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A new survey from the popular forum eCommerceFuel shatters one of the biggest misconceptions about the e-commerce industry: that success hinges on high ROAS.
Browse social media, expert advice, or follow the money from venture capitalists and you’d think that success comes to e-commerce founders who are under 30 and heavily invested in performance marketing, and the return on advertising spend (ROAS) it generates.
Yet eCommerceFuel’s eCommerce Trends Report bucks all of that. It found that the average e-commerce business owner is 41 years old. Their brands pulls in about $7.1 million annually, buoyed by a proprietary product, deep industry knowledge and incredible customer service ––retail pillars that haven’t changed much in hundreds of years.
It makes sense, then, that more than 40% of these brands manufacture their own product, and another 20% have hybrid model in which they manufacture several of their own products and then private label, dropship, or resell other SKUs.
However, the most shocking finding of this report — one that had Twitter abuzz — was about performance marketing and ROAS. Here’s how Andrew Youderian, founder of eCommerceFuel, phrased it:
The truth about ROAS, revealed
Return on ad spend is a common marketing metric that companies use to compare how much they’re spending on advertising versus how much revenue the ads bring in.
Marketers use ROAS to:- Gauge general effectiveness of their advertising campaigns
- Identify the most effective advertising channels
- Guide planning and budgets
- Spot inefficiencies
However, obsessing over ROAS is misguided, according to eCommerce Fuel, which showed no correlation between ROAS and growth or profitability.
Instead, successful ecommerce founders were 600% more likely to cite branding & storytelling as their competitive advantage, and 77% more likely to make their own products.
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Zoning in on operational efficiencies
The study even found that brands growing in the top 20th percentile relied 25% less on paid traffic sources than those in the comparison group, and had 4% lower ROAS.
They also had 50% smaller teams, were 24% less likely to run their own warehouse (likely relying on 3PLs instead), had 8% more visitors purchase (high conversion rates), and had 37% higher profit margins.
“The strongest predictor of profitability was lean, efficient operations––NOT advertising performance,” Youderian wrote on Twitter.
A high ROAS was no indicator of a successfully growing or profitable e-commerce business. But, that doesn’t mean that the successful brands aren’t advertising or focusing on improving their ROAS.
The point here is that successful brands have instead first focused on operational efficiencies throughout the organization in order to achieve maximum margins, and create a sustainable business.
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Top e-commerce marketing channels
All e-commerce businesses are 56% more reliant on paid traffic in 2022 than they were in 2019, though, and 36% less reliant on organic traffic in that same time period, the report showed.
Facebook ROAS has decreased 30% for brands on average, too, likely due to Apple’s privacy policy updates that caused widespread industry panic and recalibrating.
All e-commerce brands, according to this study, need to diversify their marketing mix to keep costs low. Email marketing remains the No. 1 marketing channel, as it was in 2019, with Google Adwords now No. 2 in 2022, displacing 2019’s second-place holder, Facebook Ads.
E-commerce leaders see TikTok, influencer marketing, SMS and YouTube as the marketing channels with the most future potential for 2023.
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A new mindset
All in all, as the e-commerce industry corrects from its heights in 2020, and a recession looms, there’s a new mentality the industry is embracing, one said well by Aaron Orendorff of Common Thread Collective: “Losing is normal. Surviving is winning. Growing is monumental.”
Good luck out there––and remember, operational efficiency does more for your revenue than ROAS.
