By Brendan Almack on 12 Aug 2019
Wolfgang Bites: Watch - The Most Important Digital Marketing KPI
Wolfgang Bites: Read - The Most Important Digital Marketing KPI
Hi everyone. Today, I want to talk to you about the most important digital marketing KPI that no digital marketer is optimising for, and that's profitability.
Digital marketing KPIs have evolved very quickly over a short space of time. It doesn't feel like that long ago that we were getting excited about impressions and clicks. Then, all of a sudden, conversion tracking came on the scene. That was a game changer, because we moved from optimising for digital marketing KPIs to optimising for business outcomes.
Then, over the last couple of years, in Wolfgang Digital, we fell in love with a metric called ROAS, that's return on ad spend. We love that metric because it allows us to talk to our clients like this, "You spent 10,000 Euro this month. We've generated you 80,000 Euro in revenue." What we're learning more and more is that old adage of revenue is vanity, profit is sanity is absolutely true. It's becoming really vital for businesses to understand how they're optimising their marketing for profitability.
Particularly in retail, the competitive landscape is really aggressive. We've been working with our clients very closely to move from ROAS to PROAS, that's profitable return on ad spend, and there's lots of different ways you can optimise for profitability. I'm going to talk to you about what we consider to be the three most effective ways to do this.
How to Optimise for Profit
- Number one is we've gotten really close to understanding what margin looks like at a product and category level for our clients. When we have an understanding of that, it allows us to optimise our bids and our budget strategy accordingly. If we're running something like Google Shopping campaigns, we can actually include a parameter within the feed that focuses on margin and then, all of a sudden, be able to optimise for profitable products. Okay? That's really important.
- The second thing we're doing is we're taking account of discounting. Discounting happens, it's a way of life for a lot of retailers. Unfortunately, Q4 is effectively three months of heavy discounting. Oftentimes, discounting comes at the expense of profit. You might win a customer, but you mightn't do it profitably . When we have an understanding of what products are discounted, we can factor that into our bidding and our budgeting strategy. We can deprioritise products that are heavily discounted that are probably going to sell anyway.
- The third thing we're doing is we're getting really close to our clients and understanding what products generate the most returns or cancellations. We typically find that there's some reoccurring trends on products that have the most returns. Once we have an idea of that, we can factor it into how we budget and take account of that. We can put the emphasis on products that are least likely to get returns to our customer, thereby, focusing on profitability.
If you get close to margin, if you understand when discounting is happening and if you understand what products get returned the most, you're in a really good place to start optimising your digital marketing for profit. Best of luck!
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