The death of ROAS in e-commerce
Why having a multi-channel ad strategy can muddy the waters on sales incrementality
Granted - not my softest headline. But before we go there, let’s quickly cover the basics for those unfamiliar. ROAS, or Return on Ad Spend, is a metric used to show the revenue generated for every dollar spent on advertising, usually within a single platform. For example, if Meta reports that you spent $1,000 and made $5,000 in return, that’s a 5x (or 5.0) ROAS.
What’s odd is how this single KPI became the North Star for so many founders, guiding not just their media buying strategies, but their broader business decisions. But in reality, ROAS is just one star in the galaxy that is your business, within the ever-expanding universe of e-commerce. The further you zoom out, the clearer it becomes: anchoring your strategy to one or two metrics limits your growth. In today’s constantly shifting ecosystem, success depends on understanding the full scope of factors driving performance.
Falling relevancy of ROAS over time
When a DTC brand launches, paid media is often the fastest path to scale (though I often discourage this), providing early signals of performance across platforms like Meta and Google. But as spend increases and channels diversify, leaning on in-platform ROAS as a guide to scale starts to show diminishing returns. If you’re on the journey, it may look something like this…
• Day 1 – The Great Launch
Brand goes live. Founders light a candle, run an ad, and stare at the Meta Ads Manager like it’s a magic mirror. ROAS: 3.5x. Direction: clear as day.
• Month 1 – ROAS Worship Begins
"Let’s scale!" becomes the rallying cry. A few winning creatives emerge. Meta looks like a printing press. ROAS becomes the KPI. Investors nod. Founders smile.
• Month 3 – The Attribution Fog
Organic traffic grows. Influencers chime in. Someone runs a PR piece. Meta starts taking credit for everything. ROAS inflates. Founders start asking, “Wait… where did that sale really come from?”
• Month 6 – The Multi-Channel Mess
Google Ads joins the party. Then TikTok. Then affiliate links. Data silos form. ROAS across platforms stops matching reality.
• Month 9 – CAC & CPA Enter the Chat
With LTV kicking in, founders realize: acquiring the customer matters more than where they clicked. Cost per acquisition (CPA) starts winning internal arguments. ROAS quietly gets demoted.
• Year 1 – The MMM Awakening
Media mix modeling (MMM) makes its debut. Spreadsheet chaos turns into model-driven thinking. It’s no longer about what worked, it’s about what changed outcomes. ROAS is now a tiny star in a larger constellation.
The important shift to TACOS
Unfortunately, I’m not talking about the crunchy Mexican delicacy. In fact, TACOS - Total Advertising Cost of Sale is calculated as: (Total Ad Spend / Total Revenue) x 100.
Every business has unique margins, and figuring out where to allocate budget is one of the biggest challenges in growth. That’s why we’re seeing a wave of MMM (media mix modeling) platforms and holdout-testing solutions entering the space - tools designed to help e-commerce founders make smarter media decisions rooted in data, not gut instinct. But for brands that can’t afford hefty retainers for those venture-backed platforms, simply tracking your TACOS (again, not the food) is often the clearest indicator of how much budget you realistically have to scale, in relation to your overall business performance.
This matters even more in the growth phase. If your unit economics are healthy and returns are steady, allocating more spend to prospecting can be a smart lever to pull. Just like major brands invest heavily in sponsorships, TV, and awareness campaigns to build brand equity, not just push their products more in ads, scaling requires a handle on your total budget relative to revenue.
For instance, if your target TACOS is 25%, but you’re currently tracking at 19%, you’ve got 6% headroom to reinvest into creative or prospecting before hitting your profit limits. That’s a tactical edge, especially when platform performance starts getting shaky as you scale. Likewise, if you're scaling ad spend and see a strong correlation between TACOS and ad spend rising, it gives you a far more accurate gauge of efficiency than relying solely on in-platform ROAS.
‘Your customers should be your greatest salesmen’
The challenge is that for some brands, LTV rarely, if ever, exceeds 1.0. Unlike subscription models or products with strong organic multipliers, many items are bought for practical reasons, with little incentive for repeat purchases. In these cases, CPA and ROAS together offer a clearer view of profitability as the brand scales their ads.
I came across a quote recently, though I’ve forgotten from whom, that went something like: “Your customers should be your best salesmen. Let them sell your product.” The theory is to prioritize customer experience over pure utility. The stronger your organic multiplier, the higher the LTV of each new customer and the more budget you unlock to reinvest in growth. As a result, the greater the sales you can drive away from PPC, to organic, as a percentage of total revenue (TACOS) the greater margin you’ll have to grow the brand.
Conference Update: Beanstalk NY
Date: Sep 8 - 11, 2025
For any e-commerce friends in my Dollar Commerce Universe, check out the Beanstalk (formerly Commerce Summit) conference in Brooklyn later this year. If you’re interested and want to meet the team, just send me a message!