Return on Ad Spend Optimization Framework

Return on Ad Spend Optimization Framework for Luminous Skincare

ROAS Calculation Methodology

Holistic ROAS Measurement Model:

We recommend implementing a 3-tiered ROAS calculation approach for Luminous Skincare:

1. Platform ROAS (Basic):
   • Direct revenue from platform reporting divided by ad spend
   • Current metrics: Meta (1.8x), Google (2.2x), TikTok (1.4x)
   • Primary use: Day-to-day campaign optimization
2. Blended ROAS (Intermediate):
   • Incorporates cross-channel attribution with 28-day view and 28-day click windows
   • Applies channel-specific attribution weights: Meta (65%), Google (85%), TikTok (50%)
   • Accounts for average 15% cart abandonment recovery rate
   • Current blended ROAS: 2.1x across all channels
3. True ROAS (Advanced):
   • Incorporates 90-day customer value (not just first purchase)
   • Adjusts for product-specific margins (serums at 72% vs. cleansers at 65%)
   • Factors first-time vs. returning customer acquisition costs
   • Accounts for subscription conversion rate (22% of first-time buyers)
   • Current true ROAS: 3.4x

Channel-Specific ROAS Targets

Based on Luminous Skincare’s product mix, customer journey, and performance data, we recommend the following ROAS targets:

Optimization Strategies

1. Audience Refinement:

• Implement lookalike audiences based on 180-day high LTV customers (not just purchasers)
• Exclude audiences who have viewed only low-margin products in the last 7 days
• Create segment-specific creative for sensitive skin customers (highest margin product line)
• Test interest expansion only on top-performing ad sets (>2.5x ROAS)

2. Creative Enhancement:

• Prioritize UGC featuring before/after results (currently 76% higher conversion rate)
• Implement dynamic product ads with testimonial overlays specific to skin concerns
• Develop educational content series highlighting proprietary ingredients (currently driving 2.3x higher AOV)
• Test voice-over variations on product demonstration videos (current data shows 42% improvement)

3. Bid & Budget Management:

• Implement auto-bidding with minimum ROAS constraints aligned to channel targets
• Allocate 70% of budget to proven performers, 20% to scaling tests, 10% to experimental
• Apply dayparting based on conversion time analysis (reducing late-night spend by 40%)
• Implement weekly budget pacing aligned with inventory availability

4. Landing Page & Conversion Optimization:

• Create dedicated landing pages for top ad groups with targeted testimonials
• Implement exit-intent offers only for high-margin products
• Add comparison charts for consideration-stage landing pages
• Simplify checkout process (reducing steps from 5 to 3)

Addressing Specific ROAS Challenges

TikTok Performance Issues:

• Current challenge: 1.4x ROAS vs. 2.0x target
• Solution approach:
  1. Shift from polish​ed brand content to authentic creator partnerships
  2. Implement sequential retargeting based on video completion rate
  3. Test native checkout functionality for impulse purchase products
  4. Allocate 60% of budget to top-performing customer seed audiences

Maintaining Growth While Improving Efficiency:

• Set differential ROAS targets by customer acquisition stage
• Allow lower ROAS (1.2x) for new customer acquisition of subscription-eligible products
• Require higher ROAS (3.5x+) for general retargeting campaigns
• Create separate budget allocation for brand-building vs. performance campaigns
• Implement incrementality testing schedule to validate true contribution of each channel

Measurement & Iteration Framework

Weekly Review Cadence:

• Monday: Review weekend performance, adjust daily budgets
• Wednesday: Creative performance analysis and optimization
• Friday: Weekly performance summary and next week planning

KPI Dashboard Focus:

• Primary metrics: ROAS by channel, CAC by product category, New vs. Returning ratio
• Secondary metrics: AOV trends, Margin contribution, Attribution pathway changes
• Leading indicators: Add-to-cart rate, Landing page bounce rate, Email capture rate

Iteration Methodology:

1. Identify lowest performing channel/campaign segment
2. Apply test/control methodology to one variable at a time
3. Allow minimum 7-day learning period based on 100 conversion minimum
4. Scale winning approaches by 20% increments until efficiency ceiling identified

Implementation Roadmap

Week 1-2: Foundation

• Audit tracking and attribution setup
• Develop True ROAS calculation model
• Set channel-specific targets

Week 3-4: Optimization

• Implement audience refinement strategies
• Launch creative testing framework
• Develop channel-specific landing pages

Week 5-8: Scaling

• Apply successful strategies across channels
• Begin incrementality testing
• Develop predictive ROAS model for budget planning

Month 3+: Advanced Optimization

• Implement machine learning-based bid management
• Develop customer lifetime value prediction model
• Create automated budget allocation system