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Deriving Outcomes From Digital Marketing Initiatives

Establishing key performance indicators (KPIs) allows you to focus on specific results, but measuring them helps you gauge your progress. So what’s the difference between ROI and ROAS, and what does it mean for marketing decision-makers?

Deriving Outcomes From Digital Marketing Initiatives

Deriving Outcomes From Digital Marketing Initiatives

Online advertisers recognize the value of both ROI and ROAS, but revenue-based KPIs are not always easy to calculate. ROI poses a problem for agencies because many clients don’t share the profit margins of their goods and services. Agencies often find it’s easier to calculate ROAS. Still, data collection, analyses, and attribution can create challenges. In this article, a deep dive into:

  • Why ROAS due diligence can be difficult
  • How agencies can gain from proving—and improving—ROAS
  • A practical look at calculating ROAS for a CPG brand and a retailer
  • Finding the right partner for your ROAS journey

Table of contents

Goals to Measure Against
ROAS Due Diligence Can Be Difficult
Agencies Benefit From Calculating Financial Metrics
Let’s Get Practical: Calculating ROAS for a CPG Brand
Let’s Get Practical: Calculating ROAS for a Retailer
Find Partners That Can Support Your Agency’s ROAS Needs

In today’s marketing world, with so many decisions driven by data and so many budgets tight or fluid, is it any wonder brands want to understand how much money their ads are directly generating?

Unfortunately, some popular campaign metrics that agencies share with clients, such as click-through rate, cost per engagement, and conversion rate, can’t answer the question. Considered individually, these proxies provide only a limited view of marketing performance.

A more illuminating financial metric is the return on ad spend (ROAS). It measures the effectiveness of a campaign and is a subset of return on investment (ROI), which reveals how well a campaign has helped expand the business.

“We’re seeing more and more that advertisers want to tie ad spend to actual business outcomes,” said Meredith Hentschel, Solutions Consultant at StackAdapt. “If you can tell a client that for every dollar they’re spending, they’re getting back $3, that makes a really strong case for continuing to invest in the campaign.”

Goals to Measure Against

Establishing key performance indicators (KPIs) enables you to focus on and optimize toward specific results—and measuring them helps you gauge your progress.

While ROAS and ROI are similar KPIs, they vary significantly. ROI, a business-centric metric, takes a company’s profit margins into account. ROAS, on the other hand, doesn’t factor in the cost of goods sold.

ROAS is more ad-centric and tactical. It can tell you how much revenue is generated by every dollar spent on a specific advertising campaign. “I’ve always seen ROI as the main parent and the child is ROAS, which is always a benefit to be able to measure,” said Carly Foy, Sales Director at StackAdapt.

ROAS can reflect a hard conversion, such as a purchase. It can also represent the value assigned to conversion, for example, if you’re running an awareness campaign. If a lead is worth $500 to a brand, for instance, that amount can be used to calculate ROAS.

Online advertisers recognize the value of both ROI and ROAS. A 2020 survey by Ascend2 and its research partners found that 61% of surveyed marketing professionals claimed ROI was the most meaningful metric for evaluating the success of programmatic advertising campaigns; 38% gave that distinction to ROAS. Those KPIs topped click-through conversion, cost per click, click-through rate, and view-through conversions.

ROAS Due Diligence Can Be Difficult

Revenue-based KPIs, however, are not always easy to calculate. U.S. digital-media experts surveyed by Integral Ad Science said accurate measurement and assessment of campaign ROI would be among their top challenges in 2021.

ROI poses a unique problem for agencies because many clients don’t share the profit margins of their goods and services.

Agencies often find it’s easier to calculate ROAS. Still, data collection, analyses, and attribution can pose challenges.

Some clients may not share revenue figures. Or they may have trouble calculating the value of conversion when the ad exposure doesn’t lead to a hard sale.

Some clients also rebuff the idea of attaching pixels on their websites that can track user actions and link ad exposures to sales.

Or they may work with partners that don’t pass back data that could help determine if a campaign is driving conversions.

The digital ecosystem itself creates complications for quantifying outcomes. Each technology platform has its own way of counting a conversion with different post-view and post-click windows, and clients and agencies can use different attribution methods, too. All this inconsistency can lead to confusion about which ads and platforms deserve credit for a conversion.

Meanwhile, gaps in revenue reporting can make accurate measurement difficult, for example, offline conversions that agencies can’t attribute. “We often say a ROAS is underreported and not overreported because we can’t correlate everything back to an exposure,” said Angelina Eng, IAB’s Vice President of Measurement and Attribution.

Agencies Benefit From Calculating Financial Metrics

Despite the challenges, agencies can gain a lot from proving — and improving — ROAS. Tying campaign results to sales can help your agency demonstrate its value to clients and potentially earn bigger budgets. It can also boost your ability to win new business because so many clients hold their agencies accountable for calculating revenue-based KPIs.

Also, quantifying the revenue generated by your ads can help you reallocate ad budgets based on campaign performance and scale your efforts. “By looking at ROAS, you can see what tactics and strategies are driving the highest revenue margins and biggest bang for your buck,” Eng said.

Coupling ROAS with non-revenue measures can be useful as well. “You can look at other metrics, like click-through rate or cost per click and even viewability, to help you optimize toward your ROAS goal,” Foy said.

ROAS = Revenue generated from ads / Advertising costs

ROI = (Gross profit-advertising costs / Advertising costs) X 100

Let’s Get Practical: Calculating ROAS for a CPG Brand

A traditional toothpaste giant decides to run a $100,000 branding campaign on connected TV and programmatic video to boost its market share. Its agency works with its programmatic partner to establish a control group that won’t be exposed to its ads and a targeted group that will.

The effort launches and the partner conducts real-time sales lift studies to determine if the campaign is performing well or needs a tweak.

Linking online behavior to actual purchases is a complex task. After all, the CPG brand sells through grocery stores and pharmacies, rather than to consumers directly, and those intermediaries don’t always share sales data with brands.

So the partner works with a third-party data provider that collects information about consumers and matches ad exposures to transactions. (The ads have pixels that fire off anonymized identifiers about a viewer, such as an IP address, device ID, or cookie. The provider can subsequently match that data with offline information gathered through loyalty programs and other means.)

Once the partner calculates the revenue generated from the group that was exposed to the ads, it can gain confidence in determining incremental sales lift by comparing the figure with revenue generated by consumers in the control group.

The campaign is bringing in $100,000 in revenue, with a ROAS of 1:1. To boost that figure, the agency sets up tests with different audience segments and finds that shifting the targeting produces a ROAS of 3:1.

Let’s Get Practical: Calculating ROAS for a Retailer

An apparel company wants to create a programmatic display campaign to drive shoppers to buy items they put in a cart but never purchased. Because the retailer has attached a pixel to its website, it has an online identifier for each visitor and can retarget the person with ads across the web.

The ads can collect view-through data, allowing the agency’s programmatic partner to track a view-through conversion in addition to a post-click conversion. If that person buys something online, the partner can tally the revenue. If the customer visits a store for the purchase, the partner can match the transaction to the ad view — likely with the help of a footfall attribution firm.

The agency attributes the revenue to the retargeting campaign and finds it generates $2 in revenue for every dollar invested. To improve the results, the agency tests different creative elements, such as the call to action in the ad. Just changing the “buy now” button from red to green is enough to boost its ROAS.

The retailer considers dropping a separate prospecting campaign it’s running because the ROAS from that effort is lower than its retargeting campaign. Yet, awareness efforts expose new users, and it’s critical to use prospecting to feed the retargeting pool. The brand keeps the campaign going, realizing sometimes it’s OK if ROAS figures are lower.

Find Partners That Can Support Your Agency’s ROAS Needs

You shouldn’t have to take the ROAS journey alone. Look for partners that not only understand the importance of proving campaign performance to clients but also have platforms that can alleviate the related pain points. For example, tools used for buying ads programmatically should have features that can calculate ROAS and help you reach a specific ROAS goal.

Your partners should also be able to assist with determining ROAS targets and advising on levers that might improve the performance. These could include testing new datasets for targeting, trying out alternative creative messages, and experimenting with different marketing channels.

Ultimately, agencies benefit when they can demonstrate digital advertising’s effect on sales, and ROAS is often more accessible to track than ROI. Consider that the learnings you gain today about what can be measured will benefit your agency as budgets grow. That could be soon: IAB predicts digital advertising spend will rise 14% in 2021 and represent 71% of total U.S. media budgets.

Once you can justify a sales lift from marketing spend, you and your clients will want to track that campaign performance to link it to those sales. “Return is something that clients like to measure, but they often have no idea how to measure it,” Foy said. “Agencies are a guiding light for clients, and it’s up to agencies to connect the dots at the end of the day and deliver the financial results of campaigns.”

Source: StackAdapt