Return on ad spend (ROAS) is a popular measurement metric, but it doesn’t hold up under closer scrutiny. It often gives credit to sales that would’ve happened anyway, making results look better than they are.
Incremental ROAS eliminates that bias by focusing on true performance lift. It shows what your marketing actually caused—not just what happened—so you can see what’s really working and spend your marketing budget more wisely.
iROAS is a data-driven method for accurately assessing the impact of your marketing campaigns, offering a smarter, more reliable way to measure success.
Key highlights:
- Return on ad spend (ROAS) focuses on the last click attribution and often takes credit for results your ad campaigns didn’t actually drive.
- Incremental return on ad spend (iROAS) shows what your ads really changed, helping you measure the additional revenue generated.
- iROAS reflects real-world performance by accounting for privacy shifts and nonlinear customer behavior.
- Switching from traditional ROAS to iROAS helps you make smarter choices and build long-term growth with confidence.
The Rise (and Fall) of Traditional ROAS in Performance Marketing
Over the past decade, the marketing landscape has witnessed a shift with the rise of performance marketing. The focus on low-funnel marketing attribution and deterministic metrics, such as Return on Ad Spend (ROAS), has become the norm. However, the blind reliance on these metrics may be detrimental to the growth and success of performance marketers.
Let’s explore the limitations of ROAS and advocate for a more nuanced approach – calculating incremental Return on Ad Spend (iROAS) – as the true North Star for measuring marketing performance analysis.
Keep reading: Difference between performance marketing and brand marketing
Limitations of ROAS: The Hidden Gaps in Attribution
ROAS relies heavily on deterministic attribution, connecting ad impressions to conversions using identifiers like IP addresses, cookies, or click IDs. While this method seems straightforward, it has several inherent limitations:
1. ROAS Fails to Measure Non-Impression-Based Media Transactions
Media channels like email, SMS, or outbound call centers operate outside the impression-based model. ROAS fails to capture the effectiveness of this marketing channel mix, limiting the scope of performance measurement.
2. ROAS Relies on Log-Level Data in Performance Marketing
The reliance on log-level data, a comprehensive spreadsheet detailing impression attributes, is another constraint. Not all platforms or walled gardens share this data, creating blind spots in the performance measurement process.
3. ROAS Confuses Correlation and Causality
ROAS struggles to differentiate between correlation and causality in marketing. Did an ad campaign truly influence conversions, or would the action have occurred regardless? This distinction is crucial for accurate marketing performance analysis.
How Incremental Return on Ad Spend (iROAS) Calculation Solves ROAS Challenges
To overcome these limitations, the marketing industry needs to shift its focus from ROAS to Incremental Return on Ad Spend (iROAS). This approach considers a broader set of factors, acknowledging the complexity of marketing ecosystems, as iROAS:
Accounts for Non-Impression-Based Media
iROAS accommodates channels beyond impressions, providing a holistic view of marketing performance. Email campaigns, SMS, and outbound call centers are given due consideration in this more comprehensive measurement model.
Adjusts for Macro Market Conditions
Beyond deterministic attribution, iROAS considers macro conditions that may impact sales. Events like Cyber Week or Prime Day can artificially inflate ROAS without necessarily reflecting the effectiveness of marketing efforts.
Read more: Master seasonality in marketing
Emphasizes Incremental Returns
Unlike ROAS, which may mask declining sales with seemingly positive returns, iROAS focuses on incrementality. This metric provides a clearer picture of the true impact of marketing efforts on the bottom line.
The Need for a Paradigm Shift: Standard ROAS vs. iROAS
It’s time for marketers to reevaluate their key performance indicators. Shifting from ROAS to iROAS requires a recalibration of marketing mix modeling and other measurement tools. Advertisers must embrace a more nuanced approach to performance marketing, acknowledging the interconnectedness of various channels and external factors.
In Platform vs. Unified ROAS Tools
Each platform reports on ROAS in its own silo, with no regard to the overlap between channels. In fact, they’re incentivized to do so because:
- Most of their earnings are ad-driven
- More effective ads (per their reporting) lead to more ad dollars
Thus, there’s been an emergence of holistic attribution reporting with unified marketing measurement. In other words, platforms that answer the question, “What’s my ROAS across everything, considering the overlap between the channels I run media on?”
While unified ROAS tools solve the in-platform ROAS and interaction effects issue, they still fall into the deterministic traps mentioned above.
For instance, they’ll report higher unified ROAS during Black Friday for DTC brands, the implication being that their marketing is working better during this time.
The reality is much different: the revenue going into that ROAS calculation comes from sales that would have happened anyway simply because it’s Black Friday and people are shopping online, not because of any specific marketing efforts.
This over-attribution skews the DTC marketing mix optimization, wasting the advertising spend of such brands.
True success lies in adopting a model that encompasses a broader spectrum of marketing mix variables, ultimately guiding you toward impactful decision-making.
How to Measure Incremental Revenue with Keen
The Keen Platform uncovers key insights that help marketers tie both short-term transactions driving tactics and long-term brand-building marketing investments directly to the financial outcomes of the business, empowering them to make data-driven future decisions. This is done by:
- Aligning sales and marketing data over time
- Accounting for prior brand knowledge and external factors that impact marketing
- Isolating incremental vs. base volume and quantifying the incremental lift for each tactic
- Comparing incremental revenue driven by each tactic to the investment in that tactic to determine profitability
- Leveraging this knowledge to inform scenario-based planning for future decisions
In the graphs below, you can see how the Keen Platform accounts for the long-term value of marketing, for channels that are brand-building and transaction-driving.
Additionally, the graphic below shows a holistic view of marketing in all quarters. As you will see, for this brand, marketing from 2020, 2021, and 2022 continued to pay dividends in 2023 – representing the way marketing layers like rock. This view allows marketers to evaluate omnichannel marketing strategy’s sustained impact on business growth.
Maximize Your Impact with Incrementality Measurement
Although ROAS was once hailed as the holy grail of performance metrics, it is proving to be a double-edged sword for marketers. Performance marketers must embrace Incremental Return on Ad Spend as the new North Star to understand the additional revenue generated.
A tool like Keen can help with marketing measurement of the long-term impacts of these kinds of tactics. By doing so, marketers can unlock a more accurate and holistic understanding of their marketing activities, enabling them to make informed decisions that truly impact the bottom line.
Want to see for yourself how Keen can create an iROAS marketing performance analysis for your business? Take a tour of the platform today!
