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.
If you’re a retail digital marketer responsible for paid acquisition and/or retention campaigns, you are currently underfunding these programs. And at the same time you’re over spending on certain channels, segments, and goals.
This isn’t your fault. Technology limitations have thus far made it impossible to measure and optimize digital marketing programs to the ROI metrics that matter most in retail.
There’s good news for those accountable for ad spend and performance. Technology today is dramatically better, cheaper, and faster than it was just a few years ago — enabling marketers to prove ROI at the unique order and customer level in real-time, with all the granularity and auditability to drive any FP&A planner or CFO wild.
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 2: Get Profit(able)
Leveling up your ecommerce marketing analytics means upgrading from revenue and ROAS metrics to measure gross profit (and gross margin) value of the converted cart over the cumulative ad spend driving the conversion. The acronym for Gross Margin Return on Ad Spend is GMROAS.
GMROAS is a major improvement over ROAS because it measures the value and success of a given marketing campaign in terms of gross profit dollars returned rather than simply revenue.
Building upon our Level 1 framework, once you successfully map multi-channel click path to unique transaction ID (order ID), you can analyze cart contents (order items) and purchase behaviors incorporating COGS and gross profit (and/or gross margin) value.
When things go right, carts convert to orders! Each unique order contains unique order items. Since unique SKUs carry unique costs of goods, the SKU is the key to measuring gross profit ROAS.
Caveat: the value of Gross Margin Return on Ad Spend as an ecommerce marketing success metric is only as high as the accuracy of your inputs. If you can’t trust the numbers, no one else in your company will either, least of all your CFO and CMO calling the shots on advertising budget.
In addition to the dangers of order averages and attribution models (previously outlined in Level 1), there are two other areas that conspire to throw complexity and inaccuracy into the GMROAS calculation. These are:
Master Catalog (Item Master)
If you’re relying on order item detail from the converting cart to calculate gross profit return on advertising spend, you need a well formed catalog with accurate and current hierarchy, categorization, and labeling. This helps ensure that product SKU data stored within an ecommerce storefront like Shopify or SalesForce Commerce Cloud maps to COGS and margin data often held within an ERP like NetSuite or Dynamics 365. This mapping is especially important for fast-turn categories like fashion apparel and drop-model brands where assortment changes radically over the course of seasons and years.
Fixed vs. Variable (Rolling) COGS
Once high-confidence product mapping is in place, there’s the matter of how and when COGS are set for each product. As with cost-per-click (CPC) ads, the cost of product inventory can vary significantly as initial purchase orders are placed and as replenishment orders restock depleted inventory over time. You’ll need to work with your merchandising and finance teams to understand how COGS are tracked (at the SKU or inventory unit level) and the rules (e.g. FIFO) that dictate when COGS change for a given product.
These are manageable concerns. Here are a few important best practices made practical by new technology and emerging techniques:
Test This Best Practice: Invest in building a complete, accurate, and current item master, ideally using a purpose-built cloud Product Information Management (PIM) system like Salsify, and at minimum tie out your ecommerce and ERP catalogs with a data platform like SoundCommerce.
Test This Best Practice: Ensure that COGS data is present and accurate for every SKU sold, including discontinued items present in your transaction history. These products may not be a current part of your catalog, but they are key to measuring profitability and GMROAS trends over time. If the data is no longer available from your ERP, consider applying an average COGS value to the obsolete SKU to help with long term reporting and trend analysis.
Accurate gross margin-based reporting (GMROAS) offers key benefits over ROAS for ecommerce marketing performance optimization. But we’re only at Level 2!
Next post we explore how to apply variable production, fulfillment and doorstep delivery costs to better align spend with product category and merchandising promotions, inventory and customer location.
Level up your ecommerce marketing to Level 3: Landed Contribution Margin Performance (CMROAS) – this one is going to be awesome!
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!