Are You Measuring the Right Metric? When to Focus on ROAS vs. CPA

There’s a lot of data marketers and brands need to focus on when thinking about ad performance. From click-through rates to conversion rates, every metric offers insight into how well a campaign is doing. But when it comes to measuring profitability and efficiency, two key metrics rise to the top: Return on Ad Spend (ROAS) and Cost Per Action (CPA).

In an ideal world, you’d keep an eye on both. After all, they each tell you something important about your marketing efforts. But depending on your business goals, one might deserve more of your attention than the other. So, what do these metrics actually mean, and when should you focus on one over the other? 

What is Cost Per Action (CPA)?

Cost Per Action (CPA) measures how much you're spending to drive a specific action, like a purchase, sign-up, or lead submission. Think of it like paying for results: if someone clicks your ad but doesn’t convert, it doesn’t count. Obviously, when zooming out things become more nuanced than this single metric, but CPA is all about the acquisition.

Why CPA Matters:

• Budget Control: If you only have so much to spend, CPA helps ensure you’re not overpaying for each conversion.

• Performance Optimization: Keeping CPA in check means you’re refining your targeting and bidding strategies to get the best bang for your buck.

• Scalability: A lower CPA lets you acquire more customers without increasing your budget.

When to Focus on CPA:

If you're running lead generation campaigns or working with a tight budget, CPA is your best friend. It’s ideal when you need to ensure that every dollar spent translates into a measurable action at a predictable cost. Think about an online subscription service: if they know they can only afford to spend $10 to acquire a new subscriber, CPA is the metric they’ll be laser-focused on.

How to Determine Target CPA?

A good target CPA should be based on your customer lifetime value (LTV) and profit margins. If you’re spending more to acquire a customer than they’ll ever spend with you, it’s time to adjust.

What is Return on Ad Spend (ROAS)?

Return on Ad Spend (ROAS) is all about revenue. Instead of focusing on cost per action, it looks at how much money you’re making for every dollar you put into advertising.

Why ROAS Matters:

• Revenue Focused: If your ad spend isn’t generating enough revenue, you’ll know right away.

• Marketing Efficiency: Helps you see which campaigns are making you the most money so you can double down on what works.

• Long-Term Growth: Businesses that focus on high ROAS can scale their efforts sustainably.

When to Focus on ROAS: 

If you’re running an eCommerce store or selling high-ticket products, ROAS is crucial. Say you spend $100 on ads and make $500 in sales, your ROAS is 5x, which is great! But if that same $100 ad spend only brings in $90 in sales, it’s time to rethink your strategy.

How to Determine Target ROAS?

Your ideal ROAS depends on your industry and profit margins. If your margins are tight, you’ll need a higher ROAS to stay profitable. Businesses with high repeat customers might accept a lower ROAS since they’ll make money on the back end.

When Do You Pick?

So, which one should you focus on? It depends on your goals.

If you're trying to control costs and maximize efficiency, CPA is key. 

Think of a startup with limited funds. They want to get the most conversions for the lowest price.

If you're aiming to grow revenue and scale, ROAS should take priority. 

An online retailer selling premium products will care more about how much revenue each dollar generates rather than just the number of conversions.

If you’re scaling, you’ll need both. 

A business expanding its reach will want to balance keeping CPA reasonable while ensuring their ROAS stays profitable

At the end of the day, CPA and ROAS aren’t opposing forces. They work together to give you a full picture of your ad performance. Keeping an eye on both helps you make smart, data-driven decisions that balance cost and profitability. So, whether you're trying to bring in more leads without breaking the bank or making sure every ad dollar works harder for you, knowing when to focus on each metric will help you fine-tune your strategy for success.

SO, WHERE DO YOU FIND THIS PARTNER?

Well, aren’t we glad you asked! We at DigiCom are obsessive data-driven marketers pulling from multi-disciplinary strategies to unlock scale. We buy media across all platforms and placements and provide creative solutions alongside content creation, and conversion rate optimizations. We pride ourselves on your successes and will stop at nothing to help you grow.

Contact Us