A DTC Performance Marketing Framework for 2020 and The New Decade
New decade, new retail tech! SoundCommerce provides a framework for retail digital marketers to definitively prove ad spend ROI, quantify the ideal budget to balance profit and growth, and profoundly improve campaign performance.
We’re talking about true contribution margin- and customer lifetime value (CLV)-based marketing optimization, reconciled by source, medium, and campaign all the way down to specific order ID and named customer.
We’re talking about true contribution margin- and customer lifetime value (CLV)-based marketing optimization, reconciled by source, medium, and campaign all the way down to specific order ID and named customer.
Level 4: Optimizing Campaigns to New and Repeat Shopper Engagement (CAC and CRC)
Our last three posts have focused on revenue, gross profit, and contribution margin as important drivers of digital marketing optimization — key considerations for any growing and profitable online or omnichannel retailer.
Fundamental to these important return-on-ad-spend metrics is accurate attribution of source, medium, and campaign spend to individual transaction (or order) IDs, now possible through unsampled click path and conversion analysis. As we first described in Level 1, this order-level accuracy requires proper configuration of your cookies and tracking tags, web analytics software, and — this is key — order file integration of these with your ecommerce, POS, and other points of order origination (think mobile app, ReCharge for subscription programs, buyable pins on Pinterest, etc.)
Digital marketing optimized to order-level metrics is retail table stakes, providing building blocks for the more powerful and strategic approach built upon unique customer profiles and segments.
Leveling Up to Customer-Based Optimization
DNVBs (digitally native vertical brands) like Organifi and Mejuri know that efficient revenue and margin growth come with high customer retention and repeat engagement. Measuring digital marketing ROI through the lens of a unique customer allows for more aggressive investment in shopper acquisition — typically called CAC (cost-to-acquire-a-customer) in the industry shorthand — once you have high confidence in that shopper’s repeat purchase propensity.
We’ve been beating the drum since we founded SoundCommerce regarding the enterprise value of customer equity, synonymous with lifetime shopper profit dollars. This metric, reflecting long-term, frequent and high-value purchasing by the same loyal customers over time, could be the single most important driver of consumer brand and retailer market caps.
There are two common failure points when it comes to measuring and optimizing campaigns and spend to individual “named” shoppers:
Relying on Cookies to Track Shopper Value and Behavior. Just don’t do it. Cookies are notoriously terrible at providing tracking and reporting continuity, made worse by the rise and importance of mobile shopping, and potentially rendered altogether obsolete by consumer privacy laws and Google’s planned elimination of third-party cookie support. The better approach, described below, is to build upon your own first-party transaction data.
Failing to Account for Retention Marketing Costs. Tracking total marketing spend over the life of a shopper requires accurate accounting of both first purchase acquisition spend and repeat purchase retention spend over multiple conversions across sales channels.
Given the complexity of stitching transactions into a common shopper history, marketers (and martech vendors) often throw in the towel and limit analysis to first purchase spend. Problem is, retention marketing spend almost certainly exceeds acquisition — but not intentionally. This is simply due to the volume of repeat vs. first time purchases, and the fact that many (most?) campaigns labeled as acquisition are actually driving retention engagement. This fact is lost in the data journey from click path to conversion to customer profile.
Your campaign structure and GTM tags reflect intent — not results.
We’ll return to the topic of customer breakeven analysis and lifetime value — the “return” part of measuring acquisition ROI. But first, let’s dig into best practices for the marketing spend “investment” part here.
CAC vs. CRC: Cost-to-Acquire and Cost-to-Retain the Customer
Last post, Level 3, we discussed the importance of separating direct and indirect marketing spend in your attribution model to fully account for all digital marketing spend at the unique order level. This ensures maximum fidelity when it comes to properly allocating spend between new and returning customers and their respective first-time and repeat purchases.
Consider the following defined terms:
Attributed CAC = total directly-attributable first purchase spend / total first purchases
Calculating attributed CAC requires identifying each order as a first or repeat purchase based on shopper identity — and then allocating only the portion of ad spend that is directly attributable to first purchase transactions in the attribution model.
Attributed CRC = total directly attributable repeat purchase spend / total repeat purchases
Same idea here. Assign all directly-attributable spend to repeat purchases.
Unattributed Spend = all spend not attributed to a (first or repeat) conversion
Unattributed spend can be fully allocated to first purchases to burden up CAC, or equally allocated across both first and repeat orders to reduce CAC and increase CRC. With the former, CAC appears high and it’s harder to prove first order breakeven CMROAS. With the latter, repeat purchases appear less profitable as every subsequent transaction involves higher CRC and lower CMROAS.
Best Practices for Unique Shopper-Based Campaign Optimization
The general objective is to increase first and repeat purchases at decreasing respective CAC and CRC. As previously discussed, order value can vary wildly. And in our next post we’ll incorporate disparate customer value (CLV or LTV) into our analysis. Meantime, here’s a roadmap for better tracking and reporting of CAC and CRC:
Review best practices for Level 1, Level 2, and Level 3.
Test This Best Practice: Build a Definitive Omnichannel Customer Order History The more history the better, especially in categories like luggage and mattresses where major purchases may happen once every 7-10 years! Utilize loyalty programs, e-receipts, and in-store promotions to drive personally identifiable (PII) brick and mortar purchases.
Test This Best Practice: Separate New (1X) and Repeat Customer Profiles . With a complete customer order history and high-confidence order to campaign attribution, it’s an easy final step to tie conversions to new and existing customer profiles. Use unique named customers not segments.
Test This Best Practice: Utilize Both First-Party Cookies and Omnichannel Order Files Tools like Segment and Heap Analytics can help you interpret clickstream and click path data, but when it comes to building customer profiles you can start with the foundation of your own first-party order file.
Test This Best Practice: Track Both Acquisition and Retention Costs From here, all of your acquisition and retention marketing metrics are driven by actual orders rather than cookies and tags — and CAC and CRC calculations are tied to real customers.
Next post we’ll explore how to apply actual and predicted customer lifetime value (CLV or LTV) — contribution profit not revenue — to your marketing campaigns… The ultimate measure of campaign success!
Level up your ecommerce marketing to Level 5: Optimizing Campaigns to Customer Lifetime Profit ROI
Turnkey Marketing Insights and Action with SoundCommerce
SoundCommerce helps consumer brands act and think like Amazon, and that means starting with the fundamental data at the core of the retail model.
Our focus includes digital marketing as a key success driver, but not at the expense of operational conversion readiness (merchandising planning and supply chain concerns) and post-conversion shopper experience (doorstep fulfillment and customer service capabilities).
As we’ve extended the scope and reach of our data platform, our case studies show that consumer brands and retailers are still in the dark regarding where and how to best apply digital advertising dollars for maximum ROI.
SoundCommerce brings together real-time data at the unique source, medium, campaign, order and customer level to show you exactly where, how, and how much to spend to maximize profitable growth.
Contact SoundCommerce today to take charge of your data and accelerate your profitable growth!