ROAS vs. CAC: Which One Is Better for Your E-commerce?
Imagine you’ve made your dreams come true and finally started selling online. You’re experiencing what it feels like to sell your products on the internet for the first time.
You’re running ads, driving traffic to your e-commerce store, and watching the numbers roll in. But now you’re stuck on a crucial question: Which KPI is more important—ROAS or CAC?
It’s a bit like deciding whether to measure how much fuel your car is using or how far it’s taking you.
Both ROAS and CAC matter, but understanding them can change how you grow your business. Let’s break it down and figure out which one is better for your e-commerce.
Before we begin, I would like to share other resources related to ROAS and CAC:
📑Reducing Customer Acquisition Cost (CAC) With AI
📑What Should Be the Minimum ROAS for the Shopify Store?
📑Mastering ROAS Formula: Key to Optimizing Your Marketing Strategy
What is ROAS, and Why Should You Care?
Return on Ad Spend (ROAS) tells you how much revenue you’re earning for every dollar you spend on ads. If you spend $100 on Facebook Ads and make $400 in sales, your Facebook Ads ROAS is 4x.
Think of ROAS as the immediate payoff for your advertising efforts. It’s like checking your bank account right after payday—you want to see that your investment is worth it.
Why It Matters:
- Helps track the effectiveness of individual campaigns.
- Shows you where to allocate your budget.
- Great for short-term decision-making.
But ROAS doesn’t tell you the full story. Sure, you’re making $400 in sales, but how much did it cost to get those sales?
Enter CAC: The Bigger Picture
Customer Acquisition Cost (CAC) is the total cost of acquiring one customer. This includes ad spend, creative costs, and even the freebie you gave away to entice them. If you spent $500 to bring in 10 customers, your CAC is $50 per customer.
While ROAS is like a snapshot, CAC is more like a documentary. It shows you how much it costs to build relationships with customers over time.
Why It Matters:
- Helps you understand profitability per customer.
- Crucial for scaling your business sustainably.
- Reveals whether your marketing strategy is cost-effective.
Real-Life Example: Which Metric to Prioritize?
Let’s say you own a trendy e-commerce store selling eco-friendly water bottles.
Scenario 1: Focus on ROAS
You run a sale campaign that boosts your ROAS to 5x. Amazing. But when you check your CAC, it’s higher than your average order value. You’re gaining revenue but losing profit.
Scenario 2: Focus on CAC
You invest in a referral program, which increases your CAC slightly but cuts down ad spend dramatically. Your overall profit margin grows because your customers are doing the marketing for you.
The takeaway? Prioritizing one metric over the other depends on your business goals.
ROAS or CAC: Which One Should You Focus On?
Here’s a simple way to decide:
- Short-Term Gains: ROAS is your go-to metric if you want quick wins, like during a flash sale or seasonal promotion.
- Long-Term Growth: CAC is essential if you’re building customer loyalty and planning for sustainable success.
Final Thoughts
Both ROAS and CAC are vital tools in your e-commerce toolkit. It’s not about choosing one and ignoring the other—it’s about understanding when and how to use each.
Start by tracking both metrics and experimenting with strategies to optimize them. Over time, you’ll find the sweet spot that works for your business.
What’s your experience with balancing ROAS and CAC? Share your thoughts with us.
Enhencer offers e-commerce businesses an online advertising experience powered by machine learning. Our products include AI Ads, AI Creatives, AI Remarketing, and AI Lookalike Audiences.
Schedule a discovery meeting with us to discuss your specific needs and get a free analysis of your current ad performance.
