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ROAS (Return on Advertising Spend) is a commonly used metric in digital marketing. Unfortunately, it also has several fatal limitations that can lead marketers down a potentially expensive path. 

These limitations include its failure to account for the full customer journey, its focus on short-term gains, its potential to misrepresent profitability, and its inability to measure the effectiveness of branding and awareness campaigns.

This post takes a closer look at the limitations and risks posed by an obsession with ROAS. Then, it details a more holistic approach to highly effective marketing, and charts a successful path forward for ecommerce entrepreneurs willing to look past vanity metrics. 

Why Does ROAS Matter? 

ROAS, or “Return on Ad Spend” is a marketing metric used to measure the effectiveness of an advertising campaign. ROAS is calculated by dividing the revenue generated from an advertising campaign by the cost of that campaign. 

For example, if a company spends $1,000 on an advertising campaign and generates $5,000 in revenue as a direct result of that campaign, the ROAS would be 5 (5,000 / 1,000 = 5). This means that for every dollar spent on the advertising campaign, the company earned $5 in revenue. 

ROAS has traditionally functioned as a key metric for marketers as it helps them evaluate the profitability and efficiency of their advertising efforts, allowing them to optimize their campaigns for better returns.

Prioritizing ROAS Can Be Counterproductive

While Return on Ad Spend (ROAS) is widely used in digital marketing, committing an unhealthy amount time and research on this metric can lead to several pitfalls that undermine a brand’s long-term success. 

By prioritizing short-term gains and efficiency over a more comprehensive, balanced approach to marketing, businesses risk limiting their growth potential, stifling creativity, and damaging valuable customer relationships. 

In this section, we’ll explore the limitations and risks associated with an over-reliance on ROAS as the primary marketing metric, highlighting the importance of adopting a holistic strategy that considers both immediate results and long-term brand health.

Short-Term Focus

• ROAS prioritizes immediate conversions and sales at the expense of long-term brand building and customer acquisition.
• This short-sighted approach can hinder sustainable growth by overlooking the value of nurturing customer relationships over time.
• Sustainable growth requires a balanced approach that includes both immediate sales strategies and long-term investments in brand equity and market development.

Overly Narrow Targeting

• Chasing high ROAS can lead to targeting only the most valuable existing customers, limiting brand reach and awareness among potential new customers.
• Overly narrow targeting can stunt overall market share growth by failing to attract a broader audience.
• This approach can create a vicious cycle where the same customer base is repeatedly targeted, leading to diminishing returns and potential customer fatigue.

Efficiency Over Effectiveness

• ROAS measures the efficiency of ad-generated sales but doesn’t capture the broader impact and effectiveness of marketing campaigns in building brand equity, driving customer loyalty, and increasing market share.
• Focusing solely on ROAS can lead to optimizing for transactional efficiency rather than strategic effectiveness.

Stalling Creativity

• Chasing immediate ROAS can lead to favoring “tried and true” tactics over innovative, attention-grabbing campaigns that may not drive instant conversions but are crucial for ecommerce longevity.
• By prioritizing short-term ROAS, brands risk missing out on creative opportunities that could significantly enhance their brand image and customer loyalty in the long run.

Budget Micromanagement

• An obsession with ROAS often leads to cutting ad spend or constantly tweaking budgets based on short-term fluctuations, undermining consistent, strategic investments in growth.
• Constantly reacting to short-term performance metrics can create instability and prevent the implementation of effective long-term marketing plans.

A More Holistic Approach

To build lasting success, brands should adopt a more comprehensive view of marketing performance that balances ROAS with other crucial metrics including:

Share of Search

Share of Search measures a brand’s visibility and mind share within its target market. It indicates how often a brand is searched for relative to its competitors, providing insights into brand awareness and the potential for future growth. 

By analyzing Share of Search, marketers can gauge the effectiveness of their brand-building efforts and identify opportunities to increase market presence. This metric is particularly useful for tracking the impact of marketing campaigns over time and understanding how well the brand resonates with its target audience compared to competitors.

Contribution Margin

Contribution Margin considers the profitability and efficiency of marketing efforts in driving business results, rather than just looking at sales figures. This metric subtracts variable costs from revenue to determine how much money is available to cover fixed costs and generate profit. 

By focusing on Contribution Margin, marketers can evaluate the true financial impact of their campaigns and make more informed decisions about where to allocate resources. This approach encourages strategies that not only boost sales but also enhance overall profitability.

New Customer Acquisition Cost

Analyzing the cost and efficiency of acquiring new customers is essential for long-term growth and market expansion. New Customer Acquisition Cost (CAC) measures the expense incurred to attract and convert new customers, providing insights into the effectiveness of marketing strategies. 

By optimizing CAC, brands can ensure that their customer acquisition efforts are cost-effective and scalable. This metric is crucial for evaluating the return on investment of various marketing channels and tactics, helping brands to balance immediate sales with sustainable growth.

Customer Lifetime Value

Customer Lifetime Value (CLV) focuses on the total value a customer brings to a brand over their lifetime. This metric encourages strategies that prioritize long-term customer relationships by considering the recurring revenue a customer generates through repeat purchases and loyalty. 

By understanding CLV, brands can tailor their marketing efforts to enhance customer retention, satisfaction, and loyalty. Investing in long-term customer relationships not only increases CLV but also reduces churn rates and improves overall business stability.

Brand Awareness

Measuring how well a brand is recognized and recalled by its target audience is crucial for understanding the long-term impact of marketing efforts. Brand Awareness metrics track the extent to which consumers are familiar with and can identify a brand. High brand awareness often correlates with greater customer trust and preference, leading to increased market share and customer loyalty. 

By monitoring brand awareness, marketers can assess the effectiveness of their brand-building activities and identify areas where additional efforts are needed to enhance visibility and recognition.

How Canopy Management Can Help

A holistic approach that balances ROAS with these other key metrics helps brands develop more sustainable, effective marketing strategies. This means investing in creative campaigns that capture attention, drive brand awareness, and attract new customers, even if they don’t always yield the highest immediate ROAS.

A lot of Amazon’s top entrepreneurs have another strategy that they’ve quietly employed to become top sellers in their ecommerce niches; hiring a full service Amazon management agency. 

What would adding 67% more organic sales mean for your brand?

Turns out that when you combine the massive experience of Canopy’s Amazon Advertising Experts with smart tools and tech, you get industry-leading results like this:

• 84% Average Year-Over-Year Profit Growth for Our Partners
• 2.7 Billion in Revenue Managed
• 99.1% Partner Retention Rate

Canopy Management is a full-service marketing agency for Amazon and Walmart sellers. Our team consists of former Amazonians, multi-million dollar sellers, and award-winning experts.

When you consider the many ways that Canopy Management can help you grow your business, you’ll see why selling on Amazon is much easier “under the Canopy.”

• Strategic Growth Planning
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• Advertising Management
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• Demand Side Platform (Amazon DSP)
• Amazon Posts
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