ROAS Is Not a KPI: Rethinking Metrics in Digital Advertising

Most marketers are optimizing toward outdated KPIs. Metrics like Return on Ad Spend (ROAS) and Cost Per Acquisition (CPA) were once standard benchmarks for campaign success. While these metrics served their purpose in simpler times, the increasing complexity of today’s advertising landscape demands a shift toward more nuanced measures of success.

Why CPA Falls Short

CPA has traditionally been used by lead-generation businesses to track cost efficiency per lead. The logic was straightforward: calculate a target CPA based on rough estimations, often using a simple formula like this:

          A locksmith generates $200 per job.

          They close 1 out of every 10 leads.

          They conclude: “We can spend up to $20 per lead to break even.”

While this approach seems logical, it often ignores critical factors such as:

          Overhead costs

          Profit margins

          Seasonal fluctuations

          Long-term customer value

Even more concerning, some businesses set CPA targets arbitrarily:

“We don’t want to pay more than $50 per lead—because it feels like too much.”

Such oversimplified goals result in campaigns that may deliver volume but fail to maximize profitability or drive meaningful growth.

The Limitations of ROAS

E-commerce brands often rely on ROAS to measure performance, tying ad spend directly to revenue. For example:

          If a product has a 50% cost of goods sold (COGS), a 2.0x ROAS ($2 revenue for every $1 spent)           represents break-even.

While ROAS offers a more revenue-centric perspective than CPA, it also has significant limitations:

Product Margin Variability: High-revenue products may have lower profit margins, skewing optimization efforts.

Competitive Bidding: Businesses that optimize only for ROAS often get outbid by competitors willing to spend more for long-term market share gains.

Rising Costs: As advertising platforms grow more competitive, the costs of achieving desired ROAS targets increase, often making campaigns unsustainable.

For example, an e-commerce business selling both low-margin pet food and high-margin animal cages might focus too heavily on high-revenue, low-margin products if optimizing solely for ROAS. This misalignment can cause businesses to overlook more profitable opportunities.

Moving Beyond ROAS and CPA: New Metrics for Success

To keep pace with today’s advanced advertising platforms and fragmented buyer journeys, businesses need to adopt more effective frameworks for measuring success.

1. Profit Over Ad Spend (POAS): Optimizing for Profit

POAS shifts the focus from revenue to profitability. By integrating profit margins directly into ad platforms, businesses can guide AI algorithms to allocate budgets toward high-margin opportunities.

For instance, tools like Profitmetrics enable businesses to feed profit data into platforms like Google Ads, automating the optimization process. This approach ensures that campaigns drive true profitability rather than just revenue growth.

2. Marketing Efficiency Ratio (MER): A Holistic View

MER evaluates total marketing spend across all platforms in relation to overall revenue:

          MER Formula: Total Revenue ÷ Total Marketing Spend

Unlike ROAS, which isolates individual channels, MER provides a comprehensive view of marketing performance, cutting through attribution challenges. By focusing on the big picture, businesses can align their efforts with broader objectives like profitability and sustainable growth.

3. Leading Indicator Models: Bridging Complex Buyer Journeys

For lead-generation businesses with nonlinear sales processes, Leading Indicator Models provide a way to measure high-value actions that precede conversions. These models weight actions based on their likelihood of generating revenue, allowing marketers to prioritize the steps that matter most.

Take a business with three primary conversion actions:

          Scheduled appointments

          Phone calls

          “Get Directions” clicks

By analyzing historical data, they may discover:

          35% of appointments convert into sales

          10% of phone calls convert.

          5% of “Get Directions” clicks convert.

Weighting these actions allows the business to guide campaigns toward high-impact outcomes. Regularly updating these models ensures they remain aligned with changing campaign dynamics and consumer behaviors.

Lessons for Modern Marketers

KPIs Must Reflect Business Goals: Metrics like ROAS and CPA are helpful benchmarks but fail to address broader objectives like profitability, market share growth, and customer lifetime value.

AI Needs Context: Advertising platforms optimize for the inputs they’re given. Without clear signals of what success looks like, AI may prioritize low-value outcomes.

Adaptability Is Essential: As campaigns evolve, so must the metrics used to evaluate them. Static models based on outdated assumptions risk amplifying inefficiencies.

Redefining Success in Advertising

In today’s digital advertising landscape, success requires moving beyond convenience metrics and embracing frameworks that align with real business outcomes. Metrics like POAS, MER, and Leading Indicator Models offer pathways to more precise, impactful marketing strategies. By focusing on profitability, holistic efficiency, and actionable insights, businesses can navigate the complexities of modern advertising and drive sustainable growth.