Resources

How to Fix an Inconsistent ROAS

Content

Breaking down the ROAS metric
Why ROAS is a vanity metric (& What Actually Matters)
Bottlenecks: your obstacle to millions
The two types of bottlenecks
How to solve a traffic bottleneck
How to solve a conversion bottleneck

1/6 Breaking Down the ROAS Metric

ROAS = Purchase conversion value / Ad spend

ROAS = Revenue to Cost Ratio

If you spend $1,000 on fb ads and make $4,000

Then your ROAS is 4

So ROAS is ‘revenue’ and ‘cost’.
Revenue (conversion):

RPV (which is derived from CVR and AOV)

Cost (traffic):

CPC (which is derived from CPM and CTR)

How to increase ROAS?

Increase revenue (conversion)
Decrease cost (traffic)

Therefore,

ROAS = RPV / CPC

Where

RPV = AOV*CVR
CPC = CPM / (CTR × 1,000)

ROAS = (AOV*CVR) / [CPM / (CTR × 1,000)]

Conclusion:

The metrics that directly affect your ROAS are:

Conversion Rate
Average Order Value
CTR
CPM

2/6 Why ROAS is a vanity metric (& What Actually Matters)

ROAS alone brings no information.

If you go to your ads manager, see a ROAS of 1.2 and try to fix it just by looking at the ROAS, you just can’t.

Because ROAS is not a lead metric.

ROAS is a ratio, it’s just the metric that reflects and summarizes the other metrics.

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On another note, yeah, there are metrics that are far more important than ROAS:

Net profit
CAC
LTV
MER
(...)

But that’s for another video.

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You have to dig deeper.

And find the bottleneck.

Oh my ROAS dropped to 0.8
Why? Where’s the bottleneck?
Is it a traffic bottleneck? I’ll check CPC, CTR and CPM
Or it’s a conversion bottleneck? I’ll check CVR and AOV
Once you find which metric has deviation, fix it.

Most people see a ROAS of 0.8 and just stop there.

“My ROAS went down, what do I do?”

Don’t ask yourself what do I do
Ask yourself, WHERE’S THE BOTTLENECK

3/6 Bottlenecks: your obstacle to millions

Def.

A bottleneck in marketing refers to any point in the sales process that limits the overall flow, preventing the business from achieving a desired result.

“Deviation from average of a metric”

These are obstacles or inefficiencies that lower profitability and increase cost, reducing the effectiveness of your campaigns.

Example of bottlenecks

ROAS goes from 3 to 1 month over month:
If 2 months ago you stopped testing new creatives, and now all your ads have “creative fatigue”, which increases your CPM and lowers your ROAS - The bottleneck here is the “creative pipeline”.
ROAS goes from 3 every day consistent to 0.5 yesterday:
The metric that deviates is the cost per add to cart.
CPC, CTR, CPM are the same as usual.
There’s an issue with the cart process.
We simulate the customer journey on mobile and realize

the “Add to Cart” button is frozen and doesn’t work

4/6 The two types of bottlenecks

Remember that ROAS depended on revenue and cost.

Therefore we have bottlenecks in revenue (conversion) and bottlenecks in cost (traffic).

To simplify things, I call this

Traffic Bottleneck (high CPC ((caused by CPM or CTR))
Conversion Bottleneck (caused by CVR,AOV)

If we want to dominate Facebook Ads and have ROAS consistency, we need to learn how to fix ROAS inconsistency.

MARATHON

First 10km are easy
Second 10km = Problems

But first of all, we need to learn how to detect the origin of ROAS inconsistency.

5/6 How to solve a traffic bottleneck

Def

A traffic bottleneck is an inefficiency in your traffic metrics that is causing ROAS to drop.

We will see there’s a problem with traffic by checking our CPC.

But CPC has the same problem as ROAS, it brings no information by itself.

So we have to look at the 2 metrics that make the CPC:

CTR = Do users like my ad

CPM = Does Facebook like my ad / Competition level

Example

ROAS is down in September
Why?
Because CPC has gone up
Why?
Because CTR has gone down (2% to 0.8%)
Why?
Because it’s September and I’m selling swimwear
OK, what can be done?
Sell to sunny cities/countries instead of Europe
→ Australia, New Zealand
→ Florida, California, Texas, Arizona, and Hawaii
→ Mexico
→ South Africa
→ UAE

How to find a traffic bottleneck

Create a Facebook Report
Eliminate all columns except ROAS and CPC

Switch from ‘pivot table’ to ‘trend’

Here I realize that there's an inverse correlation.
When my ROAS goes down, my CPC goes up.
From Dec22 to Jan26.
Dig Deeper, is it because CTR or CPM?

CTR went from 1.3% to 0.8% in that same period

CPM is almost the same from dec 22 to jan 26.
Oscillates from $21 to $23.

After this analysis we can take action.

We’ve gone from “My ROAS is going down, what do I do?” to an actual useful question “How do I increase my CTR in January/February?”.

Of course December ads were higher-converting that January, when people have no money, but still let’s try to figure it out
Run a Winter Sale
Check for ad fatigue
Check for ad relevance and messaging

Is my message still relevant in January?
What do people care about in January/February?
Make new ad creatives

What was the highest CTR ad format in January 2024?
Make new ad creatives similar to those
What types of ad creatives are my competitors running?
If it makes sense, model those ad creatives

On the other side, if your CTR was all good, but the problem was the CPM,

We have to work on the CPM.

Video on this topic coming soon

6/6 How to solve a conversion bottleneck

Def

A conversion bottleneck is an inefficiency in your conversion process that is causing ROAS to drop, because it’s causing potential customers to NOT finish the purchase.

We will see there’s a problem with conversion by checking our CVR and AOV.

Example situation:

“I used to have a ROAS of 3 in the last 15 days, but now since 5 days ago, my ROAS has dropped to 1.6”
Why?
I don’t know
Did your CPC change over this period?
No, it’s pretty much the same, CPM and CTR are flat
Ok, did your CVR and AOV change during this period?
Yes, mainly my conversion rate, it has dropped a lot.
OK, you have a conversion bottleneck, let’s work on it:

Conversion Bottleneck: Conversion Rate

Possible causes (hundreds)

Seasonality and macroeconomics
Some button does not work
Page loading speed (CPC vs CPLP)
Not optimized for mobile, chunky, buttons covered
Stock of best sellers
Lack of trust, no social proof
Complicated checkout process
Huge shipping costs
Limited payment options
(...)

If you wanted to go deeper, what’s lowering your conversion rate?

In this example, you can see how the conversion from checkout to purchase is amazing.

But 6% add to cart rate is too bad.

And it has decreased by -21%.

I would say this is the problem to cover.

“People just don’t add to cart”.

But we could have other problems like:

Amazing ATC rate but very bad conversion from cart to checkout
Or, amazing ATC, great cart to checkout, but very bad checkout to purchase confirmation

For each step, create and go through a checklist.

For example for landing page to add to cart:

Does the page load properly? Takes a long time?
(Compare CPC to CPLP)
Does the add to cart button work properly?
Is the page easy to navigate on mobile? All works?
Clear display of the product with great images
No lack of information that can create doubt
Conversion elements: trust and social proof
(...)

Do the same for cart to checkout,

And do the same for checkout to purchase confirmation.

Ok, but what if the problem is AOV?

This would be the other side of a conversion bottleneck.

Remember: ROAS = RPV / CPC

ROAS = (AOV*CVR) / [CPM / (CTR × 1,000)]

Well, why would AOV drop?

You’re running a flash campaign with discounts
In this case, the increase in CVR should offset the decrease in AOV
You’re sending a lot of traffic to cheaper products
(DPA ads, algorithm ranking products in the collection page)
You’re sending more traffic from “price-sensitive” countries
You’re sending more traffic from “price-sensitive” demographics
You’ve removed or changed your upsells
Your RCR has decreased and >90% of your sales come from new customers
Seasonality (lower AOV in January and August)

There are many ways to increase the AOV, but you first have to know what’s the reason it went down in the first place.

More on AOV in future videos

Other Examples

Example in January:

ROAS has dropped
Why?
I don’t know
Is it the CPC?
No, CPC is better than ever (due to low CPM)
Ok, what happened to your AOV?
Just 2€ down, but it’s as usual
OK, what happened to your CVR?
CVR is really bad, it keeps going down
Alright let’s work on it. CVR will be the best lever to increase your ROAS.
Winter Sales + Urgency

Example from a friend last week:

ROAS is going down
Why?
I don’t know
Is it the CPC?
CPC went from 0.2€ to 0.67€
OK, the bottleneck is probably there.
What happened to CVR and AOV?
Pretty much the same, they are almost flat, we just get less traffic
Ok, so the bottleneck is the CPC

But this is NOT enough

Why did the CPC triple? CTR or CPM?
It was NOT CPM because January is cheap, it was CTR
OK,

It’s low CTR in your past winning ads
OR low CTR in your new ads that you’re testing
Both
Is the product still relevant in January?
Yes
Ok, then we focus on Ad Creatives
What’s the pattern?
The worst CTR comes from high-production videos
The best CTR comes from home-made UGC videos
Solution
1. More home-made UGC videos
2. Create home-made UGC images

After that, if you see success in UGC images:
3. Create Before/After images with headline
4. Create Problem/Solution images with headline
5. Create “relatable image” with headline

Other Reasons Why Your ROAS Goes Down

Niche Product, Niche Message, You have already exhausted the ‘Easy Audiences’
>70% Learning Phase, Exploratory Algorithm
Low Market Relevance
Seasonality
Too much vertical scaling, too fast

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Summary

ROAS = RPV / CPC
Always ask “What’s the Bottleneck?”
Traffic Bottleneck (CPC) → CTR, CPM
Conversion Bottleneck (RPV) → CVR, AOV

Hope this was useful,

Manel

Synced from Manel’s Google Drive · images and tables are shown as in the original doc