May 01, 2023

ROAS-Based Digital Marketing

ROAS. Return on ad spend. The inverse of the old-school 1980s catalog metric called ad-to-sales ratio (yes, they are the exact same thing).

It's a metric that dominates digital marketing. If you don't have access to profit information (or gross margins at bare minimum), it's the metric of choice. It correlates directly with profit, so it is a metric that has value.

Your challenge (and you already know this) is that you don't truly know if a ROAS of $14.00 or $2.75 is appropriate. You know $14.00 is likely profitable ... highly profitable. You know $2.75 is probably marginally unprofitable ... but is that bad?

Tomorrow, we'll explore math that reveals how much we've been deluded to think that we must have a high ROAS or we are failures as marketing professionals. All of this is leading us toward the value of Marketing Budget Experiments.

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