Solved: Higher ROAS with Cheaper or Expensive Products?

Hi there,

Thanks for reaching out!

Happy to give you some of my initial thoughts on your question. It's a classic one that a lot of ecommerce store owners get stuck on, and frankly, most people get the answer completely wrong. They get bogged down in metrics like CPC and immediate ROAS, thinking it's a simple choice between cheap and expensive products.

The truth is, you're not just asking which product to advertise. You're asking how to build a profitable advertising machine. The answer isn't about picking the £5 item or the £12 item; it's about understanding what a customer is actually worth to you over their entire relationship with your brand. We're going to throw out the old way of thinking and replace it with a model based on Customer Lifetime Value. It's the only way to know for sure how much you can really afford to spend to get a new customer and still make a healthy profit.

Let's get into it.

You're asking the wrong question...

I know your gut reaction is to compare the £5 item against the £12 one. It seems logical. You're thinking, "If CPC is higher for the £12 product, but the margin is better, does it beat the lower CPC but lower margin of the £5 product?"

This line of thinking is a trap. It's short-term, transactional, and it completely misses the bigger picture of how a real eCommerce business grows. Focusing only on the ROAS of the first purchase is like a farmer judging the value of a field based on the first sapling that sprouts. It ignores the entire future harvest.

You mentioned that people often bundle items, bringing the average order to around £16. That's your first clue. Your customers aren't just buying one thing. Their first purchase is often just an entry point. The real profit isn't in that first £16 order; it's in the second, third, and fourth orders they place over the next year. It's in them becoming a loyal customer who buys from you instead of a competitor.

So, the question isn't: "Which product gives me a better ROAS on the first sale?"

The real question is: "Which product acquires customers who will spend the most money with me over their lifetime?"

It's entirely possible that your £5 item, even if it barely breaks even on the first sale (or even makes a small loss), is your most valuable marketing tool. It could be the perfect, low-risk entry point that attracts customers who then fall in love with your brand and come back to buy the £12 items and more. In that scenario, you could afford to spend quite a bit to get someone to buy that first £5 item, because you know they're worth, say, £50 or £60 to you over the next 12 months.

See the shift in thinking? We're moving from transaction-focused advertising to relationship-focused advertising. To do that, we need to get a handle on the single most important metric you've probably been ignoring: Customer Lifetime Value (LTV).

We'll need to look at your Customer Lifetime Value (LTV)...

Right, so what is LTV? In simple terms, it's the total amount of profit you can expect to make from a single customer over the entire time they're buying from you. Knowing this number changes everything. It tells you exactly how much you can afford to spend to get a new customer through the door. Once you know your LTV, you stop worrying about a £1.50 CPC and start thinking about whether that click will turn into a customer worth £100.

Calculating it isn't as scary as it sounds. You just need three bits of information:

1. Average Revenue Per Account (ARPA): You already have a piece of this with your £16 average order value. To get a more accurate monthly ARPA, you'd look at your total revenue over a period (say, a month) and divide it by the number of unique customers who bought in that period.

2. Gross Margin %: This is your profit margin on your products. For every £16 order, how much is actual profit after you've paid for the product itself, the packaging, transaction fees, etc? Don't include marketing costs here. If a £16 order costs you £6 in goods, your gross profit is £10, and your gross margin is (£10 / £16) = 62.5%.

3. Monthly Churn Rate %: This is the percentage of customers you loose each month. It's the trickiest one to figure out for a non-subscription business. A simple way to estimate it is to look at how many of your customers from, say, six months ago, made a purchase in the last month. If 100 customers bought in January, and only 96 of them have bought again by July, you could estimate a 4% churn. It's not perfect, but it's a start.

Once you have those, the maths is straightforward:

LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

Let's plug in some numbers. Let's say your average customer spends £16 a month (ARPA), your gross margin is 60%, and your monthly churn is 5%.

LTV = (£16 * 0.60) / 0.05

LTV = £9.60 / 0.05 = £192

Suddenly, each new customer isn't worth £16. They're potentially worth £192 in profit. Now how much are you willing to pay to get one of those?

To make this real for you, I've built a little calculator. Play around with the sliders to see how small changes in your numbers can drastically change what a customer is worth.

I'd say you need a clear picture of your Customer Aquisition Cost (CAC)...

Now that you have a grip on what a customer is worth (LTV), we can talk about what you're willing to pay to get one. This is your Customer Acquisition Cost, or CAC. Simply put, it's your total marketing and sales spend divided by the number of new customers you acquired in a given period.

The relationship between LTV and CAC is the heartbeat of a healthy business. It tells you if your marketing is a profitable investment or just a money pit. A healthy business typically aims for an LTV:CAC ratio of at least 3:1. This means for every £1 you spend to acquire a customer, you get £3 back in profit over their lifetime.

• If your ratio is 1:1, you're losing money with every new customer (because you still have other business costs).
• If your ratio is less than 3:1, your growth is likely unprofitable and you're treading water.
• If your ratio is 4:1 or 5:1, you're in a great position and could probably afford to spend more aggressively on marketing to grow even faster.

Let's go back to our example. If your LTV is £192, a 3:1 ratio means you can afford to spend up to £64 to acquire a single new customer. Suddenly that £15 cost per purchase from your ads doesn't look so bad, does it? It looks like a bargain. This is the maths that allows businesses to scale aggressively while their competitors are scared of spending more than a few quid per sale.

This simple visualisation shows how you should be thinking about the health of your customer acquisition strategy.

You probably should segment your customer data...

Okay, so how do we apply all this theory to your actual problem: the £5 item vs. the £12 item?

You need to become a bit of a detective. You need to dig into your sales data (from Shopify, WooCommerce, or whatever you use) and segment your customers into two groups:

1. Group A: Customers whose first ever purchase was the £5 item.
2. Group B: Customers whose first ever purchase was the £12 item.

Now, for each of these groups, you need to calculate their LTV separately. Over the next 6-12 months, which group came back more often? Which group had a higher average order value on their subsequent purchases? Which group ended up being more valuable?

You might discover something fascinating. For example:

• Scenario 1: The £5 Item is a Gateway Drug. You find that customers in Group A have an LTV of £90, while customers in Group B only have an LTV of £60. Why? Because the £5 item is a low-risk impulse buy. It gets people to try your brand. Once they see the quality, they trust you and come back to buy the more expensive stuff and bundles. In this case, the £5 item is your best aquisition tool.
• Scenario 2: The £12 Item Attracts Better Customers. You might find the opposite. Customers in Group B have an LTV of £120, while Group A's is only £40. This could mean the £12 item attracts more serious, discerning buyers who are a better fit for your brand in the long term, while the £5 item attracts bargain hunters who never return. Here, you'd want to focus your ad spend on the £12 item.

You won't know until you look at the data. This analysis is the most important piece of work you can do for your marketing right now. It dictates your entire strategy.

Here's a simple flowchart to visualise these two potential customer journeys. Your job is to figure out which path is more common and more profitable for your business.

You'll need to change how you structure your campaigns...

Once you know which product acquires your best customers, you can revolutionise your ad account structure. You stop thinking about running one-off campaigns and start building a proper marketing funnel.

This is how we'd approach it for an ecommerce client. We'd seperate the campaigns based on their job:

Campaign 1: Customer Acquisition (Top of Funnel - ToFu)

• Objective: Get new customers in the door as efficiently as possible.
• Product Focus: Whichever product your analysis showed has the highest LTV (let's assume it's the £5 item).
• Audience: Broad audiences, interest targeting, lookalikes of your best customers. You're trying to reach people who have never heard of you before.
• KPI: Cost Per New Customer Acquisition. Here, you're willing to accept a lower immediate ROAS, as long as your CAC is well below your LTV. You might even be happy breaking even on this first sale.

Campaign 2: Profit Maximisation & LTV Boosting (Middle/Bottom of Funnel - MoFu/BoFu)

• Objective: Get existing customers to buy again and increase their spending.
• Product Focus: Your £16 bundles, the £12 items, new product launches.
• Audience: Retargeting audiences. People who have bought from you before, people who visited your website, people who added to cart but didn't buy.
• KPI: Return On Ad Spend (ROAS). These campaigns should be highly profitable, as you're marketing to a warm audience that already knows and trusts you. This is where you make your money. I remember one subscription box client we worked on achieving a 1000% return on ad spend, primarily through effective retargeting to their existing customer base.

This two-pronged approach is far more sophisticated. The acquisition campaign feeds the machine, and the profit campaign makes the machine profitable. Here’s a rough idea of what that structure could look like in your ad account:

You'll also need a message they can't ignore...

Knowing your strategy is one thing, but your ads still need to convince someone to click. Your ad copy needs to be tailored to the campaign's goal. For an eCommerce product, the 'Before-After-Bridge' framework works wonders.

Before: What's the customer's problem or current state?

After: What does life look like with your product?

Bridge: Your product is the thing that gets them from Before to After.

Let's apply this to your products:

For the £5 Acquisition Product (ToFu Ad):

Here, the goal is to reduce friction and encourage a low-risk trial. The copy should be simple and direct.

• Before: Your [related activity] is okay, but it's missing a little something special.
• After: Your [related activity] is now more fun/stylish/easier and everyone's asking where you got your gear.
• Bridge: Our [£5 Product Name] is the perfect little upgrade. Try it for just a fiver.

Ad Copy Example: "Tired of the same old boring [hobby]? 🙄 Imagine turning heads with a simple, stylish upgrade. Our [£5 Product] is the perfect place to start. See what the fuss is about for only £5 + free shipping on your first order!"

For the Bundles & £12 Product (Retargeting Ad):

This audience already knows you. You don't need to introduce the brand. You need to give them a reason to come back and spend more.

• Before: You loved our [£5 Product].
• After: You have the complete, perfectly matched set that takes your [hobby] to the next level.
• Bridge: The Ultimate [Hobby] Bundle.

Ad Copy Example: "Still loving your [£5 Product]? We thought so 😉. Complete your collection with our best-selling bundle. Get the [£12 Product] and two others for just £16 and save 20%. Tap to shop the look you started."

This tailored messaging acknowledges where the customer is in their journey with you and presents them with the most relevant next step, making it much more likely to convert.

This is the main advice I have for you:

To pull all this together, here’s a step-by-step plan. This is the exact process we would follow if we were trying to scale your ad spend profitably. It moves away from guesswork and into a data-driven system for growth.

As you can see, the simple question of "£5 vs £12" opens up a much more robust and professional way of looking at your marketing. It's a shift from just "running ads" to building a predictable system for growth.

Executing this properly – digging into the data, setting up the tracking, building the campaigns, and optimising them constantly – takes a lot of time and expertise. This is where many business owners get stuck. They understand the theory but struggle to find the hours in the day to implement it correctly while also running the rest of their business.

This is precisely the gap that an experienced paid advertising consultant or agency fills. We've run this playbook for numerous eCommerce clients, from apparel brands seeing over 600% returns to cleaning product companies increasing revenue by 190%. We handle the complex analysis and day-to-day management so you can focus on what you do best: creating great products and serving your customers.

If you've found this breakdown helpful and would like to discuss how we could apply a similar data-driven approach to your specific business, I'd be happy to offer you a free, no-obligation strategy session. We can take a look at your current setup and give you some more tailored advice.

Hope this helps!

Regards,

Team @ Lukas Holschuh