A CPG brand optimized for iROI and doubled sales
There are a few ways return on ad spend (ROAS) distracts retail media buyers, steering precious ad dollars away from driving true business growth. Because ROAS doesn’t control for outside factors to determine if those sales would have happened without ads, it can become disconnected from the actual performance of the profit and loss statement (P&L). In other words, ROAS can grow but the P&L remains flat or even declines.
At Incremental, we often find that as brands begin optimizing their spend towards incremental sales, they start to see a decline in ROAS. The below case study is from a large consumer packaged goods brand selling on Amazon, and highlights how disconnected ROAS can become from the actual P&L of the business.
At the beginning of 2023, the brand began to move more of its campaign budget allocation based on incremental return on investment (iROI), which measures the additional dollars of topline revenue growth for every dollar spent. By the fourth quarter of 2023, nearly all of the brand’s spend was close to the optimal allocation based on its iROI.
Looking at iROI paints a picture that closely aligns with the actual business performance. Ad spend increases, and topline sales grow at an even faster rate, implying an increase in ad-spend efficiency (every dollar invested is generating more topline growth than it has previously).
ROAS paints a very different picture, declining 17% during the same period. If you were just looking at ROAS, you’d conclude that you didn’t scale ad spend efficiently, and it may be better to operate at a lower level of spend, missing out on significant, efficient growth opportunities.
By the end of the year, as tactics that were being undercredited or missed by last-touch-attributed sales (such as those converting in outside sales channels) received full credit, iROI was higher than ROAS.
