Increasing ROAS *decreased* our growth.

On the 10 year journey to Chubbies’ IPO, the realization that changed how we invest marketing resources was this --> Increasing ROAS decreased our growth.

btw, I was the world’s largest ROAS (AKA Return on Ad Spend) fanboy for embarrassingly too long, but hey, my loss is your gain, so here's:

1. Three counterintuitive things I learned about ROAS
2. Two new ways to think about it
3. Three things you can do about this right now

let's do it.

** Three counterintuitive things I learned about ROAS

1. “ROAS has been presented as a growth metric, when it’s actually anything but. In fact, ROAS is precision-engineered to keep brands small,” says Tom Roach. Chasing ROAS chases easy sales, not growth. Brand growth comes from light buyers, but focusing on high ROAS can lead to you targeting heavy buyers, therefore limiting growth.

2. ROAS is not actually a measure of effectiveness but how efficiently you achieved it. As Les Binet says: “Effectiveness first, efficiency second.”

3. Simply put, ROAS is the opposite of incrementality.

Two new ways to think about it

1. It's like hiring an employee to stand just inside the entrance of your shop and tap shoppers on the back as they enter. A week later, the employee demand a raise, claiming credit for all the customers they’ve “enticed” to come in.

2. Imagine a soccer coach believing their forward is entirely responsible for every goal. As a result, in their infinite wisdom, they ditch their defense and midfield, only keeping their center forward. They end up losing every future game, but their “Goals Per Player” (the ROAS of this example) is higher than ever!

Three things you can do about it right now **

1. Vanity VS Value: Understand the negative externalities of the metrics we goal our teams on. For example, because many of us are seeing headwinds, brands either cut marketing spend or increase the ‘accountability’ of the dollars spent. The negative externality is that we're over-harvesting our existing customers in order to hit our numbers. ROAS and revenue from returning customers may be up (vanity metrics), but contribution dollars, share of search, and new customer revenue from unpaid sources (real business metrics) are likely down.

2. Party & Ponder: Spend half a day with your team and deeply consider the metrics you want to optimize your team’s efforts around in 2024. The whole team needs to take ownership of the metrics that matter AND have a deep understanding of the negative externalities of vanity metrics like ROAS. This is a super high-leverage use of time

3. Cultivate Creativity Completely (the 3C's of winning): Since marketing works by influencing future buyers, think about developing creative that gets noticed and gets remembered. Give your team permission to be bold, put on a show and have a little fun. As John Dawes of the Ehrenberg-Bass Institute says, “The brand that gets remembered is the brand that gets bought."

Enjoy
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