This METRIC is More Important Than ROAS
Go beyond, but not wrong.
One thing which I have seen in majority of the brands & businesses which I consult is that majority times, the metrics that they judge performance on might not actually be telling you the full story.
It can be easy to look at a 5x ROAS and think that you’re swimming - when in reality you might be sinking.
ROAS at face value means nothing.
It could mean you’re on the money or it could mean you’re flushing cash down the toilet.
Example, let make ask you this.
Which is better from the below mentioned?
Rs. 1000 AOV and a 5 ROAS at Rs. 200 NC-CPA
Rs. 1500 AOV and a 2 ROAS at Rs. 750 NC-CPA
Mostly, people would be drawn to 5 because it’s bigger and it’s indicating that we’re getting a higher return on our spend.
But what if I had told you that the product under a 5 ROAS has a 50% gross margin and the product under a 2 ROAS had a 75% gross margin?
This is how the profits would look like:
Rs. 1000 (AOV) - Rs. 500 = Rs. 500
Rs. 500 (Gross Profit) - Rs. 200 (NC-CPA) = Rs. 300 Contribution profit
Rs. 1500 (AOV) - Rs. 375 = 1125
Rs. 1125 (Gross Profit) - Rs. 750 (NC-CPA) = Rs. 375 Contribution Profit
Quickly we can see why we need to be investing more in the second option.
So “Contribution Margin” is way much more important that ROAS for D2C brands.
So yeah, my entire scaling Meta ads on day to day & month on month & year on year for any business is always with a heavy focus on NC-CPA, NC-ROAS, AOV, CLTV which then leads to Annual profitability (vs. just ROAS fucking number).
When I posted a similar video post on Instagram, somebody commented:
Honestly, I have compassion for this person because he doesn’t know me fully & my purpose of posting this video on Instagram.
That’s why, I took a little bit of a witty yet practical approach while replying as shown below:
Infact look at this Telegram message conversation which I was having with one of our D2C consulting client where I explaining this same concept to the founder of the brand:
When I say: Don’t take mental stress of ROAS, I say it with multiple reasons.
Now few reasons are:
ROAS in Meta is Blended (not NC-ROAS).
ROAS of others can’t be compared with yours.
ROAS doesn’t tell you profits.
ROAS is different for funded vs. bootstrapped.
ROAS is not that important if you are profit focused.
And I can go on & on & on but I will hold my writing on ROAS for a little while because this entire ebook is around practical deep data analysis which is beyond just ROAS.
In my career, I have spoken to founders who are leading FUNDED COMPANIES & founders who are running BOOTSRAPPED companies.
At the end, both have 1 ideology: PROFITS!
That’s all for this topic.
Dumping Personal Thoughts:
1/3: I love taking my Inner Circle Client calls from my car if I am travelling.
2/3: I love to then take car selfies too. Lol
3/3: I was sharing my 2021 story with my Inner Circle clients today about writing long newsletters & I suppose, I am reloading in 2024 with my newsletters. Hoping to be consistent just like I did in 2021. Fingers crossed :)
And that’s all for the personal dump.
You can always comment your thoughts & let me know what you think & feel at the moment about your life, business or anything if you feel like sharing.
That’s all for now.
Infinite Love Unlimited Gratitude,
Your JorrDaar Bhaai
Digital Pratik 😎
The T-shaped Performance Marketer
Focusing on NC-CPA, NC-ROAS, AOV, CLTV
& Annual Profitability while Bootstrapping
