Marketing strategy: ROAS
ROAS - return on ads spends - means return on investment in advertising.
ROAS strategy, involves measuring returns on advertising investment, for individual marketing channels.
ROAS = profit / advertising costs
This strategy is based on the assumption that:
- Until we know which customer acquisition channels are profitable and which are not, we will never win in the market. Learn more: https://0101marketing.com/najlepsze-kanaly-marketingowe/
- The most important thing for a company, is to find a business model that, with a certain investment in advertising, would generate a return. With a dollar investment, we get two. Then we become millionaires, because we move to scale. Instead of spending £1,000 a month on Google Ads, we spend £100,000. We earn correspondingly more.
LTV – LifeTimeValue
When counting profit, it's worth taking into account more than just the first payment made by a customer. Especially when we sell something in a subscription or subscription model. That is, if our SaaS application costs $100 per month for a customer and on average customers use it for 10 months. It will be appropriate to count the profit over the entire life cycle of the customer. Which will amount to $1,000 in this case. We call this LTV - LifeTimeValue.
In the simplest terms, we are aiming for data, shown in such a table:
Where the rows show the selected customer acquisition channels, and the columns show the channel name, investment - how much we spent on the channel, and profit. In the last column is ROAS, which is the quotient: profit by costs.
The marketing channels we can use for Digital Marketing activities are:
How to conduct a ROAS strategy?
For a successful ROAS marketing strategy, it is essential that it always starts with:
- The idea - as illustrated by the light bulb in the picture.
- Then, according to the agile approach, we should start implementation as soon as possible. In the classic approach, we would write a 200-page business plan. Which would take a quarter. Here we invest 1 day in creating a Lean Business Model Canvas. To focus on marketing/advertising activities as early as possible.
- Finally, we define an MVP - that is, a Minimum Viable Product. In other words: such a product that takes as little time and resources as possible to produce, and represents the USP/UVP - answers the question: what makes the product unique and worth buying. Next, we define:
- Hypothesis - an affirmative sentence that describes the future. Preferably in the form of: measurable, embedded in time. For example: We will sell 20 software licenses by the end of the quarter.
- We conduct an experiment - we accurately implement the tasks set out in our plan.
- Evaluation - we evaluate the results and if we have received the expected return on investment, we scale. If not, we go back to defining the canvass of the business model and repeat the completed steps.
Basically, it's about finding a USP, for our product, and testing it.
This is where the real “artistry of marketing” begins.
It takes an outstanding business sense to correctly determine the answer to the question:
What makes a product unique and worth buying?
How do you create a unique offering that will sell in 2025?
Lean Business Model Canvas
How do you launch a new product?
Problem
What customer problem does our product/service solve. We list the most important three.
Solution
What exactly will the solution to this problem consist of. We list three functionalities.
USP (Unique Selling Proposition) / UVP (Unique Value Proposition)
What is the unique value/selling proposition of the product. We create a short, easy-to-understand message that answers the question: why is the product unique and worth buying?
UA (Unfair Advantage)
What makes the product unlikely to be replaced by competing solutions.
Segment
Who will the product be prepared for, who is the target audience?
Key Indicators
How we will measure whether our product is attractive to customers. Most often it is profit, but it can also be: number of users, number of website views, etc.
Channels
What channels we will use to reach customers with information about the product.
Revenue and costs
Where does the ROAS strategy work?
- For companies that don't know what else will work in the market and want to quickly see if:
- Their business model works.
- If so, for which marketing channels?
- Find out what message to put in which marketing channel so that there is a return on investment.
- For companies that have been doing business for the past few years based on only one customer acquisition channel. It could have been referrals, or running campaigns in Google Ads. As the market situation has changed, they are looking for new sales opportunities. Or they simply have an appetite for growth - launching a new product on the market.
- This strategy works especially well, for industries where most of the promotion is done online, like for companies: IT & Software.
- For a medium-sized IT & Software company, it should take no longer than three months to experiment with the business model in most channels. In our experience, it is optimal to invest 80 hours of work per month. In addition, promotion expenses should also be included if paid channels are chosen. Here it is difficult to predict the price of promotion - because a click on the keyword “software house” in the United States can cost as much as $50.
- The implementation of this strategy can prove to be very ineffective if one relies solely on quantitative data. Without a deep qualitative analysis of customer proceedings. Here are some resources on the subject:
- Witold Wrodarczyk, https://www.linkedin.com/video/live/urn:li:ugcPost:7122130118625419264/ (od 8 minuty)
- Chris Walker, https://www.linkedin.com/posts/chriswalker171_demand-marketing-b2b-activity-7122201912904486912-jj3T?utm_source=share&utm_medium=member_desktop.
The results of our experience working for IT & Software companies, show such average ROAS results for each marketing channel:
