The Hidden Cost of Chasing ROAS: Why CAC Optimization Builds Real Business Growth
Executive Summary
Most performance marketing agencies optimize for ROAS — and at first glance, it looks like a smart move. High ROAS implies efficiency. But when you look under the hood, it often reveals a strategy that's recycling demand, not creating it.
This post breaks down the pitfalls of ROAS-optimized marketing and shows why managing to CAC (customer acquisition cost), in relation to customer LTV (lifetime value), is the more sustainable path to growth. Along the way, we’ll break down the math and bring in two critical concepts from Byron Sharp’s How Brands Grow: the double jeopardy law and the fact that most buyers are light or infrequent buyers.
Introduction
If you’ve worked with a performance marketing agency, chances are they’ve shown you a shiny ROAS dashboard. "We’re hitting 3x, 5x, even 10x ROAS," they say. It sounds like you're scaling profitably. But behind those numbers, there’s often a hidden cost: stagnation.
The problem? ROAS is not a business metric. It’s an advertising efficiency metric tied to point of purchase behaviors. It measures how well you capture sales that were already likely to happen. CAC, by contrast, is a growth metric. It’s tied directly to new customer acquisition, which is the lifeblood of sustainable growth.
Let’s break down why managing to CAC, especially in relation to customer LTV, leads to smarter, more sustainable marketing.
ROAS: The Appearance of Performance
Return on ad spend (ROAS) measures how much revenue you generate for every dollar spent on advertising. On paper, it’s clean and satisfying:
ROAS = Revenue Attributed to Ads / Ad Spend
Here’s the catch: platforms optimize ROAS by going after the lowest-hanging fruit — people who were likely to buy anyway. These customers:
Are already familiar with your brand
Have likely bought before
Require little persuasion to convert
This leads to a reporting loop that looks efficient but isn't growing your base. You're paying to re-acquire customers you already had.
This vicious cycle isn’t just a function of the goal, it’s also a function of campaign setup. Whether it’s programmatic, paid social, or paid search, the way you structure campaigns plays a major role in who your ads reach. Over the past decade, platforms across channels like The Trade Desk, DV360, Meta, TikTok, and Google Ads have been developing and implementing machine learning models to let their ad products allocate budget to targeting that’s most effective at driving the campaign goal.
All performance-oriented campaigns will include retargeting as a tactic, which can span an array of audiences (e.g., site visitors, cart abandoners, CRM leads). With the auto-allocate function on and a retargeting tactic implemented, the algorithm will push as much spend as possible into those retargeting groups. Why? Because they’re easiest for the ad platform to get credit for the ROAS goal. Getting credit is intentional — often they’re not driving incremental sales, they’re merely making themselves look good in reporting… so that you’ll spend more money with them.
It’s a doom loop: the more success the platform sees with retargeting, the more it prioritizes those audiences. Over time, you’re no longer growing, you’re just reinforcing demand that had already been generated.
Worse yet, many agencies lean into this game. Junior media buyers (the ones frequently behind the curtain) treat ROAS as sacred. They get to check the box of “optimizing to a business goal.” Even senior agency leads often parrot performance jargon without grasping how business mechanics really work. It creates a comforting illusion: marketing looks effective, is driving a business objective, but sales stay flat or modestly grow. Remember, ROAS is not a business metric!
This isn’t just about how platforms optimize, it’s also about how markets work. As Byron Sharp explains in How Brands Grow, most buyers aren’t loyalists waiting at the bottom of your funnel. They’re light buyers spread across the market, and that has huge implications for growth.
The Distribution of Buyers: What Byron Sharp Tells Us
In How Brands Grow, Byron Sharp, outlines two key principles that are essential to understanding why CAC matters more than ROAS:
The Double Jeopardy Law — Smaller brands not only have fewer customers, but those customers are less loyal.
Relevant implication: If a smaller brands focus on ROAS, it risks only serving those existing customers and will eventually die a slow death. Growth requires a focus on new customer acquisition.
Most of the Market Consists of Light Buyers — The majority of category buyers purchase infrequently and they’re more likely to buy from the category leader (the “bohemoth”),
Relevant implication: These people are less predisposed to buy your brand. which means it takes more effort — and a higher CAC relative to loyal customers — to win them over. But these light buyers are exactly where growth comes from.
The Bell Curve of Willingness to Buy
This isn’t Byron Sharp’s model, but it’s a helpful way to visualize his findings about light buyers and the role of CAC. Think of buyer intent as a curve. On the far left, you have your highest-intent buyers: loyal customers or those actively in-market. On the far right are those least likely to consider your brand today.
As marketing reaches further from left to right, it gets progressively harder and more expensive to acquire new customers. That’s because you’re reaching people who are less predisposed to buy your brand.
The implications of efficiency goal on an advertisers reach against their target market
ROAS-based bidding models concentrate effort on the left side of the curve. That’s where algorithms can find quick conversions and boost reported efficiency, but those are efficiencies tied to transactions that likely would have happened anyway.
CAC-based models do the opposite. They build outward. Each dollar is spent to move one step further right on the curve, reaching newer and less familiar audiences. These are harder to convert, but they’re the only path to real growth.
This is where brand advertising plays a critical role. It expands your mental availability across the market, shifting more people closer to the left side of the curve. That makes them easier to convert when performance media reaches them. Without brand building efforts, it’s harder, and more expensive to convert the persuadable middle.
A Numerical Example
Let’s compare two scenarios using the same $500,000 annual ad budget for a brand with the following:
Average order value (AOV): $100
Purchase frequency: 1.2 times/year
Customer lifespan: 5 years
Retention: 80% per year (20% annual churn)
Lifetime Value (LTV) = $403.39 per customer
Keep in mind, the people an algorithm delivers ads to in a ROAS model will be those who are going to purchase anyway. Therefore, there’s a modifier on the incremental customers in that scenario that’s more likely to align with reality.
Scenario example: impact of ROAS optimization vs CAC optimization
Clearly, CAC based model is much more beneficial in terms of revenue and effective ROAS, even though that’s not the goal.
Anther Way to Think About It
Only 20% of the $500K investment in the ROAS model was effective. The rest, $400K, was thrown away as it simply pulled forward sales that would have happened anyway. While this is an illustrative example, the implications are real.
The Business Case for CAC
CAC is often ignored because it doesn't look as good in platform dashboards. But it does something ROAS can’t: it keeps you honest.
Optimizing to CAC and especially marginal CAC, ensures you're:
Acquiring new customers
Growing your market share
Building future revenue through LTV
Growing profitably
Yes, it costs more per customer up front. But those customers bring long-term value, especially if your product or service has high retention or repeat purchase potential.
And it takes experience to get this right. At Perform Marketing Partners, we’re built around senior-only experts, people who don’t just understand media mechanics, but business mechanics too. That’s the difference between material business growth that scales and optical growth that looks good in reporting.
Conclusion
The most efficient marketing isn’t always the most effective. ROAS can make things look great while quietly draining your budget. CAC, when managed with discipline and tied to customer LTV, gives you control over your growth curve.
And as Byron Sharp’s research reminds us, growth comes from acquiring light and infrequent buyers — not by recycling loyal ones. That requires higher CAC in the short run but drives long-term business success.
If you want to build sustainable growth, you need senior marketers who know the difference between metrics that look good and metrics that drive your business forward. That’s what we do at Perform Marketing Partners.
