Why you need to stop looking at your ROAS

Hey there! 👋

Writing this while up in the air from a trip to Cyprus for a couple of days. Escaped the 4 degrees and enjoyed some 20 degrees. My white skin is definitely not used to the sunlight and I need to travel more often. (1 day late, I hope you forgive me!)

I hope last week was a great week and your ROAS was looking sweet. This week I am going to touch on ROAS and why we’re looking less and less at it and why it can be a vanity metric.

Let’s get into it!

So, while a lot of business owners I speak to and have spoken to care about ROAS I think there needs to be a shift in why they care so much about a metric that stands for spending a dollar and getting 1, 2, 3 or more back.

While for some businesses the ROAS model or the AOV/CAC model makes sense I believe in the long run operating a business on a CAC/LTV model will bring the highest returns, especially when building a business past 7 and 8 figures.

The reason I dislike businesses that focus just on ROAS is that they are not thinking long-term. They focus on spending dollars and immediately want to be profitable. In my opinion, that’s very shortsighted and limits your growth.

“But if I am spending 1 dollar and getting 4 back I am growing like crazy?”

Well yes, you might be. But what if I told you you could be growing even faster with the CAC to LTV model? Because you could drive more spend, lower your ROAS target and get more volume and drive more growth in the next 90 days profitably by simply understanding this model for growth.

So how does it work?

It starts by understanding your numbers. This is by far the biggest reason e-commerce businesses fail when scaling is that they don't know their numbers.

Grab a piece of paper and try to get these numbers:

1. Your COGS (landed)

2. Your AOV

3. Your 30, 60, 90 and 120-day LTV

By understanding these numbers you should be able to identify your breakeven acquisition costs.

When you’ve figured out your breakeven CAC and know your 30, 60, 90 and 120-day LTV you should be able to tell what CAC you can hit and when you will make your money back.

That last part is important! Just because you know you can make your money back after 60 days while breaking even on the front end doesn’t mean it’s right for you. You need to make sure it makes sense to look at your cash flow cycle too. Does your cash flow cycle support the fact you’re only making your money back after 60 days?

Block out a day next week to figure out whether or not the CAC to LTV model makes sense for you.

Some clients of ours use the following tools to support this model:

1. Credit cards

2. Parker

3. Plastiq

This all sounds nice and are fun things to figure out. But I want to give you some tips to implement today to make sure your acquisition costs lower or the model can work out if financially you’re not able to make it work at this moment:

1. Landing pages. This is by far the best lever you can pull to not only increase conversion rate, but also improve AOV. My favourite landing page builder is Replo.

2. Offers. Try to think in unique offers to improve conversion rate, and boost AOV and also your LTV. Need some advice to craft better offers? I’ve started doing audits where I’ll give you 3 offers you can try. Schedule a 30-minute call here.

3. Invest into better content. As an agency that focusses a lot on content I’ve seen this to be one of the bigger growth drivers we have next to landing pages and offers.

I hope this gives you some clarity into what’s possible and brings you some value into how to make your eCommerce business grow faster.

Need a reliable source of truth and better insights into data? Triple Whale hooked me up with a 15% lifetime discount on your subscription. Triple Whale is a mandatory tool for all of our partners and couldn’t have grown some of them by over 800%. Get your 15% off here. If you're an existing customer, just chat to support and tell them I sent you with code: DOUBLEU15

Most Valuable Piece of Content

Every week I want to share a piece of content I've found valuable and learned a lot from. This week it's the Limited Supply podcast where Nik and Moiz dive deep into a great conversation with their manufacturer that scaled all the way with them when Native started to ramp up manufacturing tens of thousand of deodorants per week.

Top 5 Ads of The Week

I've been using Foreplay for months now, and I can honestly say it's one of the best value-for-money tools for any eCommerce brand, agency owner or anyone that runs paid media. It allows you to save ads from TikTok's and Facebook's ads library and keep them forever in your inspiration boards!

Go get yourself a free trial here!

That's a wrap!

I hope you've enjoyed this week's issue of DTC with Dennis and it brought you value on how to scale your business with the right model and why you need to stop stressing so much about ROAS 😉

See you next week at 7 PM CEST.

All the best,

Dennis 💚

P.S. On Twitter? Follow me here for daily value bombs about eCommerce and DTC!