Today I want to unpack, why I prefer having a higher budget with a lower ROAS rather than a smaller budget with an extremely high ROAS.
Now, I know that sounds a bit controversial, but stick with me, and I’ll break down why this approach actually makes more sense in the long run.
The Common Misconception About ROAS
Let’s start with a question.
Would you rather have 10% of R100,000 or 5% of a million?
Now, before you answer, take a moment to really think about it.
It might seem like a no-brainer, but the math here is what’s crucial.
Let’s do it quickly.
10% of R100,000 is R10,000.
But R5% of a million? That’s R50,000.
So, what do you prefer—R10,000 or R50,000?
If you’re smart, you’re going to take the R50,000 every time.
And this same logic applies to your advertising budgets and ROAS.
Here’s where people get tripped up—they see ROAS as this holy grail metric.
If it declines, they freak out and think their business is going backwards.
But that’s not necessarily the case.
Let’s unpack that.
ROAS: The Good, The Bad, and The Misleading
First off, ROAS stands for Return on Ad Spend, and it’s basically a percentage that tells you how much revenue you’re getting back from your ad spend.
So, if you invest R10,000 into ads and get a 5x ROAS, that means you’re pulling in R50,000 in revenue.
Sounds great, right?
But here’s where things get misleading.
ROAS doesn’t tell you the full story.
It’s just a percentage, a surface-level metric that doesn’t account for your overall profitability.
If you’re not looking deeper, you might be leaving money on the table.
The Real Story Behind The Numbers
Let’s dig into this a bit more.
Say you have a 30 million rand per year business.
Your net profit margin might be around 20% before tax.
So, if we look at that R50,000 revenue with a 20% profit margin, you’re left with R10,000 rand in actual profit.
Cool, right?
But here’s the twist.
What if you had invested R100,000 instead and only got a 2x ROAS?
Now, you’re bringing in R200,000 in revenue.
And yes, your ROAS is lower, but let’s focus on what really matters—the profit.
With a 20% profit margin, that R200,000 gives you R40,000 in profit.
That’s four times the profit, even though your ROAS was lower.
Why Bigger Budgets and Lower ROAS Can Be More Profitable
This is where a lot of business owners get stuck.
They see a lower ROAS and panic, thinking they can’t grow their business with a 2x ROAS.
But they’re missing the point.
It’s not about the percentage—it’s about the actual money you’re getting back.
The bigger the budget, the more you’re able to scale, even if your ROAS isn’t sky-high.
Let me give you a real-world example.
We took one of our businesses and started with a R10,000 budget.
We had a 5x ROAS, which was nice, but it only brought in R50,000 in revenue.
Fast forward to now, and last month, we spent close to R450,000, including VAT, on marketing.
Did our ROAS drop? Sure, it went down to around 2x, but here’s the kicker—the profit we made was significantly higher.
Let me break down the numbers for you.
We spent R370,000 on marketing, and our profit after expenses was still a lot more than what we made with a smaller budget.
This is why I’m not fixated on ROAS.
It’s about scaling smartly, not just looking good on paper.
The Reality of Scaling Ad Spend
The more you spend, the harder it is to maintain a super high ROAS.
That’s just how it is, and it’s something you need to accept if you want to scale your business.
Can you keep a high ROAS while increasing your budget?
Maybe, but it’s going to be tough.
What you should be asking yourself instead is, “How much profit am I actually making back?”
ROAS is just an indicator—it’s not the be-all and end-all of your business’s health.
What really matters is the profit you’re taking home.
Balancing ROAS and Budget: The Sweet Spot
So, how do you find that sweet spot between ROAS and budget?
First, let’s acknowledge that ROAS is important, but it’s not the only metric that should guide your decisions.
You need to consider other factors like customer acquisition cost (CAC), lifetime value (LTV), repeat customer rate, operating expenses, and gross margins.
These are the numbers that tell you if your business is truly healthy and scalable.
For example, can you negotiate better deals with suppliers to improve your gross margin?
Can you reduce your transaction fees with payment gateways?
Last month, we paid R150,000 just in transaction fees for about 3,000 orders.
Those are the kinds of expenses you need to manage if you want to scale effectively.
Understanding these metrics is crucial.
If you don’t know your numbers, you don’t really know your business.
And if you don’t know your business, you’re just guessing.
Why Understanding Your Numbers is Non-Negotiable
Here’s the deal—if you don’t understand your numbers, you’re not really running a business.
You’re just winging it.
And that’s a recipe for disaster.
Knowing your numbers allows you to make informed decisions that actually move the needle.
It’s what separates a business owner from someone who’s just playing at being an entrepreneur.
If you want to build, scale, and eventually sell your business, you need to get comfortable with the financials.
It’s not the most glamorous part of the job, but it’s absolutely essential.
Scaling Smart: The Bigger Picture
Alright, so we’ve established that a lower ROAS with a higher budget can be more profitable.
But there’s more to scaling smart than just throwing more money at your ads.
You need a strategy that takes into account all aspects of your business.
This means understanding not just your ad spend but also your operating costs, your pricing strategy, and your overall business model.
If your business isn’t growing, it’s not just a marketing problem—it’s a business problem.
You need to look at the whole picture.
And that includes everything from how much you’re paying your staff to what kind of deals you’re getting from your suppliers.
The Role of Marketing in Business Growth
Don’t get me wrong—marketing is crucial.
It’s the engine that drives your business forward.
But it’s not the only factor.
You can have the best marketing strategy in the world, but if your costs are out of control, or your margins are too thin, you’re not going to see the growth you want.
This is why understanding your financials is so important.
It’s the foundation upon which you build everything else.
If that foundation is shaky, it doesn’t matter how great your marketing is—it’s all going to come crashing down sooner or later.
Final Thoughts: Focus on What Really Matters
So, what’s the takeaway here?
ROAS is a useful metric, but it’s not the whole story.
If you really want to grow your business, you need to look beyond ROAS and focus on the bigger picture.
That means understanding your numbers, managing your costs, and scaling smartly.
It’s not just about how much you’re spending—it’s about how much you’re getting back in profit.
So, next time you’re looking at your ROAS, take a step back and consider what it really means for your business.
Because at the end of the day, profit is what keeps the lights on—not percentages.
If this post helped you see things differently, drop a comment and let me know.
And if you’re serious about growing your eCommerce business, make sure you subscribe for more straight-up advice like this.
See you in the next one!