expand, a firm needs to coordinate several moving pieces. It requires increasing CLV and scaling in healthy ways.

Increase Customer Lifetime Value 

Consequently, what strategies should you employ to enhance (CLV)? We outline the process in three sections below.

1. Establish a customer expansion plan. 

To ultimately rely on customer lifetime value and develop a healthy business, you must have a strategy. You must have a "formula" for providing value to customers and generating ongoing profits from them. We are all aware of this; however, there is frequently no plan for increasing the customer's lifetime value. This is not a marketing formula! This directly relates to the core aspects of your company concept. You may ask yourself, "How does your product line look?"

  • Have you considered expanding this product line into other product categories? 
  • Do your product margins sustain your business? Will certain merchandise have greater margins than others? 
  • Are you capable of bundling items to increase the average order value? 
  • Are you building a voice and brand narrative and then communicating in a manner that relates to your consumers' narratives?

2. Establish objectives for your major metrics.

Depending on your D2C marketing strategy, you should have a reasonable goal for client lifetime value and growth. In addition to establishing targets for return on advertising spend (ROAS),  cost per acquisition (CPA), average order value (AOV), and conversion rate, you must also develop objectives for cost per acquisition, AOV, and conversion rate. 

Ultimately, creating reasonable goals for each key indication based on a formula you've established beforehand will unify your efforts toward achieving them and relieve the anxiety associated with uncertainty. We understand that it may appear simple, yet they are all interdependent.

If you know that a client's lifetime value is $100, but your average order value is just $25, you must decide. You may choose to spend $50 on acquiring a new client while still earning $50. Your ROAS won't be outstanding, but your company will be profitable. However, you must consider when you can attain the $100 CLV, but that is a subject for another day.

3. Implement a comprehensive strategy. 

You may create a thorough marketing campaign after determining your product strategy and key metric objectives. This needs expertise in three fundamental areas:

  • Acquisition and Visitors: Includes paid google, Facebook, and YouTube advertisements.
  • Optimization and Navigation of the Site: Superior site navigation, visual improvements, and conversion rate optimization
  • Maximizing Customer Value: Maximize customer value through engaging consumers with efficient loyalty programs, email marketing campaigns, and customer service, among other strategies.
  • Integrating these three components into a winning plan is the only way to produce sustainable, long-term company growth. Focusing on a particular area in isolation may provide short-term success but not long-term success.

Final Thoughts

To thrive, your firm must prioritize customer lifetime value, and your business plan is how you do this. Once you recognize this, you can stop worrying about achieving a ROAS of 3–4x every month simply because every Facebook marketer advises you to. Ultimately, client lifetime value will be the key to your company's sustainable success. Get in touch with our experts to know more!

Over the years, our performance marketing experts have redefined brand marketing and customer-centric experiences. We provide strategic direction to our clients for effective, scalable, and profitable outcomes. Do you want to increase your market share? Saffron Edge is here to help ambitious teams like yours, enabling you to convert your ideas to reality!

Collaborating with Saffron Edge has provided our clients with sustainable growth. They can leverage our ability to be inventive and execute campaigns at a great pace. Our team holds a high focus on accomplishing client goals.

We give your marketing plan a growth-oriented approach. We evaluate your business’s key features to curate lucrative growth plans for strategic and long-term growth.

As a DTC business, you need to tackle increasing market competition and personalization. You need to align your campaigns with the latest consumer trends. Leverage our data-driven strategies to scale aggressively.

It is a long established fact that a reader will be distracted by the readable content of a page when looking at its layout. The point of using Lorem Ipsum is that it has a more-or-less normal distribution of letters, as opposed to using 'Content here, content here', making it look like readable English. Many desktop publishing packages and web page editors now use Lorem Ipsum as their default model text, and a search for 'lorem ipsum' will uncover many web sites still in their infancy. Various versions have evolved over the years, sometimes by accident, sometimes on purpose (injected humour and the like).

To unleash your growth accelerating capabilities, we rely on a process of extensive campaign optimization and cost-benefit analysis so that you drive higher conversion rates and ROI.

We launch your campaigns once we have evaluated revenue opportunities and critical growth areas. We also tweak those campaigns according to dynamic market trends and behavioral analytics.

At Saffron Edge, we offer a complete range of services that build up business value, from the initial idea & formulation of product strategy to building a prototype and testing it with users. Unleash your growth accelerating capabilities with our integrated growth marketing plan designed specifically to uplift business revenue.

The future of marketing is content that is genuinely valuable to your prospects. Saffron Edge is not just the NJ’s best content marketing agency; we are content curators, creative writers, and expert editors. We help create content that helps increase website traffic from all online marketing channels. Wondering why your digital marketing isn’t working to the full potential? Consult Saffron Edge for comprehensive business consultation services. We are a reputed business consultation agency in NJ with over a decade of experience in the industry.

Today, if you aren’t maintaining an active web presence for your business, you are losing out on a lot of potential customers. By just having a website, you open the door to anyone who has a slight interest in taking up your services or the products you have to offer. The power of data is remarkable; when you have data at your disposal your business drives success like never before. Saffron Edge is a New Jersey-based leading Digital Marketing Analytics Agency that employs a data-driven approach to help businesses make strategic decisions to maximize their profits. Our digital marketing strategies have been designed using the leading industry practices, consumer trends, and years of expertise.

We aren’t afraid to pursue multiple experiments that can help us optimize and improve the results. We help our clients grow their base grows organically and build brand advocacy. Let’s achieve tangible business outcomes and deliver superior digital experiences to your customers. Our experts understand the future of eCommerce; that is why we rely on progressive ROI-focused strategies for our clients. End-To-End digital solutions that lead the digital change! We create 'Impactful, People-First, & Goal-Driven Digital Marketing'. We offer end-to-end digital solutions that lead the digital change! We craft human connections using data analytics and strategic market research; it helps us deliver solutions that increase your enterprise value!

Direct-to-consumer brands have to tackle increasing market competition, the need for personalization, and evolving consumer habits. With Saffron Edge's data-driven eCommerce strategies, your DTC business can break through the noise. Establish a deep connection with your consumers and increase your sales!