Why does a high ROAS often hide the true picture of profitability?
We all like to see a high ROAS โ it’s a number that speaks to success. But is that “success” sometimes just an illusion?
While ROAS is a key metric for tracking return on advertising investment, many marketers forget that ROAS doesn’t tell the whole story. The question is: is ROAS enough to make strategic decisions that ensure long-term profitability?
We often ignore the bigger picture. For example:
- A ROAS of 5x looks impressive, but what if your LTV (customer lifetime value) is too low or your cost of acquisition (CPA) is too high?
- Can you afford a high ROAS in the short term if you are not achieving profitability in the long term?
Here’s how this situation might play out in reality.
Let’s imagine you sell a โฌ50 product with an ROAS of 4. If you invest โฌ12.50 in advertising (CPA), you generate โฌ50 in revenue – meaning you have a positive return on investment.
But what if your CPA increases to โฌ20? Then you still have a ROAS of 2.5, which may look good, but your profit plummets as acquisition costs eat into your margin.
What to do in this situation?
- If the CPA is too high, analyze where you’re losing – maybe the problem is low-quality traffic, overpriced keywords or poorly optimized ads.
- Make sure your target audience and offers are aligned with expectations. Sometimes it is better to attract a wider audience with lower acquisition costs than to focus on more expensive segments that may not bring enough profitability.
Ultimately, don’t focus on just one metric. ROAS is important, but without insight into LTV and CPA, you may be missing out on opportunities for long-term success. A broader perspective brings better decisions and long-term results.
