For a long time, the industry relied on the blended ROAS metric, which combined the results from various advertising channels to calculate the Customer Acquisition Cost (CAC). This approach was valuable when attribution models were more effective, and marketers could rely on a unified metric to gauge their campaigns' success. However, the advertising landscape has become increasingly complex, resulting in substantial discrepancies in reporting. These discrepancies often lead to misjudgments of a channel's actual performance, causing suboptimal allocation of resources and a decline in overall campaign effectiveness.
Recognizing the limitations of the old ROAS paradigm, we propose a new approach that aligns with the core business objectives. At its essence, a business owner primarily cares about three key factors:
While these metrics are essential, they don't provide a granular view of your paid media's efficiency, effectiveness, or profitability. As media buyers, these are the factors that matter most to us. Hence, we introduce a new ROAS paradigm that comprises three vital metrics:
This metric measures the effectiveness of your marketing ecosystem, reflecting the relationship between total revenue and total ad spend. It offers a channel-agnostic heuristic that ties advertising efforts to business objectives.
ncROAS evaluates the efficiency of your marketing ecosystem in generating revenue from new customers, emphasizing the importance of prospecting. It acts as an early warning system for the long-term health of your business.
POAS quantifies the profitability of your marketing efforts by calculating the contribution margin. It ensures you allocate resources to the right products or services for optimal returns.
By focusing on these three ROAS metrics alongside Total Revenues, Net Profit, and Net Margin, you gain a holistic perspective on your business's health, allowing for more informed marketing decisions.
To illustrate the importance of this new paradigm, let's consider the case of a Shopify store with an annual run rate of approximately $1 million. Under the old growth formula of Traffic * Conversion Rate * Customer Value, the business appeared to be in good shape. However, when the focus shifted to eROAS, ncROAS, and POAS, the reality became clear.The business's profitability had been masked by the wrong metrics, resulting in losses of approximately $28,000. This case exemplifies the importance of tracking the new ROAS metrics to ensure you are promoting the right products or services and driving profits in conclusion, understanding the nuances of eROAS, ncROAS, and POAS is crucial to your success as a media buyer. These metrics provide a more accurate representation of your marketing ecosystem's health and help you make data-driven decisions for both the short and long term. To delve deeper into these metrics and explore how they can benefit your marketing strategy, don't hesitate to reach out to us at [Your Contact Information].