ROAS (return on ad spend) measures how much your business earns in revenue for every dollar spent on advertising.
So if you earn $5 for every $1 spent on ads, your ad campaign’s ROAS is 500%. And there is one VERY simple change you can make in your business to 5x, 10x, and even 30x your ROAS.
Case Study: How We Increased Our ROAS By 10X
In 2019, my business partner and I decided to make one of the best online fitness programs in the market. We both had made purchases of many programs and were never fully satisfied with them.
One of the biggest problems was that many people buy such fitness programs but never actually follow through to get results. So we made mindset coaching videos, created an accountability handbook, provided community access and made the program as simple to stick to as possible.
We had put all our heart and soul into this program and made the pricing affordable (launch price $21, official price $99) to help as many people as possible.
After launching the program to our warm audience, we ran out of new sales within 1.5 months and only made about $4,000+ in sales.
That’s when we realised that as a small business, it made more sense to charge higher ticket items. If we could get 4 sales of $2,000 in a month, that would make running a business more profitable than getting a job.
And this turned out to be the best decision because when we started paid advertising for our high ticket coaching program, we realised that the number of sales was about the same as when we sold our low ticket item (for a cold audience). And since average order value was now at least $3,000 instead of $99, we could easily cover our ad spend.
We were also attracting people who were more serious and committed, people who followed through the program, got results and provided us with testimonials which led to even more sales. It was like killing two birds at once – we created a highly profitable business and we worked with happy clients who produced results.
Was there particularly anything different between our $99 product and our $3,000 product?
Honestly, not much. The same principles to get leaner and fitter in our low ticket product applied to the high ticket product. It’s just that we provided a more personalised approach through one-on-one coaching calls and texts.
And we learnt the most important lesson in business. That is…
Stop overcomplicating. Start simplifying.
You see, when we were selling our $99 product, we were barely making any returns on our ads. That because in the current ad market, you can only get about 1 sale for every $100 ad spend (for $99 product).
So when we sold a $3000, even when the customer acquisition cost increased to $300, we made 10x the returns on the ad spend.
By now, you are wondering how come you still see low ticket offers being sold by some of the most successful market leaders. There are only 2 possibilities.
Advertisers who sell low ticket items either are losing money or are focused on Customer Lifetime Value.
Customer Lifetime Value: the total revenue a business can reasonably expect from a single customer account.
Here’s how Low Ticket sales work. Let’s say you’re selling a $29 product.
Warning: there is a lot of calculations involved. I suggest to pick up paper and pen and work this out with me as you read.
In the current ad market, you’re likely to get two sales for every $100 on ad spend for a $29 product. That means your ROAS will be 58% – that’s a loss.
The only way to get a positive ROAS and make sure you’re profitable is if you up-sell, cross-sell or down-sell the same customer down the line (whether at the point of sale or through your remarketing strategies).
Here’s an example of a seller making a cross-sell offer at the checkout page.
If you take up the offer, the seller will almost double his sales from $29 to $56. If every one out of two people takes up the cross-sell offer, that adds up to $85 for $100 ad spend. And it’s still not enough to breakeven or make a profit, so now you see a new $297 offer. And at this up-sell, it’s where the real profit is made.
Let’s say 15% of the buyers take up the cross-sell offer and 10% of the buyers take up the up-sell offer. Out of 20 buyers, 3 people will take up the cross-sell offer of $27 and 2 people will take up the up-sell offer of $297.
Given that there are 2 buyers for every $100 spent, to get 20 buyers, the total ad spend will be $1,000. So the total revenue from 20 buyers will be $1,255 which provides a 125.5% ROAS. In other words, the seller makes $1.26 for every $1 spent on ads. (these are just conservative estimates)
|Offers||Price||Conversion Rate||Total Sales for 20 Buyers||Total Ad Spend for 20 Buyers|
|Main Offer||$29||2 buyers for $100 ad spend||$29 x 20 = $580||$100 x (20/2) = $1,000|
|One-click Upsell Offer||$27||15% of the buyers||$27 x 20 x 15% = $81||None|
|Upsell Offer||$297||10% of the buyer||$297 x 20 x 10% = $594||None|
Using the numbers above, if you want to lower your risks of not getting a return on your investment, it’s best to sell high ticket products ranging from $1,500 to $5,000 and above.
So what‘s the one key contributor to multiply your ROAS?
Most people think it is having a complicated funnel with down-sells, cross-sells and up-sells, but it’s essentially one thing – the total sales value.
And do you need to have such a fancy funnel?
Not at all!
You can just structure your business to sell high ticket products.
If let’s say you have a $5,000 product that you sell over the phone, you can get about 5 calls booked for $1,000 ad spend. At 20% close rate, you’ll get one sale and your ROAS will be 500%. That’s increasing your ROAS by 3.98 times compared to the previous example.
What if you already have low ticket items?
First, focus on lead generation and making an offer for your high ticket product. If your leads don’t take up the high ticket offer, downsell them the low ticket items. This way, you can ensure that you get high returns on your ads on your front-end high ticket offer and then offset some of your ad spend through the downsells.
It’s through this simplicity that we were able to get at least 1,000% ROAS on our ad campaigns. We just created one product and focused on optimising one funnel. And I show you exactly how we did it in this case study: How We Spent $9,657.90 on Ads To Generate $114,696.60 For Our Online Coaching Business.