Learn about how optimizing to a ROAS target rather than a fixed budget can supercharge your online revenue. We show digital marketers how CRO can supercharge your PPC campaigns and how to drive improved AOV through loyalty programs.
Search marketing today is less like Madison avenue
And more like moneyball – it’s about the math and the data
A couple of years ago, when David Kennedy, our current VP of Digital Advertising was managing Paid Search for a major retail brand based in Seattle, he was looking for someone to consult on their strategy. He called around town and asked the following question:
If you were to take over our paid search program, which of the following items would you focus on first?
Ad Copy & Messaging
Landing Pages
Bid Strategy
The answer from one local shop (not us), was:
“Definitely ad copy and messaging. We need to make sure your message is consistent across all channels”
David politely said, “Thank you.” and he hung up.
Why? Rule #1.
The most important thing an acquisition marketer should focus on is their bid strategy. This requires us to do lots of math.
This is the basic ecommerce formula. For each metric on the right, we have several levers that we can use to move them in the direction we want them to go (up).
What we need to do next is to use this formula to help us understand the value of a keyword, which isn’t represented (yet) in this formula
First, we need to define ROAS, which is expressed as Revenue divided by Cost. Doing some simple math, we can express Revenue as ROAS times Cost
Second, we need to bring the value of a keyword into the equation. We do this by understanding that Cost is Traffic times Cost per Click (CPC)
One more step allows us to express Traffic in terms of Cost and CPC
We’re now ready to go back to our original formula to make some substitutions
Here we have the first ecommerce formula. But now we have other variables for Revenue and Traffic.
We make a couple of substitutions from our earlier work….
And have a new formula that includes ROAS, Cost and CPC
We can eliminate Cost from both sides to simplify…
Leaving us with ROAS expressed in terms of Conv. Rate, AOV and CPC.
But this isn’t quite what we need.
One more move and…
We now have a formula that helps us understand the value of a Click in terms of Conv. Rate, AOV and ROAS.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
Example of how Keywords should look on a graph when bidding is done correctly. Revenue and Traffic/ Cost should align in a pattern that illustrates all keywords in your program are targeting efficiently to the same ROAS.
Make sure to exclude Brand KW from the this analysis – they will be outliers
Outliers above the ROAS line are ok, below the line are NOT ok.
We used smart bid strategy to achieve these results for AM Leonard and Gardener’s edge this spring.
At this point, we need to stop to understand the role that our ROAS target plays in our bidding strategy. ROAS is the most important metric, but it acts as a target, rather than a KPI.
The reason it’s a target, is because it shouldn’t vary widely throughout our account. As we showed in the good bidding example, each keyword should fall along the target ROAS line. This means that we should treat ROAS as a fixed variable, one that we set and optimize against.
Example: let’s assume your media budget is $500k, but at a ROAS of 4.1 you could spend over $600k. If you didn’t spend that $100k you’d leave $410k in revenue on the table.
Example: let’s assume your media budget is $500k, but at a ROAS of 4.1 you could spend over $600k. If you didn’t spend that $100k you’d leave $410k in revenue on the table.
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With ROAS established as a fixed target. We now look and both Conv Rate and AOV differently. Assuming ROAS and AOV stay constant, an increase in Conv. Rate will allow us to bid higher (because we can do that AND maintain our ROAS target).
Higher bids mean more visibility and more traffic. This leads us to the virtuous CRO-PPC cycle.
Because we’re now able to be more aggressive with our bidding (higher CPCs), we get more traffic.
From our original ecommerce formula, more traffic gets us more revenue.
But we’ve also improved our Conversion Rate.
Again, this gets us more Revenue.
This is the compounding effect of improved conversion rate.
We’ll show it again, now…
Here is what makes CRO so powerful.
An increase in Conversion Rate
Allows us to be more aggressive with our bidding (higher CPC’s) because we’re choosing to maintain a constant ROAS
Those increased bids get us more Traffic
Which turns into more Revenue.
Remember, this increased Traffic also converts better because of our increased Conversion Rate.
Increased Revenue frees up more Marketing dollars
Which we can invest in more CRO, further improving our performance
Or invest more in PPC, driving more Traffic and Revenue
Once we’ve exhausted the cycle and reach diminishing returns, we can then use the extra revenue to fund other marketing activities.
Here we see the power of compounded improvements. Note the KPIs are the same ones from our first formula: Traffic x Conv Rate x AOV = Revenue.
In February, we launched a new responsive design for Gardeners Edge.
This spring vs last spring, we realized a 20% increase in organic traffic.
At the same time, our new responsive design helped Conv. Rate increase by 25%
Then, we also saw AOV increase by 22%
Modest increases for each KPI combined to create an amazing 84% increase in Revenue
In the Paid column, we see a slightly different, but also good, story.
The reduction in Paid traffic was a direct result of our bid strategies. Our new bid strategies cut out wasted spend, reducing traffic that wasn’t converting. The resulting traffic was much more targeted, allowing for a 79% increase in conversion rate (also helped by our responsive design). A modest 6% increase in AOV resulted in a slight 3% decline in Paid revenue. This result is great because we drove almost the same amount of Paid Revenue, for much less cost.
Finally, we look at Direct channel as a control and see a similar result. Increases of 22% for Traffic and 24% for Conversion rate fueled a 55% increase in Revenue – also a great result.
AML/GE ecommerce is really only 10 years old, but is already doing a great job of acquiring traffic.
Now that we have all these people, we need them to continue converting at a higher rate
How do we keep them?
Pro plus – a discount program with loyalty built in
Think of your customer journey – customers should always have some place to land
Our loyalty program showed immediate results in LTV, increasing the number of average orders per year for each group over the previous.
We see the same result on AOV by customer type.
Remember, this is a factor in determining KW value. As AOV increases, so can our bids…
It’s ok that not all of our Pro-Plus members are “pros” the LTV results are the same.