Level Up! Level 1: Revenue-Based Campaign Optimization

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.

Your Q1 budget increase for Facebook and IG, YouTube, TikTok and AdWords is approved!

The Ecommerce Marketing Dark Ages

A long time ago, in a dumpy ground floor conference room in Seattle — with a front row view of a creepy back alley where unmentionable offline transactions regularly occurred — a team of startup co-founders debated how to properly track retail return on digital advertising spend (ROAS).

This was the happy-go-lucky era of “get big fast,” and impressions and clicks — and the chasm between advertising performance and financial results was as big as Yahoo’s market cap.

Our experience at Amazon and various leading retailers taught us that unit economics like contribution margin per order and per unit are life and death KPIs in an industry that each year runs in the red until the day after Thanksgiving. We borrowed cash to fund inventory and ad spend that, fingers crossed, achieved ROI goals.

But this was the dark ages of internet advertising, when IBM and Adobe were just hooking up with Coremetrics and Omniture, and before Google Analytics and multi-channel attribution funnels were a thing. The ability to track advertising ROI to specific conversions, orders, and customers (and to audit the science behind the numbers) was still years away.

Connecting Campaigns to Business Fundamentals

What a difference a few years has made! 

Elastic computing makes data analysis faster and cheaper, the industry has aligned on validated models for campaign attribution, and tools like Google Analytics multi-channel funnels (now decoupled from GA360 and freely available) and first-party cookies have put raw, unsampled clickstream and conversion data into the hands of data scientists. Combine this with real-time order and customer data flows, and the result is new and better ways to measure marketing campaign performance — aligned directly with the strategic enterprise value of your brand. 

You could spend years and $ millions modernizing your data infrastructure, but you shouldn’t. We’ll revisit the best approach at the end of this post.

So without further ado, SoundCommerce’s 2020 performance marketing framework for retailers and consumer brands:

Level 1: Sales Performance (ROAS)

Revenue-based ROAS is the industry standard. This of course is the revenue value of the converted cart over the cumulative ad spend driving the conversion. Sometimes the inverse, acquisition cost-per-order (CPO) or ad-spend-as-a-percentage-of-sales (A/S or A2S) is used to measure the same ratio.

Revenue-based ROAS is a convenient but unsophisticated metric made worse by applied averages along two dimensions:

Average Order Value

Not all orders are created equal, even at the revenue level. Source, medium, and campaign variation can drive wildly different cart sizes, with different conversion and abandonment profiles that lead to wildly disparate order value and ROAS.

Attribution Models

The attribution model you apply determines the accuracy of these reports and all subsequent methods outlined below. On a last click basis you may need to see 200% or even 500% ROAS to meet goal. On an upper funnel first click basis, you might accept 1:1 as you build awareness. No attribution model is perfect, and there are endless possibilities.

What to do? Here are a few important best practices made practical by new technology and emerging techniques:

Test This Best Practice: Isolate direct conversions and spend from “unattributable spend” that may be driving impressions and view-throughs but not observable clicks and conversions. Focus on brand marketing ROI analysis to justify campaigns with high-unattributable spend.

Test This Best Practice: For attributable orders, ensure that you have mapped a specific transaction ID (order ID) to that shopper’s multi-channel click path. This is key to leveling up your analysis, as outlined below. SoundCommerce natively supports exact campaign and ad spend-to-order ID mapping.

Test This Best Practice: Don’t limit your analysis to one attribution model! Build out your data model, reports, and campaign tools to accommodate any method of attribution. Apply multiple attribution models to the same data at once to reveal differences in shopper behavior and campaign impact at various stages of the marketing funnel — to better distinguish awareness and assists from wasted marketing dollars.

Accurate revenue and ROAS reporting is a good place to start for ecommerce marketing performance optimization. But we’re only at Level 1!

Next post we explore how to apply product COGS and gross margin to measure and optimize marketing ROI in terms of gross profit dollars.

Turnkey Marketing Insights and Action with SoundCommerce

That dingy Seattle conference room belonged to an ecommerce martech platform optimizing CPC, shopping, and social campaigns for more than 200 major consumer brands and retailers, later acquired by CommerceHub and publicly launched on NASDAQ in 2016.

Those brains along with key customer sponsors and veterans of Tableau, Adobe, Microsoft, and WPP are now the founding team behind 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. 

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!