ROAS is nearly a dominant metric in valuing marketing performance.
It is easy to read, tightly related to money which everyone cares about, and easy to measure as well.
However, it actually has a lot of limitations and using it as the sole metric could lead to a huge misunderstanding of the marketing performance, as well as easily lead to “data-making” marketing activities.
ROAS cannot reflect the margin differences between products. Keep selling low-margin products would show a high ROAS but actually low profit.
ROAS cannot reflect the production fee of the advertisement. Some advertisements that have a high production cost or with high-cost brand ambassadors would affect this much, although it is usually not the common case in today’s digital marketing practices.
ROAS cannot reflect the cost of the product return. This could be very important if the marketing team's performance is solely measured on ROAS, and the team is not professional enough. This could lead to very aggressive marketing practices from the team, which would lead to high ROAS and a high return rate as well. Moreover, a high return rate could also mean low satisfaction from customers.
ROAS cannot show brand building and loyalty building. Brand building is important in modern marketing. The e-commerce world has developed so quickly, that without the help of branding, it is difficult for your products to stand out. This is also the case for many businesses without brands on e-commerce platforms like Amazon. In the case of using ROAS as the sole metric, in the short-term, your marketing team would drive most of the marketing activities as conversion, without brand building and loyalty building.
ROAS cannot show the actual profit value. In the case of high ROAS and low actual conversion value, the actual profitability is limited. This could happen if the ROAS target is set too high, thus the marketing team could only limit the advertisement investment to achieve this, because usually for conversion ads, the higher the investment, the lower the ROAS is.
ROAS is an excellent metric to know part of the performance of advertisements quickly. However, depending on it solely on making decisions could lead to non-optimal practices. It would be even more serious if it is the metric given to the marketing team by the management.
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