May 02, 2023

ROAS Converted into Profit ... Short-Term Profit

In this example, I depict three different relationships.

ROAS is in turquois. This company spends $100,000 on digital marketing, and we can see how ROAS changes as the company spends more and more on marketing (yes, you should be varying your marketing spend on an experimental basis so that you understand what happens when you greatly increase/decrease marketing spend).

When you obtain profit factors from your Finance team, you can convert ROAS to Profit per Customer or Profit per Order. That relationship is depicted in blue. Spend more, generate less profit per customer/order.

The maroon-thin line shows the incremental profit generated per customer for each additional $10,000 of marketing dollars spent. This number drops below $0 at $40,000 of marketing spend ... right around a cumulative (not incremental) ROAS of $4.00.

You are halfway toward an actionable outcome. Many digital marketers stop here, seeking to generate sufficient ROAS on efforts to guarantee profit.

This guarantees profit on individual campaigns.

Does it guarantee profit over time, and yield a healthy brand?

Absolutely not.

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