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PRoAS for Maximum ROI: The True Metric for Digital Advertising Success
As a marketer, it's essential to understand how to maximize your return on ad spend (ROAS) while also ensuring profitability. But, ROAS alone can be misleading if you don't account for the true cost of goods sold (COGS). That's why many experts suggest focusing on "Profitable Return on Ad Spend" or PRoAS instead.
What is a Profitable Return on Ad Spend (PRoAS)?
PRoAS is the net contribution margin you earn after every other cost is accounted for, including customer service and returns. By prioritizing PRoAS, you'll gain a clearer understanding of your all-in profitable return for each channel you run, such as Meta, TikTok, Paid Search, and CTV.
Here are some actionable steps you can take to achieve PRoAS:
Determine Your Net Contribution Margin
To calculate PRoAS, you need to know your net contribution margin for each channel. This is the amount of money you make from each sale after subtracting all your variable expenses, such as product costs, payment processing fees, shipping costs, and customer acquisition costs.
Once you know your net contribution margin, you can calculate your PRoAS by dividing your revenue by your total ad spend for that channel. This will give you a better idea of how profitable each channel is, rather than just looking at RoAS.
Track Your Customer Acquisition Costs
Your customer acquisition cost (CAC) is the total cost of acquiring a new customer, including advertising, marketing, and sales expenses. To achieve PRoAS, you need to keep your CAC lower than your net contribution margin.
Tracking your CAC is crucial, as it helps you optimize your advertising campaigns, test new ad creatives, and target the right audience. By reducing your CAC, you'll increase your PRoAS and profitability.
Analyze Your Channel Performance
To optimize your advertising campaigns, you need to analyze the performance of each channel regularly. Use data analytics tools to track key performance indicators (KPIs) such as click-through rates (CTR), conversion rates, and cost per acquisition (CPA).
By analyzing the performance of each channel, you can identify which channels are driving the most revenue and which channels are not performing as well. You can then adjust your advertising spend accordingly to maximize your PRoAS and profitability.
Test and Iterate
Testing and iteration are critical to achieving PRoAS. By constantly testing new ad creatives, targeting options, and bidding strategies, you can find what works best for your business.
Testing can also help you identify underserved credit and attribution, where certain channels or campaigns may be contributing more to your revenue than they're being given credit for. By identifying these opportunities, you can optimize your advertising spend and increase your PRoAS.
In conclusion, PRoAS should be a crucial metric for any business looking to maximize its profitability from advertising. By focusing on net contribution margin, tracking CAC, analyzing channel performance, and constantly testing and iterating, you can achieve PRoAS and drive sustainable growth for your business. Contact us today.