DorisRon
Member
Investment value of audience data is not lower (and perhaps, even higher) than that of gold. And when it comes to return on investment, you can be sure that you can make good money on the audience data.
Experts call it Return On Audience Data (ROAD). You're probably already familiar with such metric as Return On Ad Spend (ROAS), which is a key indicator of its effectiveness. ROAD and ROAS are very closely related, so let's understand what is the relationship between the cost of advertising and investments in the audience data.
It is possible to calculate ROAS using the following formula:
ROAS = revenue ÷ spending (sometimes there are variations, but we will use the most common method of calculation).
How do you calculate your costs for advertising?
The following statement is partially true:
Advertising costs = costs of media
Advertising costs can be calculated more precisely, using the formula:
Advertising costs = costs of media + audience data costs
Actually 2nd- and 3rd-party data are often much more expensive than the cost of actual placement of display advertising.
Own audience data is the information that is owned by the advertiser: cookies with information about site visitors, list of e-mails, CRM data, mobile users data, etc. When an advertiser uses his own data about the audience for placing digital advertising, we call it retargeting or remarketing. This advertising mechanism helps to reduce ad placement costs and increase revenues. Retargeting is one example of how to provide the necessary level of ROAD.
MEASUREMENT OF ROAD AND ROAS
To better understand the importance of such a metric as ROAD, and how it can affect ROAS, let's look at examples of targeting and retargeting campaigns, and then compare the results.
Audience targeting.
For example, during the campaign, we plan to reach a new audience, using third-party data. This is called targeting - an advertising mechanism, which allows you to select only the part of the entire audience that fully meets the specified criteria and to show ads to it.
Example of a targeting campaign:
Media CPM = $ 3 (inventory cost per thousand impressions).
Data CPM = $ 3 (data cost per thousand impressions) - when you purchase the audience data which you want to use in targeting of your advertising campaigns, you pay the data provider each time when your ad is demonstrated to the target audience.
Impressions = 1000000
CTR = 0,1%
Conversion Rate = 1.5%
Average order value = $ 200
Using this data, we calculate ROAS:
Advertising costs = ($ 3 + $ 3) * 1000000 ÷ 1000 = $ 6000
Income = 0.1% * 1,000,000 * 1.5% * $ 200 = $ 3000
We come to the fact that ROAS of the target campaign = $ 3,000 ÷ $ 6,000 = $ 0.5
We can conclude that for every dollar invested in the campaign, we get 50 cents of revenue. In fact, we have a negative value of ROAS, but this is absolutely normal, because we got 15 new customers, when lifetime value of each of them is $ 1,200. This means that as a result of this campaign, we will get a profit, especially if we combine a targeting campaign with a retargeting one.
Retargeting.
Now let's make some assumptions about the campaign, which is based on first-party data. There are different types of retargeting, including search retargeting, retargeting after the site visiting, behavioral and CRM-retargeting, and others. In this case we are dealing with an audience that is already involved, and it behaves quite differently than the users, with whom we have not yet had a contact. Please note
Experts call it Return On Audience Data (ROAD). You're probably already familiar with such metric as Return On Ad Spend (ROAS), which is a key indicator of its effectiveness. ROAD and ROAS are very closely related, so let's understand what is the relationship between the cost of advertising and investments in the audience data.
It is possible to calculate ROAS using the following formula:
ROAS = revenue ÷ spending (sometimes there are variations, but we will use the most common method of calculation).
How do you calculate your costs for advertising?
The following statement is partially true:
Advertising costs = costs of media
Advertising costs can be calculated more precisely, using the formula:
Advertising costs = costs of media + audience data costs
Actually 2nd- and 3rd-party data are often much more expensive than the cost of actual placement of display advertising.
Own audience data is the information that is owned by the advertiser: cookies with information about site visitors, list of e-mails, CRM data, mobile users data, etc. When an advertiser uses his own data about the audience for placing digital advertising, we call it retargeting or remarketing. This advertising mechanism helps to reduce ad placement costs and increase revenues. Retargeting is one example of how to provide the necessary level of ROAD.
MEASUREMENT OF ROAD AND ROAS
To better understand the importance of such a metric as ROAD, and how it can affect ROAS, let's look at examples of targeting and retargeting campaigns, and then compare the results.
Audience targeting.
For example, during the campaign, we plan to reach a new audience, using third-party data. This is called targeting - an advertising mechanism, which allows you to select only the part of the entire audience that fully meets the specified criteria and to show ads to it.
Example of a targeting campaign:
Media CPM = $ 3 (inventory cost per thousand impressions).
Data CPM = $ 3 (data cost per thousand impressions) - when you purchase the audience data which you want to use in targeting of your advertising campaigns, you pay the data provider each time when your ad is demonstrated to the target audience.
Impressions = 1000000
CTR = 0,1%
Conversion Rate = 1.5%
Average order value = $ 200
Using this data, we calculate ROAS:
Advertising costs = ($ 3 + $ 3) * 1000000 ÷ 1000 = $ 6000
Income = 0.1% * 1,000,000 * 1.5% * $ 200 = $ 3000
We come to the fact that ROAS of the target campaign = $ 3,000 ÷ $ 6,000 = $ 0.5
We can conclude that for every dollar invested in the campaign, we get 50 cents of revenue. In fact, we have a negative value of ROAS, but this is absolutely normal, because we got 15 new customers, when lifetime value of each of them is $ 1,200. This means that as a result of this campaign, we will get a profit, especially if we combine a targeting campaign with a retargeting one.
Retargeting.
Now let's make some assumptions about the campaign, which is based on first-party data. There are different types of retargeting, including search retargeting, retargeting after the site visiting, behavioral and CRM-retargeting, and others. In this case we are dealing with an audience that is already involved, and it behaves quite differently than the users, with whom we have not yet had a contact. Please note