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In this episode, we explore the nuances of ROAS optimization, a key tactic that prioritizes high-value purchasers for targeted campaigns. However, its effectiveness varies, particularly in scenarios with minimal value gaps between high and low purchases, such as subscription-based models.
We dissect how ROAS optimization functions, its ideal use cases, and its limitations, especially when the purchasing tiers are closely aligned, offering insights into the strategic deployment of advertising algorithms.
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FULL TRANSCRIPT BELOW
ROAS optimization is one of the most powerful features of modern attic algorithms yet there are instances where it’s probably not the best choice for advertisers.
When is this the case? To understand this, it’s perhaps best to understand how ROAS optimization is architected under the hood of the algorithms so that we can understand when it may not be the best fit.
What ROAS optimization does at the algorithm level, is identify who the users are that make a purchase with low value and who the users are that purchase with high value.
That could be a user who comes into a product and makes a purchase worth $1 and a user that makes a purchase worth of hundred dollars within the first day or within the first seven days.
How ROAS optimization works is that it gives a greater weight to users that make a hundred dollar purchase as compared to a $1 purchase. And by giving the $100 purchasing user much higher weight, It prioritizes these kinds of users in future targeting.
So what ROAS optimization does is basically tell the system, give me more users that can make a hundred-dollar purchase. Give me fewer users that make a $1 purchase. And give me even fewer users that make a $0 purchase in my product.
When does this not work nearly as well?
As you can tell from my explanation the instances where it works well is where there is a big delta between low value purchases and the high-value purchase. This could be a match 3 game, social casino game, or even an e-commerce product.
But if the delta between the low-value purchases and the high-value purchases is not so big, then the ROAS optimization tends to not work so well.
A classic example of this would be a subscription product where you have a user paying $0 or $9.99 monthly. And these are the two tiers or it could be a user paying $9.99 monthly and having a $70 LTV. Or paying a $50 annual subscription and still having a $50 annual LTV. But there is a ceiling to the value of the user that we are acquiring.
Because of this, it’s hard to have a wide range of spectrum of user values. Because of this, ROAS optimization algorithms in all your key platforms, be it Meta, Google or ad networks tends to not work nearly as well for subscription products where the value of a user is somewhat discreet and somewhat capped.
In these instances, we recommend using CPA optimization, but not ROAS optimization.
BEFORE YOU GO
I have a very important favor to ask, which as those of you who know me know I don’t do often. If you get any pleasure or inspiration from this episode, could you PLEASE leave a review on your favorite podcasting platform – be it iTunes, Overcast, Spotify, or wherever you get your podcast fix. This podcast is very much a labor of love – and each episode takes many many hours to put together. When you write a review, it will not only be a great deal of encouragement to us, but it will also support getting the word out about the Mobile User Acquisition Show.
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Thank you – and I look forward to seeing you with the next episode!