A profitable return on ad spend ultimately depends on your margins, costs and wider business model. For most e-commerce brands, a 4x ROAS is generally considered a healthy benchmark — so it’s safe to say that if your Meta Ads are reporting a ROAS of 1O, 2O or even 3O, you should be VERY happy with the results.
But in some cases, even despite those impressive numbers, your overall profit can be flat or even declining.
It's entirely possible for your advertising platform to report an incredible return while your business isn't actually making more money. And when the bottom line isn't reflecting those impressive results, there are three questions we ask our clients to help understand why.
1. ARE YOUR OTHER CHANNELS LOSING STEAM?
The first thing we'd investigate is what's happening outside of Meta. If other sales channels are experiencing a decline, even insane returns from paid advertising might not be enough to offset those losses.
A healthy marketing strategy is about understanding how your different sales and acquisition channels work together. It’s important to regularly analyse your sales channels individually, instead of assuming an overall decline or increase in purchase volume or profit means every source is contributing.
WHAT TO INVESTIGATE: Compare revenue, traffic and conversion rates across your main sale channels — such as Meta, organic search, email marketing, and wholesale. Look for any changes in performance across specific channels. If there’s no identifiable source letting the team down, keep working through steps 2-4!
2. ARE REFUNDS AFFECTING YOUR REVENUE?
When Meta attributes a purchase to your advertising, it's generally based on the value of the transaction at the time it takes place. But what happens if that customer returns the product later? The sale might still contribute to your reported ROAS, even though the business has since issued a refund.
For e-commerce brands, especially those in fashion, returns and exchanges are a normal part of doing business. But if return rates start increasing, they can create a noticeable gap between the revenue your advertising is reporting and the revenue your business actually keeps.
This means your Meta campaigns could be generating strong results while an increasing proportion of those sales is being lost to refunds.
IF RETURNS ARE UP, LOOK INTO:
Product descriptions and imagery: Are customers receiving what they expected?
Sizing and fit: Are your size guides, measurements and fit descriptions helpful enough?
Reasons for returns: Ask customers to provide a reason when submitting a return request. Look for recurring feedback that could help single out areas for improvement.
Product-specific trends: Are certain products being returned more than others? What does that tell you?
3. ARE YOUR COSTS EATING INTO YOUR PROFITS?
Your advertising might be generating an impressive return on every dollar spent, but how much of that revenue are you actually keeping?
Meta's reported ROAS is based on attributed revenue, not profit. Even an exceptionally high ROAS doesn't account for the cost of producing, selling and delivering your products.
This one might seem obvious, but as business owners ourselves we know that it can be hard to find the time to constantly stay on top of your margins, especially if you’re the kind of founder who wears all the hats.
But as you know, rising manufacturing costs, shipping expenses, fulfilment fees and other overheads can all eat into your profit margins. Your average order value is another factor worth considering — are customers suddenly spending less per transaction overall?
ASK YOURSELF:
Have your product margins changed? Do you need to adjust pricing to reflect this?
Has your average order value declined? Could better upselling, cross-selling or product bundling onsite encourage customers to spend more per transaction?
4. COULD YOU EXPAND THE ADS INTO NEW AREAS?
If your Meta campaigns are already delivering an impressive ROAS, there could be opportunities to build on that success. That might mean introducing higher-margin products into your campaigns, creating dedicated upselling strategies or expanding into new audiences.
For example, your best-performing campaigns might be focused on a specific selection of products, or a particular customer segment. While they could be generating excellent returns, they may not necessarily be promoting your most profitable products or reaching the full range of potential customers.
It's worth considering how an already successful advertising strategy could support other areas of the business.
CONSIDER:
Are your best performing campaigns promoting your most profitable products, or just those generating the most revenue?
Could you introduce higher-margin or higher-value products into your strategy?
Are there new audiences you could reach to expand your customer base?
Could you improve upselling or cross-selling via Meta creative itself?
This doesn't mean abandoning campaigns that are already working. It's about building on what's already performing well.
A high ROAS is a great result, and definitely something worth celebrating. But ROAS measures the revenue attributed to your advertising, not the profit you're actually making.
Your Meta Ads could be generating an excellent return while other sales channels are declining or rising costs are putting pressure on your margins. That's why we always tell clients to look past the numbers in Ads Manager.
Improving profitability might be about strengthening other areas of the business or finding new ways to build on that success. Because what's the point of paying for great advertising results if the rest of the business isn't set up to make the most of them?