Last week I wrote an article about why Contribution Per Order (CPO) should be the critical revenue metric that businesses use rather than Return On Ad Spend (ROAS). As a reminder, while ROAS is an efficient measuring metric, it cannot assign health to a channel, making it a relatively useless tool. In contrast to ROAS, Contribution Per Order (CPO) brings in the magnitude of the campaign segment targeted. This metric subtracts the marketing cost and cost of goods from each order to determine how profitable each of those segments is contributing to top-line demand and bottom-line profits.
In one of my side comments in this blog, I mentioned the need to analyze Paid Search programs utilizing the same metrics and by further separating into branded terms vs. non-branded terms. In a recent year-end seasonal review with one of my clients, Paid Search was only reporting at a macro level (combining branded and non-branded search), which can be misleading. As shown below, Paid Search has a relatively positive CPO compared to traditional print prospecting (+$1.16 vs. -$2.15). Without understanding the full impact, this client was considering marketing decisions to expand Paid Search, reduce print prospecting, and potentially eliminate print programs—leading to potentially devastating results.
However, when we separate segments within Paid Search at a micro level, the results told a different story. Below, you can see that within Paid Search results, Branded Terms drove most of the high CPO and ROAS numbers. While this is great news, Branded Terms primarily benefit from demand-driven channels such as catalog, email, retargeting, and organic brand equity. It’s challenging to grow your business on branded terms alone.
So, let’s look at the other non-branded segments – Mobile Search, Non-Branded Campaigns, Remarketing, and Display Ads. Of the four channels, only mobile campaigns were providing a positive CPO. All the other channel efforts drove a negative demand contribution even though they indicate a positive ROAS (again, why brands shouldn’t be using this number to analyze and grow a profitable business!)
This “new” way of analyzing performance now allows marketers to adjust their marketing budget based on more accurate data points. When decision-makers bring in this level of analysis, brands can drive demand around very profitable customer reactivation groups and re-adjust Search programs wisely. This brand was spending over $300,000 on negative contribution segments with low life-time value prospects. Changing their strategy around customer reactivation via print and redistributing Paid Search programs more methodically will now impact both their top-line demand and bottom-line cash significantly the following season.
If you have any questions on this data, please feel free to contact me at firstname.lastname@example.org. We’d love to chat with you and help you with any of your marketing needs.