I had a call this week with a food company that was hitting a 7x ROAS, which for them was extremely profitable as their breakeven ROAS was just over 2x.
They were doing about $170K in monthly revenue and his problem was ‘SCALING’.
He mentioned to me, “I don’t want my ROAS to go below 5x as I scale up the ad spend and it does that everytime I increase ad spend”
I understand where he is coming from. We spend more on ads we want our ROAS to maintain or improve but that is very rarely the case with most brands.
Even with a lower ROAS your brand can be more profitable.
You might think that sounds a little whack but hear me out.
This business owner I was speaking with was spending about $500 a day on Facebook ads with a 7x ROAS.
I explained to him that even if your ROAS drops to 5x or 4x when you increase the spend you will increase your revenue, your number of customers and your overall profit.
Let’s say he increases his ad spend to $1,000 a day and the ROAS drops to 5x, his daily revenue is now $5,000 instead of the $3,500.
A $1,500 increase in your revenue, with a $500 increase in costs and a reduction in ROAS.
Let’s expand this further to scale.
Let’s say he is spending $5,000 a day and the ROAS drops to 3x.
He would be making $15,000 a day, ad costs would be $5,000 and there has been a significant increase in customers.
Brand owners need to understand that volume of customers is more important to profit vs profit per customer.
For example: You could acquire 1x customer with a $20 profit per customer and total profit would be $20
You can acquire 100 customers with $10 profit per customer and the total profit would be $1,000.
Even though you are making less profit per customer, because you are acquiring a higher volume of customers you make more profit overall.
I haven’t even mentioned the fact that because you have more customers now you will get more repeat business and overall profit will grow even more on the backend.
In summary, don’t be scared if the ROAS goes down when you scale and understand volume of customers is more important than profit per customer.
Now that you fully understand this concept it is important to note, it is not easy to scale to $5K or $10K a day in ad spend.
That is why our clients choose to work with us because we have significant experience scaling brands to these levels and beyond.
If you want to have a chat with us to see if we can help you, book a call below: https://dimniko.com/msp-apply