Google Ads Devotee | 10M+ in ad spend | Stop losing profit on P-Max | Founder & PPC expert @ Prominence
E-com brands: Google Ads accounts with sky-high ROAS scare me the most. Here's why they should scare you too: ROAS can be deceiving. It might show impressive numbers, but it doesn't reveal the impact on your business results. It's just a snapshot of how much money you've spent and how much money Google says you've made. It's a momentary screenshot of how much money you've spent, and how much money came in during the same period generated by Google, according to Google. Here's what your ROAS doesn't tell you: ๐ Whether that revenue came from new customers or existing customers. ๐ How much you are spending on acquiring a new customer. ๐ What a customer is worth to your company. ๐๐ป๐ฑ ๐๐ต๐ผ๐๐ฒ ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐ฒ๐๐๐ฒ๐ป๐๐ถ๐ฎ๐น ๐ธ๐ฒ๐๐ ๐๐ผ ๐ฏ๐๐๐ถ๐ป๐ฒ๐๐ ๐ด๐ฟ๐ผ๐๐๐ต. Here's an example: Let's say your account is currently spotting a nice 1000% ROAS. A 10x return. That's a great result, right? ๐ช๐ฒ๐น๐น, ๐๐ต๐ฒ ๐๐ฟ๐๐๐ต ๐ถ๐: ๐๐ฒ ๐ฑ๐ผ๐ป'๐ ๐ธ๐ป๐ผ๐! What if that 1000% ROAS is coming from existing customers or existing traffic only? If your Average Order Value (AOV) is $100, this means your CPA is $10. You just paid $10 to get a return customer. You just cut your profit margin by how much? 20%? 30%? All for a customer who might have returned to you anyhow. ๐๐๐ ๐ต๐ฒ๐, ๐ฎ๐ ๐น๐ฒ๐ฎ๐๐ ๐๐ฒ ๐ด๐ผ๐ ๐ฎ ๐ญ๐ฌ๐ฌ๐ฌ% ๐ฅ๐ข๐๐ฆ... ROAS doesn't tell you whether or not your advertising efforts are supporting your business goals. So the next time you get a report stating how well your account is doing because you have a high ROAS... You should be scared too. #googleads #facebookads #googleanalytics #ecommerce #shopify
Andy Mould
8mo
There are very few companies that customers will naturally go to time and time again to buy without some form of advertising. Itโs about being in the funnel at key times Having said that, youโre absolutely right re ROAS on its own being a vanity metric (similar to CR%). Performance needs analysing over and above this
But why there ads accounts still run Why don't their businesses die If we are capturing money from our existing customers just to show in google ads editor And not focusing on new customers One day we will be out of business Eventually campaigns should die
Chloe Christine
8mo
ROAS can be misleading but with certain platforms and analytics tools you can see % new vs existing customers. You can see this in Shopify (broken down specifically by google ads campaign if youโre using UTM parameters properly)
You hit the nail on the head, Michael! Those big ROAS numbers can sure look pretty, but they're just one piece of the puzzle. We gotta look at other stuff too, like how much it costs us to get new customers and what those customers are actually worth over time.
Jeroen Bruijnje
8mo
Seen this firsthand. ROAS was sky high and every leader was excited about it. Except for the people within the digital marketing team, as they questioned the performance. When setting a very high ROAS target, Google will look for people who are more likely to buy = returning customers. Returning customers should definitely be pursued, but use a retention strategy to do this.
David Olusegun
8mo
Been saying this for ages - ROAS can trick you into thinking you're winning when you're not. We need to look at the bigger picture - who's buying, how much are we spending to get them to buy, and will they buy again?
Marco Wimmer
8mo
I think they're questionable as they might have lost big profit $. I'd choose lower ROAS / higher gross profit volumes over astonishing ROAS any day, but business owners often miss that part. ๐ฅฒ
Prasenjit Sarkar
8mo
RoAS = [conversion rate (CVR) X average order value (AoV)] / cost-per-click (CPC). When RoAS is high because CVR is high, we should indeed be apprehensive that our ad sales are cannibalising our organic sales. Exactly as you have advised. But when RoAS is high because AoV is high (due to the very nature of the product category itself), we need not worry about cannibalisation. Also if organic sales, organic share of voice and organic brand recall were historically low, and the incremental ad sales have come in at a high initial RoAS, then, too, we need not be concerned about cannibalisation (yet).
Joined-up digital marketing for owners of multiple businesses โฆ eCommerce & DTC โฆ B2B lead gen โฆ Performance Marketing: SEO & PPC One of the first Top Voices for SEO but can't be bothered now everyone else is too...
8moYes, it's definitely something to avoid looking at on a per account basis. For our ROAS tracking campaigns we always break out brand-including campaigns (I.e brand. search, shopping that doesn't have brand excluded, remarketing) from the prospecting campaigns so that we can see how these compare AND make sure only a proportion of account budget (usually no more than 10-15%) is going towards existing customers