The marketing industry gets attached to metrics without really understanding what they mean and that can’t go on anymore.
For an industry that prides itself on data-driven decision-making, marketing has a metrics problem: we get attached to metrics without really understanding what they mean. For example, ROAS (return on ad spend) and its younger sibling, iROAS (incremental ROAS), have become the be-all and end-all for marketers looking to justify their ad dollars. But here’s the real question: why are we so obsessed with them? And more importantly, should we be?
iROAS claims to measure the true impact of ad spend by isolating incremental revenue, which is revenue that wouldn’t have occurred without marketing intervention. It’s a step up from traditional ROAS, which blindly attributes all revenue to ad spend, whether or not the ad actually influenced the sale. In short, ROAS measures total attributed revenue divided by total ad spend, while iROAS filters out organic sales and focuses only on revenue directly caused by advertising.
Now that you know which dollars are truly working, does that mean you should double down on high-iROAS channels? Not necessarily.
Incrementality is important. We get it. But iROAS is just a short-term efficiency metric, it doesn’t account for the long-term financial impact of marketing investments or how dollars compound over time. A high iROAS could mean you’re under-investing in a channel, limiting its potential scale. Marketers love efficiency, but what about profitability? What about long-term brand health? iROAS doesn’t tell you that.
When you ask for iROAS, you’re essentially saying: “How much more revenue am I getting for every extra dollar I spend?” But that’s a myopic view. The better question is: “How does this investment drive long-term business growth?” iROAS doesn’t answer that. Net present value (NPV) does.
NPV factors in future cash flows, the cost of capital, and the decay of marketing impact over time. Unlike iROAS, it doesn’t just tell you whether a campaign is efficient. Rather, it tells you whether it’s truly profitable in the long run.
Additionally, NPV accounts for revenue, costs, and time, providing a clear picture of how marketing contributes to business growth over the long haul.
Despite delivering a better perspective, much of the marketing industry is still stuck on ROAS-based metrics. They’re easy, quick, tangible, and platform-friendly. Marketers like clean, digestible numbers, and CFOs like them even more. But easy doesn’t mean right.
Instead, marketers need to challenge this obsession and think of marketing as an investment. Marketers need to look at their investments by their ability to drive long-term profitability, not just short-term efficiency.
Further, marketers can use tools that go beyond what worked and what didn’t and instead find one that helps predict what will work next, ensuring every dollar you spend contributes to sustainable, profitable growth.
If you’re still making marketing decisions based on ROAS or iROAS alone, you’re playing checkers while the competition is playing chess. Efficiency is great, but growth is better. It’s time to ditch the obsession with short-term metrics and start thinking like a CFO. Stop asking: “What’s my ROAS?” and start asking: “What’s my long-term return on investment?” Your P&L will thank you.