Why CMOs Must Rethink ROAS as a Key Performance Indicator

Reassessing ROAS: Why It’s Time for Change

Return on ad spend (ROAS) has historically been the golden metric of paid media performance for marketing departments. Yet, while it provides a clear ratio of revenue generated to the money spent on ads, there's a growing sentiment among CMOs and industry leaders that ROAS should not be the end-all benchmark. Relying solely on ROAS can create a deceptive understanding of business growth, obscuring the broader narrative of effective marketing practices.

The Limitations of ROAS as a Standalone Metric

Concrete calculations of ROAS—revenue divided by ad spend—may mask critical insights about your campaigns. For instance, a staggering 4:1 ROAS may seem impressive. However, it often reflects just the maintenance of existing customer relationships rather than engaging new prospects, leading companies on a treadmill of short-term wins rather than long-term success.

Furthermore, ROAS tends to ignore profitability dynamics. For example, high costs of goods sold and operational expenses can skew these seemingly positive return percentages. If a campaign boasts a stellar ROAS while bleeding profits, the metric has lost its value. In effect, it can hinder investments in exploratory strategies designed for future growth, limiting a brand's ability to evolve and capture new market segments.

Shifting Perspectives: Beyond ROAS

CMOs should rethink their reliance on ROAS and view it through a more multi-dimensional lens. While it can serve as a diagnostic tool, it's essential to consider broader performance indicators that reflect sustainable business health, such as customer lifetime value (CLV) and overall market share.

For example, by integrating CLV into marketing strategies, brands can identify long-term relationships that foster repeated purchases. Companies that focus on lifetime customer journeys rather than isolated spending figures create a more robust ecosystem that supports ongoing profitability and brand loyalty. Community engagement metrics, brand awareness, and organic traffic should also factor into the overall assessment of marketing effectiveness.

A Broader Palette of KPIs

In a world where data drives decisions, CMOs must embrace a range of metrics to gauge advertising success. Factors like customer acquisition cost (CAC), conversion rates, and retention rates provide a richer, more nuanced understanding of paid media performance. Using a diverse set of indicators allows marketing teams to view their efforts holistically, moving away from shortsighted victories for a longer-term strategy.

Utilizing ROAS for comparative analyses remains valid; it offers insights on campaign performance across various channels. Yet, it’s crucial that marketing leaders don’t let it become the singular focus. Instead, they should treat it as one piece of a larger puzzle, recognizing its limitations while exploring various types of data that contribute to success in marketing.

Creating Meaningful Change in Marketing Metrics

Rethinking ROAS paves the way for better decision-making in marketing. Engaging closely with your marketing team and agency partners about which metrics provide the best insight into the campaigns is vital for mutual goal alignment. The insights gained from a collaborative approach to KPI exploration can empower brands to invest in forward-thinking strategies that foster growth and innovation.

In conclusion, by reassessing the role of ROAS and incorporating a broader spectrum of performance metrics—like customer engagement and brand equity—CMOs are positioned to steer their organizations toward meaningful and sustainable growth. Embrace the change, explore diverse metrics, and remind yourself that in marketing, the journey is just as important as the destination.