Transcript
So what is ROAS and LVT as it pertains to your business when you’re running advertising campaigns on Google and Facebook? That’s what we’re going to talk about in today’s episode.
So what is ROAS and LVT? Well, ROAS is return on ad spend. LVT means lifetime value transaction. So what is the average value of a new customer or client? We’ll say for that. You can take it to down to new lead, but we’ll just say new client, new customer. So when we’re writing campaigns, depending on if it’s like an e-commerce service, or if it’s a service provider, like an attorney, one of the things that we look for as part of the value that we provide to you is what are you getting in return? So with e-commerce it’s really easy. You’re running campaigns. You can see when people purchase. You can get that data automatically pulled into Facebook, and it will tell us what the return on ad spend, meaning how much money did you make for every dollar that you spent?
So looking at one of our weekly reports that we send to one of our e-commerce clients on the screen, you can see the return on ad spend for the last 30 days, at the time of recording, is 25.4 meaning, and be sure to always look at all your campaigns, because if an agency is doing it properly, they should be running traffic to cold as well as retargeting to warm and hot. So all her campaigns for the last 30 days has given her a 10 to one return on investment. Meaning she spent just under 500 pounds and made just over 5,000 pounds. And those are sales on her Shopify site.
That is what we call a return on ad spend. How much is she making? Now, if course, she has to put money into overhead and creating the products and our management fees and everything like that. But when we set up goals and objectives with a client, we’ll want to say, “What do you need the return on investment to be in order to be profitable?” And every business is different. So for her, in this particular case, she just needs actually a five return on investment for all of it in order to cover all those other expenses, and we’re doing 10, and that’s pretty consistent for her. So that’s return on ad spend.
Now what happens if you’re not an e-commerce client? So then what we do is we do the lifetime customer value or lifetime transaction value. And by that we say, “Okay, when someone purchases, or becomes a client, what is the average value?” So usually what we do is we say, “Look at your revenue for the last year. Look at how many clients you got through for the last year. Divide it.” It’s an average, it’s a really simplistic overview. So for the client that I’m showing here, they are selling, pre-selling actually, boat storage spots. I don’t want to say mooring, because it’s actually elevated. It’s three to four stories high, and that average value for each spot that they sell because there’s a 12 month commitment is around $2,400 or, sorry, $24,000. So when they make a sale it’s quite a bit of value.
And so what we do is when we’re using that in our pipeline and we’re getting them leads when the lead closes and they commit to the sale, we then say, “The sale is valued at $24,000. How much did we spend in that month? And what’s the return on investments?” Well, for this company, they’re actually spending about $750 to make the sale. So it’s almost more than a 20 times ROAS for them to advertise for the service that they’re providing. It is a service. It’s not just real estate. There’s a whole service, white glove service, that goes with it. They’re spending about $750 for every sale, not every lead, every sale, that they made, and that sale is, because of the 12 month commitment, is valued at 24,000. So it’s a huge return.
So these are the things that we look at as an agency, because we’ve been doing this for a while. Leads are not the end of the story. We know that only a certain percentage, 10%, 5%, 1%, will ever actually give you money. Money pays the bills, money buys food. So as our job as an agency to make sure that the funnels that we’re creating and the campaigns that we’re creating and setting up makes you money. And those are the kinds of questions that we ask when we’re doing our onboarding and sending you up as a new client is what is the value of a new client for you?
So if you’re interested in talking about that, even if you already worked with another agency, you just want to get a second opinion, comment below, or you can send me a DM if it’s on social media, or you can email me at maggie@meritbasedmarketing.com. And we’ll go from there. Happy to help you figure it out to determine if your campaigns are being profitable for your particular business. Thanks and have a wonderful day.
