Companies need to rethink ROAS in 2024

Successful marketers need to rethink their approach and strategy for ROAS in 2024. GroundTruth CMO, Brandon Rhoten, explains where to start.

The unavoidable truth for all marketers is that 2024 will be an expensive year for advertising. Between political campaign spending, multi-channel advertising strategies, and consumer trends, marketers should all expect to pay higher CPMs. What’s more, most marketing teams don’t have an unlimited budget to allocate towards these rising costs. We all have to find a way to make campaigns more effective to keep Return on Ad Spend (ROAS) and customer loyalty high. 

It sounds simple enough. Measure performance constantly, optimize in real time, and don’t let your ROAS metric fall below the goal. But there is nuance to understanding ROAS, particularly when running sophisticated, multi-channel ad campaigns. The numbers aren’t black and white, at least not in performance reports. To be successful this year, companies need to start thinking differently about what ROAS measures and how to improve it for your 2024 goals. 

ROAS requires nuance to help teams solve the most important problems

Our marketing team just finished our planning process for this year. The single question that guided all our strategy sessions was “What problem are we trying to solve?” We know the objectives we need to achieve, but the reality is we could get there using a variety of strategies. Remembering the main driver of each tactic helps us decide how to measure ROAS in a meaningful way. 

For example, we might track ROAS for new business compared to existing customers to understand how we’re impacting customer retention and growth. We might compare ROAS from different channels (including mobile, CTV, DOOH, foot traffic, online store visits, etc.), using different media on different audience segments to understand what resources we need. We know which channels are an investment for the future and which ones need strict adherence to our target. And the same is probably true for your organization. At least, it should be if you want to be competitive in the year of big advertising budgets. 

As a single metric, ROAS is a powerful way to understand what provides a reasonable return in your marketing mix at the most crucial moments of your customers’ decision process. Add to it another, correlating measure of business impact, like foot traffic, and it becomes even stronger. By connecting ROAS to your other performance metrics, you improve your chances of running an efficient and impactful campaign. 

ROAS requires context for each channel 

The other critical change to how your marketing team uses ROAS is to always keep context in mind. I mentioned earlier that we have some channels that are an investment in the future. We, like most teams, have identified places we want to expand. That might mean breaking into a new market, trying a new advertising channel, or repositioning your company. In terms of performance, that means you’ll need to decide what your target is, and how long you’re willing to wait before you reach that target. 

Let’s say your ROAS for display ads right now is 3:1. That works for a market that is familiar with you and people who know the quality of your product. The same steps you took to reach that ROAS will not work when you’re trying to break into a new customer base. You cannot expect the same formula to work under new conditions. As such, you need to rethink what your threshold will be for each channel and plan for the months that may require more spend. A single ROAS target won’t work for everything. It may be useful as a gutcheck, but in order to make the best optimization decisions, you’ll likely need a flexible range based on the context of your campaigns. 

It sounds counterintuitive to make your targets flexible, but when you’re thinking about quarterly and long-term growth goals, adding context to your performance data is critical. 

Always prioritize real business results

It takes a sophisticated marketer to find the balance for all of your team’s efforts. This year will require teams to be creative and precise in the ways that they reach their audiences efficiently and effectively, driving a return for that investment. It might mean new ways of thinking about foundational marketing strategies or ensuring context when considering specific metrics like ROAS. But the good news is we have access to the tools we need to tie most decisions to real business results, further enhanced by media partners that can measure correlating real business results like foot traffic. And that is a great place to start the year, despite the challenges 2024 will pose to CPMs. 

Key Takeaways: 

  • 2024 will be an expensive year for advertising, putting pressure on CPMs and ROAS
  • Ensuring you’ve defined a clear problem to solve, not just a KPI, is important 
  • ROAS should be evaluated in context of the problems you’re solving 
  • Comparing correlating metrics to ROAS, like foot traffic or sales, will help you show a real business result to your marketing investment