We’ve previously discussed why ROAS shouldn’t be the only metric used to measure campaign performance in Google Ads (You can read it here if you haven’t: Why Could ROAS Potentially Confuse Us). Now, let’s think about an important question: If ROAS isn’t reliable enough for many situations, what other metrics better reflect the success of your advertising campaigns?
Before we start, remember that we look beyond simple metrics like impressions and clicks, though they have their own value depending on specific goals and campaigns.
Let’s take a look into some vital metrics in analyzing Google ads performance:
1. Customer Acquisition Cost (CAC)
For businesses running multiple campaigns to acquire leads, calculating the Customer Acquisition Cost (CAC) for each can be very insightful. By examining a specific campaign period, you can determine how much you spent to acquire a customer. Then you can ask yourself questions like, is this cost-effective? What changes could potentially decrease this cost and enhance efficiency?
2. Lifetime Value (LTV)
Lifetime Value (LTV) often provides more valuable insights than ROAS, offering a comprehensive view of a customer’s total value over their lifetime. Since LTV is a long-term metric, it’s most accurately assessed over an extended period. This approach helps evaluate a campaign’s performance and is a part of calculating another significant metric: Adjusted ROAS.
3. Adjusted ROAS
Calculating the LTV metric allows us to develop a metric that is more precise than traditional ROAS, which we call Adjusted ROAS. The rule is clear: If you acquire a user who will financially benefit your business in the future, this should be counted.
You need to find the percentage of users who convert to customers, then multiply this percentage by the LTV. This calculation estimates the true value each customer will likely add to your business over their lifetime. You can use this value instead of the direct revenue to compute the Adjusted ROAS.
Formula for Adjusted ROAS:
Adjusted ROAS = Total Lifetime Value of Acquired Users / Total Ad Spend
Adjusted ROAS provides a clearer picture of your advertising’s effectiveness. Unlike common ROAS, which only shows a snapshot, Adjusted ROAS indicates the real implications of your numbers.
By considering alternative metrics like CAC, LTV, and Adjusted ROAS, you can gain deeper wisdom into your advertising performance and make more informed decisions.
I hope this blog about ROAS and its alternatives helps you set your advertising strategies with clarity and confidence.