Today’s digital world requires significant marketing investment into media and retail planning along with CRM activations, and for the sake of your budget, you need to know if the return on investment (ROI) or return on advertising spend (ROAS) is there. These insights will optimize advertising strategies for the best results.
However, calculating ROI and ROAS isn’t always easy. One problem is that first-party data requires heavy management and the right strategy to be effective. Another is that many marketers struggle to understand how consumers react to their marketing efforts, especially with privacy concerns eliminating the use of internet cookies.
One effective way to solve those struggles is by matching external data, such as panel data, to your own through a data-cloud warehouse. However, it is crucial to have a set checklist to help determine which dataset will work best for your business needs as the data landscape fragments. We’ll guide you through commonly asked questions in calculating an ROI or ROAS, things to remember when interpreting your calculation, key considerations when selecting external data sources, and ways to grow marketing ROI and ROAS.
How can I measure the ROI and ROAS of my marketing investments?
Firstly, let’s define ROI and ROAS. Both measure how much you get back from your investment, but they do it in different ways.
ROAS focuses on the return from specific marketing efforts like an email campaign. ROI, on the other hand, looks at the overall spending across all marketing channels, considering broader costs like labor and tools. The calculations are pretty similar though. To figure out ROI or ROAS, you just need to divide the net revenue generated by the campaign by the costs.
What is a good ROI or ROAS for marketing?
Most sources claim that a 5:1 return is good as external business expenses often diminish those returns. However, the ROI bar could be even higher because arriving to the net revenue of a campaign may not take into account several aspects.
The first crucial step for marketers is defining the quantifiable measurement of success and understanding how it contributes to business growth. While many may initially focus on sales lift as a primary metric, this can be overly simplistic. For instance, a campaign offering discounts may show a sales lift, but if it attracts only loyal customers, it might subsidize purchases that would have occurred anyway, negatively affecting the overall ROI.
For numerous brands, a fundamental metric involves evaluating whether consumers spend more than they would have without exposure to the campaign. Take, for example, an email campaign with a 20% off coupon. Marketers should inquire:
- Did the campaign convert non-buyers into buyers, and what is their customer lifetime value?
- Did the campaign drive additional spending from existing shoppers?
Answering these questions allows marketers to project the true sales lift and provide a quantifiable ROI or ROAS.
However, a challenge arises as many consumer brands lack visibility into the complete purchasing journey within their owned CRM. This limitation, coupled with the need for more capabilities to transform data into actionable insights, impedes the measurement of marketing and media ROI and ROAS. To overcome this, marketers must integrate external data sources to match and enrich their first-party data, enabling a more comprehensive evaluation of marketing investments.
What should I consider when vetting external data sources for calculating ROI or ROAS?
Marketers should develop a rubric to understand which data sources should be considered for enrichment based on the following criteria:
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Quality:
To ensure effective data enrichment, the data must be unbiased, representative, and complete. Some data suppliers may boast about large datasets, but it’s important to assess if they maintain balance. Quality vetting involves understanding if the data supplier captures transactions across various channels, provides unbiased and representative purchasing behavior, and possesses a panel with strong retention and engagement. Without these components, there’s a risk of misclassifying new and existing buyers, leading to incorrect return on investment calculations. This can be especially pertinent when measuring retail media network ROI. Additionally, if a panel is large but lacks detailed demographics, it is easy to overlook essential insights for effective targeting.
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Accessibility:
Many consumer brands may lack the resources or technical know-how to process, match, or blend data sources. Leveraging data-cloud warehouses like Snowflake and marketplaces with established vendor connections can simplify data implementation. If a data vendor is present in such environments, the process of incorporating the data becomes more straightforward, reducing time to insights and overall labor costs.
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Security & Governance:
Security and governance are essential considerations. Consumer privacy must be prioritized, especially when dealing with consumer data. Vetting should involve checking if the data vendor has a consumer privacy bill of rights and ensures clear and understandable language for panelists. Additionally, it’s crucial to determine whether the data is zero- or first-party data to avoid visibility issues due to privacy noncompliance or partnerships ending beyond the direct data vendor.
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Utility:
Once the first three aspects are assessed, attention should shift to the utility of the data. Many data companies provide data but not all offer tools to simplify and enhance analyses. Vetting should include considerations of additional offerings, such as strategic consulting support or advanced capabilities like automated control groups. This ensures that the data not only exists but also contributes to meaningful insights without causing unnecessary complexity for consumer brands.
How do I increase my marketing ROI or ROAS?
There are various strategies to enhance the return on your marketing investment. Here are a few common methods that marketers can consider:
Channel Prioritization
To maximize the impact of your marketing efforts, it is critical to identify the channels where valuable consumer groups are most engaged with your brand, such as email or social media. Before you can optimize between channels, you need to quantify the effectiveness of your existing channel strategies and how they influence consumer behavior or sentiment. Adjust your spending to focus on these channels to achieve the most significant increases in engagement and conversions.
Control Group Testing
Control group testing is a methodical approach that measures how exposure to an outside factor drives incremental impact to a defined audience. To leverage a control group, two groups with similar attributes are isolated and one group is exposed to the outside factor while the control group is not. By comparing the behaviors of both groups, marketers can measure the incremental lift of how their marketing influenced the defined audience.
Consumer Research
Crafting the right message is crucial for driving consumer purchases, regardless of the chosen channel or attributes. Utilize consumer data to develop insights into consumer and shopper behavior, guiding the creation of the right voice, creative elements, and tone for your marketing campaign. Move beyond basic demographics and tap into actual shopping behaviors and psychographics to build comprehensive target profiles. This approach ensures that your marketing resonates effectively with your audience.
A/B Testing
Implementing A/B testing involves experimenting with variations in one specific variable to fine-tune your marketing approach. This iterative process helps identify opportunities to optimize your message. For instance, testing different colors for a call-to-action button can reveal which one performs better, such as finding that white lettering is more readable than blue.
Numerator has helped top CPG brands leverage consumer data to inform marketing & media ROI. You can learn more about how we help brands measure the impact of marketing across multiple initiatives to leverage data-driven insights to optimize marketing investments while driving incremental sales.
Numerator is recognized as a Data Enrichment leader by data-cloud company Snowflake. Numerator blends first-party data from over 1 million US households with advanced technology to provide 360-degree consumer understanding for the market research industry that has been slow to change. Headquartered in Chicago, IL, Numerator has 2,000 employees worldwide; 80 of the top 100 CPG brands’ manufacturers are Numerator clients.
