The ROAS Trap: Why Better Numbers Don’t Always Mean Better Growth

Speaker A: Your marketing numbers that you see on your CEO dashboard may make you feel good, but behind the scenes, your business is flatlining. It's plateaued. It may even be declining. Hello and welcome back to the Expensive Growth podcast, where we talk about the stories and strategies behind business growth and development. I'm your host, Ali Hathcock. And today we are joined by Scott, the founder of Wicked Reports, a company that helps businesses figure out what marketing actually brings them new customers, what marketing is getting way too much credit, and where money is being well burned and thrown in the trash. And this episode, Scott and I break down why so many businesses are looking at the wrong metrics, especially when it comes to your ads. We talk about why a campaign can look successful on paper, but still fail to, like, actually move your business forward. Why cheap customers are definitely not good customers. Sometimes. Sometimes. And why selling the easy product first can sometimes hurt long term profit. So if you've ever been that person who looks at your dashboard for marketing, you think, hey, these are great numbers, but are we actually growing as a company? Then this episode is for you. So with that being said, Scott, welcome to the show.

Speaker B: Thanks so much for having me, Allie.

Speaker A: Um, so, Scott, I introduced a little the professional side of you, but in a sentence or a story, who are you as a human? What is bringing you joy right now?

Speaker B: Always bringing me joy. My family. I'm a husband, father of three, live in Marble, Massachusetts. I absolutely love it. I'm really into pickleball and meditation. Doing both of them, doing both of those as much as I can. Um, that's what's giving me joy right now.

Speaker A: Nice. I love it. So pivoting gears a little bit into marketing, there has been a big conversation recently about marketing attribution as omnichannel. Marketing is kind of the gold standard now. And you have something called the Five Forces Framework to figure out marketing attribution. What's working, what's not, where is money being wasted? And what do you do next? So that being said, can you give me a little bit of an overview of the Five Forces Framework?

Speaker B: Sure. So the Five Forces Framework came about as a result of my job as the founder and CEO of Wicked Reports. We do multi channel marketing attribution. And what I found is some brilliant marketing minds weren't always as brilliant with measurement strategy. And there's a lot to that. Um, you don't have to know all the ins and outs like we have to know, being in the field of the software of tracking all this stuff, but there were, uh, a lot of Issues that agency owners in particular would have with their brands, they're representing where they weren't aligned on uh, how they're going to measure the results and or using in platform return on ad spend as a guide with sabotaging the brand's efforts. And then the agency owner who was then like saying, okay, well if I got to go buy in platform metrics, look at how good this Google brand search is doing and this Meta retargeting is doing, which is the easy ones. And then the brand itself get upset because they aren't actually growing their business and then fire the agency. And where it all could have started, um, where it all went awry, is they using the wrong scoreboard. And so then things went awry. So that's the genesis of how I came about with the five forces is how can I give these people the framework so that you get the right scoreboard and it's giving you value and leading you to outcomes that are beneficial for the brand and the agency.

Speaker A: Right, Because I think a lot of times there's still the siloization of uh, marketing and sales where the marketing agency or your marketing department is happy with the KPIs and you're hitting all the metrics that you agreed upon, but is it resulting in the sales, the revenue growth that you're looking for? And it's hard, it's not easy by any stretch of the imagination.

Speaker B: And I mean a common one is that brands want net new customers. That's what they want to pay the agency to just re cannibalize their own. Often there may be strategies where that makes sense for LTV or getting repurchases, but that's great. But uh, more often than not a brand wants more new customers and that's why they're hiring someone to go buy ads for them. And the trouble is is that Meta's algorithm is optimized towards the fastest conversion, so that's generally retargeting or repeat purchases. And then Google is trying to get you to spend as much as possible because they're trying to push their brand first. And then with Amazon, there's runoff from the paid spend going to Amazon and no one knows what's happening there. And Amazon says, oh, you got to pay for ads here too. And so people could be spending a lot of money in this recycling loop and then looking to see if it's doing well. And then the ad platforms are the people grading their own homework. So they're obviously giving themselves a pluses because that's how you spend More A plus means I'm going to get more of your money. Okay. That's what I'm going to give myself.

Speaker A: Yeah, a hundred percent. And it's so like once you have a customer, a client, whether you're a product based business, service based business, it's easy to theoretically keep them, upsell them, keep on selling over and over and over. That's the easy part of marketing that the KPIs on the growth side are easier. It's the net new where you really need the okay, what the hell are we going to do and which channel are we going to spend on? How do we optimize this without cannibalizing everything that you have over here with your current customers and clients?

Speaker B: Yeah, exactly. And then data helps like even the foundation historically you want to look at um, if you have a repeat purchase product or a higher lifetime value, what initial product did new customers buy that led to the high lifetime value? Because you know otherwise you might be selling something inexpensive because you want volume and Meta likes the faster conversions. I'm going to use Meta but this is applicable to a lot of channels and really those customers are cheap for whatever reason and they don't rebuy a lot of stuff. Whereas you may be your product twice priced at like $200 which we've seen can lead to more lifetime value because maybe the product all sorts of reasons behind the product but that you want to start from offering the right product based on historically what's led what product first purchase led to the outcome the brand wanted. You got to start there because if you just throw up your catalog so the algorithm is going to figure it out no, it's going to figure out the fastest conversions uh for repeat buyers then you got to get the signal right which means you have to reward Meta by giving the right signal of only when a new customer buys send that in as the signal and pick it as in your ad set. This is a little tactical but it's otherwise it's not going to work. You got to make sure that the uh, what is being optimized on by the algorithm is the signal. You want MHM to have metric then you have to have it be measured correctly. Did I get newer repeat and make sure you're segmented and can validate it against your shopping cart that okay, these are. I am getting more actual new customers and I'm segmenting it to Meta and I'm offering what is most likely to lead to the outcome. You don't have any of that loop. You think it's the creative you think oh I did something wrong with my targeting and it's really like you need all three of that data architecture to support new customer acquisition.

Speaker A: I want to go back to something you said a little bit earlier of uh, like you need to know what the first product is that you need to sell them that results in the higher lifetime value and I think that's we see that a lot in service based businesses of like what's the small tiny offer you can get to get your foot in the door and then upsell, upsell, upsell. I don't see that as much in E commerce of like what's the right offer that we what we can be selling versus what we should be selling to increase customer retention for the next 3, 6, 912 plus months.

Speaker B: Well uh, a good friend of mine who is my the genesis of Wicked reports, he's been our customer for 11 years. Although he doesn't have to pay anymore. He's been my very good friend and I get to use his data all the time. So he was always selling lobster roll kits. 99 bucks they fly off the shelves. Trouble is the people don't repeat purchase much and if they do they just want to buy more lobster roll kits at 99 bucks which have a tiny, tiny spread, tiny margin he makes. Whereas if the customers bought the frozen lobster tail packages which run about $200 those customers tend to rebuy more $200 lobster tail packages and as profit spreads bigger and they're just wildly more likely to repurchase make more money. And so even though the volume is lower, the profit is much higher and it supports the the NCAC that he can actually pull off in meta. So now he no longer offers the lobster roll kits because the data is backed at emphatically that it just doesn't work that product. And so any E commerce store that could have you know like 10 to 50 products there's going to be sums that work better. And then other companies have a really expensive product and they just need to make their profit on that first sale no matter what and then well that's what they got to do. They got to work that angle.

Speaker A: And that's interesting where like cost of client acquisition or customer acquisition comes in is that by default? As a marketer we want to optimize for the lowest cost per acquisition per customer possible. But does it result in the longer lifetime value? That's questionable. It's like I would rather spend $200 for clients that's going to stay with me for three years than spend half of that for a client who's going to only stay with me for a year.

Speaker B: Particularly in a recurring, recurring product, you should go for the loss the first time as long as you have good enough retention rate. We had a supplement brand that scaled to over $100 million doing that. When, when they're, when they're, when our tracking showed that their Facebook roas was a 0.4, they would spend as much as humanly possible because they knew then with the recur which we could then track as well, they'd be at you know, 1.1 the next month and then 2.3 and their, their retention was enough that they were actually making three to five times their money as long as they could make 40 cents on the dollar. That's an advanced use case but it works for anyone that uh, that knows that they can get the retention, can get the repeat purchases.

Speaker A: Yeah, I think it makes you go back as a business owner and rethink how you're looking at your KPIs. So when you have all these different campaigns going at once, one of the five forces you have is the intention behind the campaign. Where do businesses usually get the intention wrong when it comes to launching a campaign, growth initiatives and then KPIs.

Speaker B: So the intention's critical because that's like the uh, the primary reason you're launching it. And that tells us so much about how we should measure if you're going to win or not. It would be like in a, in a sports game, say, and you say oh, uh, 50 points is my goal. Well are you offense or defense? Is that a high score or a low score? You know, you need more context to create the scoreboard to know that's not enough to know. And so with intention, like what goes wrong is people will say I want new customer acquisition, I want new customers. But then they'll go in and use the scoreboard of inside of Meta, which is not a new customer acquisition scoreboard. It's a uh, I'm grading my own homework and if there's any way possible to take credit for the sales that are happening, I'm going to say email, sms, direct, all they're trying to take credit for. Now Meta is a wonderful platform and actually it's a, it's ironic, they're terrible at keeping score in two ways. They way overweight their bottom of the funnel and they underweight the more important top of the funnel where they're very valuable. So if you have an ad that goes to a cold traffic audience for you know, whatever it is you're selling and then you kick in your retargeting and then your emails, your sms, your abandoned cart, everything going to take credit for the sale once it finally comes in. And really the awareness, which is the toughest part for them to even understand you exist, doesn't get credit in their platform, at least not enough. And so that's why we focus on that. And as it relates to five forces, you measure a certain way with a certain length of time based on with new customer acquisition, a minimum default would be 30 days based on your price point. We look at your historical orders to determine the perfect time frame. But in absence of any data, you want a month because even any quick turnaround, E commerce is usually a two week journey and then you really need double the journey. So like there's two rounds of journeys to then see, hey, am I actually making money or not? And so that intention determines the North Star KPI and it determines how long we're going to play the game for.

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Speaker B: well, how we're going to keep score, how long we're going to play, which is pretty hard to win a game if you don't know those two things.

Speaker A: Yeah. And that's what's interesting is that you often see when you're looking at like the Facebook level analytics you look in platform, it's hard, it's easy to say, this isn't working, we're just going to shut it off. How do you kind of validate, okay, this is working. This is not within those 30 days and then beyond the 30 days of like, how do you judge what's working, what's not when you're looking at those Metrics and you're really trying to optimize for lifetime customer value. But you also need to not be hemorrhaging ad dollars.

Speaker B: So first you take a multi channel approach is what we do. So we're looking at all the different marketing you're doing. So we're not trying to keep score of a basketball game and just watching one player on your team and not looking at the other four players that, that.

Speaker C: Thank you.

Speaker B: Yeah, like eight year olds that are getting blown by the court. And I'm playing with, you know, one good player. Why? Yeah, oh, we're probably winning. No, you're just looking at the one good player. The rest of the team is like, you know, sitting on the bench, you're one on five. Like that's what you're doing when you're just looking at one scoreboard. So that's one thing. And then the other thing is you tie it to results. You don't just say, hey, how many to score? And the person in like the Facebook player says, oh, I scored 100 points. You go in and you actually look at the stat sheet. Who actually scored the points? Oh, Facebook actually scored 60 points. And then Google had 20 and Pinterest had 20. So we tie the results back to sales and back to clicks and transparently show the journey. Now we don't really want our customers digging into those ten thousands of journeys, but they're all there initially to verify. But it's a simple like to get over that trust cliff, you look at one just the previous day and you look at how many sales meta said, how many sales you had, how many attentive SMS said, how many Shopify says, how many a klaviyo is claiming credit for or you know, whatever your platform is, you add them up and they're more. And the attribution platform shouldn't say more. Should we say the accurate number? And then that's how you begin to like realize things. Because then if you're looking at like your top of funnel campaigns, they're not going to show many if any sales if you have a lot of retargeting, nor should they. Yep, they're just getting the ball rolling. But then in the attribution platform they should because you've stitched that back. So it's through keeping an eye on all the players and keeping an eye on all the stats. And then the attribution model is then applying different ways of scoring the results based on what you're trying to do. Because if you're just trying to grow revenue yeah, you just look at revenue.

Speaker A: Yep.

Speaker B: You're doing efficient ad spend but you're a big brand. You don't care if it's new or repeat. Some people don't and it's return on ad spend. But a lot of brands, particularly like 5 million to 50 million E comm is kind of our sweet spot. Uh, we got other brands for sure and all kinds of unique business models

Speaker A: but they want new customers with multi channel and going back to attribution. Do uh, you like optimism? I'm sitting here thinking I have all these channels, all of them have brand awareness, consideration, sale, like bottom of funnel campaigns. How do you figure out optimizing between like first click attribution like brand awareness and we should keep these going on this platform versus the final click attribution and kind of balancing the two.

Speaker B: It's a good question. So basically each campaign would have a different intention.

Speaker C: Mhm.

Speaker B: You set those intentions and then you set uh, based on that there's a north, there's a North Star metric that matters the most. There's other ones that support it and that we use as needed. But just for starters, based on that you pick a, what I call a chill zone. I have a, you know, a decision methodology scale. Chill, kill, very simple. Scale means spend more. Chill means chill out and do your 80,000 other things on your to do list. Uh, you can keep spending the same amount without going broke. And then kill means M doesn't necessarily mean you get a killer right away. It means it's in the kill zone if it doesn't improve and then you can go diagnose it in a variety of ways. So you set up the scoreboard ahead of time of um, when it's in a certain range. My North Star metric, I'm going to be able to leave it alone and I'm going to measure it this long. But by setting different intentions, you're running different measurement models on each campaign, which can be tough to do on your own. That's what makes AI is you know, and I solve every problem. It doesn't, but it makes this one a lot better because what we do is we run the different measurement models not with AI but with just human ingenuity. We run them for you based on what you're trying to do and then based on the results, AI will extrapolate, translate it to plain or English for you or look at the sub metrics. We've instructed it to the supporting metrics to say oh, you're not doing as well. It's because of this conversion rate, which means this creatives, yada yada.

Speaker A: And that's where I think AI can really come in handy is when you have so many campaigns running and you have so much data, it gets overwhelming pretty quickly. And I think that's the, the untapped potential of AI when it comes to running ads of hey, let me give it all the data, let me plug in my APIs into AI, into the, whether it's the ad tech or the AI plus the ad tech and let it figure out why this isn't working. Because it can view data in a way that we can't. Because it's driven by a deeper level of pattern recognition than what humans necessarily have.

Speaker B: It is. Um, but what I also found is you uh, need guardrails that are based on experience, particularly when it comes to the lag time of time to conversion and then the lag time of realizing LTV. Because you can't realize all the LTV like some set like we're SaaS, you know, say our LTV is like twenty something thousand dollars a customer. So the AI. Oh good, you can spend four or five grand a customer and make five grand. No, I can't. I mean that's over like year two years. You want to spend much less than that. Yeah, like that's a simple example. But all those things are, oh, you got to kill this campaign. You need to make uh, 3x and you're not. No, that's my top of funnel campaign. I only have to do 1x on that one based on first click attribution, not multi touch. Because that's my top of the funnel and it has a view. It has views in there too which don't have clicks. So I really only need to get 0.8 and it's downstream. My north stars is all these like connecting things.

Speaker A: All the connecting things.

Speaker B: But with that said, I mean with enough effort and you know, mental elbow grease, you can get where it'll, it'll save you a lot of time and, and not. You won't miss opportunities because it'll run all that stuff for you.

Speaker A: And that's the catch of I think running ads as a whole, um, is that if your lifetime value is over the span of 2, 3, 5 years and you only need a 3x add to lifetime value, you still can't necessarily spend all that money on the front end.

Speaker B: Correct.

Speaker A: Um, because you'll be in the red in a couple of hours.

Speaker B: You could spend in the red a couple hours if, if your time span is, you know, for a Defined period. Well that you were accruing results, but it's a very tight window. It's not.

Speaker A: Uh, yes, absolutely. So when it comes to running ads, looking at attribution and KPIs, you've seen a lot of stuff to say the least and you've seen a lot of data. What is the one thing that business owners, CEOs and CMOs are missing the most?

Speaker B: Top of the funnel performance. They just get addicted to that higher roas reporting and brand search and the bottom level retargeting and they just will, the data will be there. We'll talk about incrementality or whatever. You know the flavor measurement, flavor of the quarter is.

Speaker A: Yep.

Speaker B: Whatever it is to make the case with the data. Hey, just spend more at top of the funnel. And no, it's not going to look as great. Uh, particularly like if you're, if you're looking at your overall business and your blended roas across all your channels or your NCAC across all your channels is in a good spot. You should be. If you're not going to spend more overall budget, you should be experimenting with cutting brand spend in half and moving that to the top of funnel channels. That's the thing people need to do most and they do the least.

Speaker A: I like that. And I think we get, like you said, we get addicted to the $1 in, $3, however many dollars out. Let me go look at the row as reports. But we miss the most important stage which is the brand awareness. Like if you look at the marketing funnel, you need the top of funnel to be as big as humanly possible for the rest of everything to work.

Speaker B: You do, you do. Because otherwise you're eventually just recycling demand that you're creating and you're not creating enough to grow because not only are you spending on the bottom, but then for example Meta's AI if sales is your objective, it's generally going to pull that budget from the top of the funnel. Even if you put in exclusions, you have to do all sorts of things to try to keep it on the slower, uh, the longer converting prospects that you need to fill that funnel. Uh, it's really, that's a lot of the work. One of the many jobs of the media buyers is to do that.

Speaker A: So I want to pivot a little bit to a new section we have that's rapid fire. Um, first thing that comes to mind, it is not ad centric. It is marketing and growth kind of across the board because you've been in the industry long enough that you've seen the best and worst of all of this. Um, so thanks. So first question. Most overrated marketing channel right now.

Speaker B: Brand search.

Speaker A: Most underrated marketing channel right now.

Speaker B: Meta top of the funnel.

Speaker A: If you had 20k influencer.

Speaker C: Influencers.

Speaker B: Uh, overrated, but it's actually valuable.

Speaker A: Okay, okay. Yeah, yeah. Just. Yes. If you had 20k to grow a business right now, where would you spend it?

Speaker B: What type of business?

Speaker A: Whatever type. Better. Let's flip questions. If you had to start a non marketing business tomorrow, what would it be?

Speaker B: If I had to start a non marketing business, I would do MRR reporting.

Speaker A: Okay. That is technically still marketing, but okay, I'll go with so close.

Speaker B: SaaS.

Speaker A: Okay, you go with that everybody. That's a very marketing bro answer. I love it. Okay, you build a SaaS. If you had 20k to grow that SaaS business today, how would you spend it?

Speaker B: Uh, LinkedIn, pain point posts.

Speaker A: Okay. And then what's the best marketing campaign you've ever seen?

Speaker B: A couple good ones.

Speaker A: Jeez.

Speaker B: I mean that supplement company that was doing the 0.4 scaling to 100 million, that's probably the best I've seen.

Speaker A: Okay.

Speaker B: Uh, you know, another fun one was, uh, a guy who would send birthing birthdays emails, uh, on his birthday with discounts and it was the most ridiculous idea and it was hinted 10x any other email.

Speaker A: Nice. Okay, I love. So now a birthday discount for all the employees to on their behalf. Okay. You can't wear out that idea too much is the caveat or people just wait for the sale to come. I like it. So, Scott, thank you so much for coming on the show today. If people want to connect with you further, you have a way for them to go deeper with the five four forces that you talk about when it comes to marketing attribution. Can you give me kind of the spiel on that a little bit?

Speaker B: Yes. Um, I have a course@fiveforces.com either the number or the word five spelled out. And so that's the best place to get info on the course. There's a whole, you know, page goes into detail and then there's a, you know, go at your own pace course with certification. Um, of also on LinkedIn you can find me. I mean, Wicked reports, Scott. We usually track me down. I mean I get a long last name and type that into.

Speaker A: You have a. You don't have to put the last name. You just put Scott Wicked reports and you come up.

Speaker B: Yeah, I was hoping there's not another one I don't know of.

Speaker A: Oh my God, Scott.

Speaker B: Yeah, that's where you can find me.

Speaker A: Awesome. Well, thank you so much for coming on the show today and for everyone tuning in today. Thank you for joining. And we will catch you on the next episode of Humans of Growth.

Speaker B: Thanks, Ali.