Does a higher ROAS mean a successful ad? Be careful not to fall into the data trap of advertising effectiveness!
Table of contents
- The truth about ROAS: the data trap behind high data
- Definition and calculation of ROAS
- Focusing only on ROAS may sacrifice brand growth opportunities
- Satisfied with high ROAS and afraid to increase budget? Your brand could be missing out on millions in revenue!
- Case Study: Seize the Opportunity to Increase Advertising Budget and Improve Overall Results
- How to balance ROAS and revenue growth
- Conclusion: High ROAS ≠ high returns, the key lies in comprehensive layout
The truth about ROAS: the data trap behind high data
Do you think that a higher ROAS (Return on Ad Spend) means a more successful advertising campaign? In fact, this may be a data trap! Many marketers are crazy about pursuing high ROAS, thinking that this is the only way to ensure the maximum effectiveness of advertising. However, this single-data-driven thinking may cause your advertising strategy to stagnate or even miss out on greater market opportunities. So, is the higher the ROAS, the better? Let Xiao Zhun take you to uncover the truth about this advertising effectiveness myth!
Definition and calculation of ROAS
In the field of digital advertising, ROAS (Return on Ad Spend) is often regarded as an important indicator to measure advertising effectiveness. The calculation method is:
ROAS = Revenue from advertising / Advertising spend
For example, if a brand invests 1,000 yuan in advertising and ultimately generates 5,000 yuan in sales revenue, the ROAS is 5. It seems that the higher the ROAS, the better the advertising effect, but in fact, this is not absolute.
Looking only at ROAS may miss opportunities for brand growth
When a company focuses only on the audience group with the highest ROAS, it may result in a marketing strategy that fails to bring about better performance growth. It only targets old customers who have purchased in the past, but ignores the possibility of market expansion. Such a strategy can indeed maintain beautiful data in the short term, but in the long run, brand growth will face bottlenecks.
🚨Three major risks of targeting only a specific audience
(1) Market saturation and limited performance growth - Existing customers have a limited purchasing cycle. When consumption reaches the upper limit, performance will stagnate.
(2) Brand influence is hindered and competitors take advantage of the opportunity to grab market share - A long-term lack of new blood may lead to a gradual erosion of the brand's market share.
(3) Brand loyalty ≠ continued consumption - Even if many loyal users like the brand, they may reduce their purchase frequency due to lack of immediate demand.
❗Key conclusion : High ROAS ≠ brand growth. Brands should take into account both old customer management and new customer development to avoid market stagnation❗
Satisfied with high ROAS and afraid to increase budget? Your brand could be missing out on millions in revenue!
If a brand blindly pursues high ROAS, it often means that the advertising budget is too conservative in both sales and traffic targets, resulting in limited market expansion and missed opportunities for higher total revenue.
💡 Advertising budget vs. revenue data analysis
| Advertising budget | ROAS | Total revenue | Revenue growth |
|---|---|---|---|
| 500,000 Yuan | 12 | 6 million yuan | – |
| 800,000 yuan | 9.5 | 7.6 million | +1.6 million |
| 1.2 million | 8.2 | 9.84 million | +3.84 million |
Data observation: The budget increased by 700,000 yuan, ROAS dropped to 8.2, and revenue increased by nearly 4 million yuan
Even though ROAS has decreased, overall revenue has increased significantly, which shows that a moderate increase in budget can lead to a larger market reach and thus increase total sales.
❗Key conclusion : ROAS may decline in the short term, but if the market can be expanded effectively, the final revenue will far exceed the initial budget❗
Case Study: Seize the Opportunity to Increase Advertising Budget and Improve Overall Results
Taking the advertising data of an e-commerce brand operated by Xiaozhun Marketing as an example, the data shows that a moderate increase in advertising budget can bring better overall results. The following are data observations:
| stage | Advertising expenses | ROAS | Main strategies | Conversion results |
|---|---|---|---|---|
| Initial stage of the activity | Low | Approx. 33 | Focus on loyal customers, lock in high-willing users, and increase brand popularity | Quick response from loyal customers, growth in order volume, and rapid accumulation of early sales |
| Mid-term | 40% increase | Approx. 10 | Expand your target audience and increase your budget to improve reach through targeted remarketing | ROAS temporarily declined, but performance continued to grow, laying the foundation for a subsequent explosion |
| Late Event | Continue to increase | Approx. 19 | Continue to increase audience budget, enhance promotion efforts and purchase impulse during event countdown | ROAS increased significantly again, with performance growth exceeding 200% |
📌 Overall effectiveness of the campaign: Compared to the previous month, advertising expenses increased by approximately 40%, ROAS increased from 3.44 to 17.9, and the total performance growth rate reached 407% .
The data shows that even if ROAS fluctuates slightly in the short term, from the perspective of the overall activity schedule, increasing the budget in a timely manner while buying momentum is high can bring higher total revenue.
🔑Xiao Zhun’s exclusive delivery tips: maximize advertising effectiveness
1. Initial stage of the activity: lock in loyal customers and build up popularity
- Target audience : loyal customers, high-value audiences
- Strategy : Brand exposure + high conversion product combination
2. Mid-campaign: Increase budget and expand audience to improve market penetration
- Target audience : Similar audience + remarketing audience
- Strategy : Increase budget, target remarketing, build purchasing confidence
3. Late stage of the activity: Strengthen conversion and seize the opportunity of high buying momentum to boost sales
- Target audience : Highly interactive but unconverted users + a broad audience
- Strategy : Continue to increase budget depending on the results, emphasize the countdown to the event to stimulate buying again
4. Continuous optimization: data-driven + budget adjustment
- Monitoring focus : traffic stability, actual expenditure, ROAS, total performance
- Strategy : Dynamically adjust budget and refine audience segmentation
How to balance ROAS and revenue growth
The key to maximizing the value of advertising budgets is to find the balance between ROAS and revenue growth. Xiao Zhun also compiled some strategic suggestions:
1. Periodic budget adjustment
When buying momentum increases, increasing the budget moderately can lay the foundation for subsequent high conversion rates, even if ROAS drops temporarily.
2. Multidimensional Data Analysis
In addition to ROAS, you should also consider indicators such as total expenditure, total performance, and traffic stability to comprehensively evaluate advertising effectiveness.
3. Continuous monitoring and optimization
Pay close attention to the performance at each stage and adjust the strategy in time to maximize ROI.
4. Long-term strategic planning
Don’t cut your budget simply because of a short-term drop in ROAS; consider how increased exposure can contribute to long-term brand value.
5. Expand your target audience
Don’t just focus on the highest converting audiences, try to reach a wider base of potential customers.
Conclusion: High ROAS ≠ high returns, the key lies in comprehensive layout
The success of advertising is not judged solely by the ROAS level, but depends on the overall market layout and strategy adjustment . At different stages, locking in loyal customers, expanding the audience, strengthening conversions, and continuous optimization may seem simple, but only by being truly accurate and efficient can advertising not just "burn money" but bring long-term, stable growth .
But the question is, what stage is your brand currently at? How should the budget be adjusted to maximize ROAS? There are no standard answers to these questions, as each brand’s market environment and customer structure are different.
👉If you want to know how to maximize the effectiveness of advertising and tailor the most suitable delivery strategy according to your brand, consult us immediately to make your advertising plan further achieve breakthroughs and growth!
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