This episode cuts through the noise around ROAS targets, explaining why a singular target is often misleading. It emphasizes understanding your true costs and profit margins to set a sustainable ROAS that drives actual business growth, rather than just hitting a vanity metric. Operators will learn to differentiate between MER and ROAS and how to use both effectively.
Key takeaways
Don't rely solely on a single ROAS target; instead, calculate your Minimum Acceptable ROAS (MAR) by factoring in all operational costs, not just ad spend.
Understand the difference between ROAS (Return on Ad Spend) and MER (Marketing Efficiency Ratio); MER provides a more holistic view of your marketing
Focus on profit, not just revenue. A high ROAS on low-margin products can be less profitable than a moderate ROAS on high-margin items.
Regularly re-evaluate your permissible ROAS as business costs, product margins, and market conditions change.
Utilize both MER and ROAS to gain a comprehensive understanding of marketing performance and profitability across the entire business, not just individual campaigns.
Here's a conversation that everyone in DTC has had too many times:
Agency: "What's your ROAS target?"
Brand: "Well, what's a good ROAS on Meta?"
That conversation is broken on both sides. Great agencies help brands determine that answer; great brands know it isn't as simple as that.
In this episode, I'm helping you answer this question the only way you really can: with a hard look at your unit economics and customer lifetime value.
IMPORTANT NEWS!
The Andrew Faris Podcast is now available on YouTube! If you prefer to watch your podcasts, click here or head to www.youtube.com/@andrewfarispodcast to visit the AFP channel and subscribe.
EPISODE HIGHLIGHTS [00:00:11] Determining target is crucial. [00:04:33] ROAS target depends on CAC. [00:10:09] Profitable ecommerce: first order profitability. [00:14:06] Focus on first purchase unit economics. [00:18:51] LTV affects target setting strategy. [00:23:51] Forecast LTV for business success. [00:28:04] No takeaway. EPISODE SPONSOR
Virtual assistants can be helpful. Virtual professionals can transform your business. Get connected to incredible ecommerce talent from the Philippines with More Staffing by visiting www.morenow.co.
EPISODES REFERENCED IN THIS SHOW "With $10M In Revenue And $0 In Ad Spend, Isaac Medeiros Is In A Class Of His Own" (Apple, Spotify) OTHER LINKS FROM THIS SHOW
What does this episode say about paid acquisition?
Don't rely solely on a single ROAS target; instead, calculate your Minimum Acceptable ROAS (MAR) by factoring in all operational costs, not just ad spend.
What does this episode say about analytics & attribution?
Understand the difference between ROAS (Return on Ad Spend) and MER (Marketing Efficiency Ratio); MER provides a more holistic view of your marketing
What does this episode say about finance & fundraising?
Focus on profit, not just revenue. A high ROAS on low-margin products can be less profitable than a moderate ROAS on high-margin items.
What does this episode say about paid acquisition?
Regularly re-evaluate your permissible ROAS as business costs, product margins, and market conditions change.
What does this episode say about paid acquisition?
Utilize both MER and ROAS to gain a comprehensive understanding of marketing performance and profitability across the entire business, not just individual campaigns.
