Optimizing Paid Media Spend to Increase Sales

Digital marketing and optimization are important tactics to improve sales in the ecommerce channels for any company out there, does not matter how big or small. With the fierce competition within the search engine and social media networks, companies have to bid on media space (display ads) or search terms to drive traffic to their websites. It is usually an expensive proposition for the startups that have to rely solely on digital marketing to drive website sales/leads, especially if the traffic to sales conversion ratio is low. In this article, we will discuss some of the optimization pitfalls surrounding metrics like CPC (Cost Per Click) and CTR (Click Through Rate), and how you should allocate media spend to increase your overall return on investment.

First things first, it is important to attribute paid traffic all the way to the sales or lead conversions. Companies often hire digital marketing agencies, and give them a certain budget to drive traffic to their websites. These agencies will then try to maximize paid traffic using the assigned budget (i.e. will try to reduce the CPC or increase the CTR as much as possible to ensure that they send most possible visits to their clients websites). Small business clients are usually happy to see more than expected number of visits but are confused as to why the sales numbers are low. Without considering or analyzing sales attribution model, traffic will just be traffic, it will not take into account whether that traffic is qualified or if it has been optimized for the objective of the website; i.e. to generate sales or leads.

Consider the following case. If an agency is given $40,000 budget per month to drive traffic to the merchant’s website, and following is the first month’s results:

Budget

Impressions Served Clicks CTR CPC
Paid Search

$10,000

200,000

5,000

2.5%

$2.0

Display Ads

$10,000

400,000

15,000

3.8%

$0.7

Social Media

$10,000

           200,000  10,000

5.0%

$1.0

Vanity URLs

$10,000 300,000 5,000 1.7%

$2.0

Total $40,000 110,000    35,000 3.2%

$1.1

With this data, the optimization strategy employed by the agency would be to allocate higher budget towards Display Ads and Social Media in Month 2 because of low CPC and high CTR. This will ensure that they drive most clicks to the merchant’s website. Have you realised what is wrong with this strategy? Yes, it did not take into account the sales or leads data by the paid channel and totally ignored the attribution model. As a seasoned Analytics Professional, I have seen this happen many times where the marketing agencies employ the CPC or CTR optimization strategy while ignoring the sales objective. Let us now consider the sales data in the previous example to see how the allocation of budget can be better utilized to maximize return on investment (and not just maximize the clicks).

Budget Impressions Served Clicks CTR CPC Sales Conversion Rate

Paid Search

$10,000

 200,000

5,000

25%

$2.0

100

2.0%

Display Ads

$10,000

400,000

15,000 38% $0.7 15 0.1%
Social Media $10,000

200,000

   10,000

50%

$1.0

17

0.2%

Vanity URLs

$10,000

300,000

   5,000

17%

$2.0

50

1.0%

Total $40,000 110,000  35,000 32% $1.1 182

0.5%

 

With the sales and conversion data, we can see that Paid Search drove the most sales despite having the highest cost for each click, followed by the Vanity URLs. The two channels that has the lowest cost and highest traffic drove the least amount of sales. If this had gone unchecked by the merchant, the marketing agency would have further reduced the sales in Month 2 by trying to maximize clicks. The right optimization strategy would consider the fact that 25% of the allocated budget drove 55% of the total sales (Paid Search Channel), therefore, in Month 2, 55% of the total budget should be invested in the Paid Search channel. Everything else is just noise.

Sales as the main KPI would be the most obvious and logical thing to do, but when data sources are not connected (i.e. marketing agency has no visibility into merchant’s sales data) then these types of mistakes tend to happen. The big lesson for the business startups is to not worry too much about maximizing the traffic to the website, but rather, worry about finding the qualified leads. You can do that by attributing sales to the first and last touch paid channels, and this is only possible if your data sources are blended (i.e. the two tactics, marketing and website operations are connected via analytics tools).

Here is a good resource to understand different attribution models

We hope you have found this article useful. If so, let us know in the comments section. We will post similar topics in the future to provide marketing and management consulting to our clients at Logo Arena.

Optimizing Paid Media Spend to Increase Sales Last change: 2017-11-13T16:45:13+00:00 by usman