Advertising is a pain in the butt. It’s expensive. It requires constant maintenance, and it’s not always measurable. In our industry, though, we tend to think that we can determine the ROI of everything. Truth be told, that has become a bit of a fallacy due to the increased number of advertising vehicles.
First, let’s examine the most popular advertising opportunities available to most of us who sell online.
Pay-per-click is the most measurable and arguably the most effective. It’s also the most static. Unless more people search your terms, you cannot expand this area of your business. You may be able to tweak your cost per conversion, but you can’t simply double your PPC spend and expect to double your profit.
Of course, most of us are okay with this. PPC is the platform upon which we build. It brings us new customers that hopefully we can convert into repeat buyers. It provides a steady flow of business and we’re generally happy with it.
Display advertising sucks. I hate display advertising. I’ve thrown so much money down the drain on display advertising. But every few months I always think I can “crack” it. You can’t. Display advertising will never work for direct response. It is a branding medium only. If you’re selling memberships, it’s great. If you’re selling products, stay away. Display ads are too expensive (more on this below) to be cost effective unless the lifetime value of your customer is quite high.
And then there’s retargeting, the supposed savior of display advertising. It promises so much and backs it up with fishy math. Retargeting is the process by which you show display ads on other online properties after a visitor to your site has performed some action. If they’ve abandoned your cart, you can show them ads for your store when they visit Facebook, YouTube, or any other site that participates in your retargeting network.
Retargeting is a huge reason why display advertising is so darned expensive. Most of the display inventory is being bid on by retargeters who are willing to pay a lot more to get in front of their customer than you are.
Retargeting sounds great, but the problem is measurement. Therefore, as long as you make your retargeting decisions with full understanding of the fishy math, you’ll be okay.
When it comes to cost per conversion, how do you attribute the sales? Every advertising source wants to take account for a sale if it had a hand in securing it.
To illustrate the problem, let’s examine the following scenario. A customer searches for “beach ball” on Google. She clicks on your PPC ad. She explores your site, adds a product to their cart, but then leaves before completing the purchase. She then hops on over to Facebook. She is shown one of your retargeting ads. She doesn’t click on it, but it was displayed to her. The next day, she receives an email from your shopping cart abandonment service. She clicks on the email and completes the purchase.
In that scenario, who gets credit for the sale? In short, everyone. And that’s the problem. The PPC engine takes credit, your retargeting engine takes credit, and your shopping cart abandonment engine takes credit. Yikes.
Let’s say that your cost per conversion on your PPC engine is $7, your retargeting engine is $5, and your shopping cart abandonment engine is also $5. Did you just pay $17 for that order? Nobody truly knows, but it’s possible. More likely, though, it’s somewhere in between $5 and $17. However, if you only view the reports from each individual service, you’ll be misguided.
There are a lot of sophisticated algorithms and software services that supposedly help you understand the complex problem of attribution. They assign weights to each marketing engine, but this is all designed for large corporations. For us small guys, we don’t have the money or the time to invest in these tools. Plus, they’re a waste of time.
Use some common sense to understand attribution. You know how much you spent on advertising last month and you know how many orders you got. That is the maximum cost you paid to get each order. Don’t over complicate it.
Of course, this back-of-the-napkin math doesn’t help you in determining which marketing engine you should pump more dollars. For this, well, you have to make some assumptions.
I assume that clicks equal intent. Therefore, I attribute a lot more weight to an advertisement that has been clicked rather than simply viewed.
When it comes to shopping cart abandonment emails, I only go by clicks. Because everyone who abandons his cart gets an email, I don’t attribute every order whose cart was previously abandoned to be a result of having seen the email. I only attribute a click on the email to a conversion.
Retargeting is a bit trickier when it comes to assigning weight. Again, I believe that clicks are far more valuable, but there is enough data to suggest that “view through conversions” are a legitimate metric. VTC are conversions attributed when a customer is shown one of your retargeting ads and later makes a purchase.
However, would customers have made the purchase anyway without seeing the ad? Sure, some would. But some wouldn’t have. This difference is known as “lift.” The only way to determine the lift is to perform an A/B lift test with your retargeting vendor using your ad and, perhaps, a public service type ad. In my experience, the lift is generally positive, but only through tests can you determine it definitely.
Illogically, popular vendors like AdRoll require a $5,000 / month spend in order to perform a lift test. This should give all of you pause when viewing AdRoll’s inflated ROI metrics.
The bottom line is that the more vehicles you use, the less you can rely on their cost per conversion data. Determine what you value the most (clicks versus impressions) and spend accordingly. But don’t take the cost per conversion values at face value.