Marketing. Love it or hate it, it’s a critical engine to help accelerate brand awareness, acquire new business, and instill customer loyalty — and investing your budget there is essential to ensuring your shop is profitable when it’s all said and done. How to do this? The answer lies in your data of course, and we’re here to help you make sense of it all.
Keep reading for an overview of the following foundational concepts and metrics to learn how you can use them to nail your marketing strategy and your next campaign:
- Marketing Budget
- Cost Per Acquisition (CPA)
- Return on Advertising Spend (ROAS)
- Cost per Order (CPO)
Marketing Metrics 101
For most brands, marketing and ad spend are significant cost centers for the business, so understanding how those dollars are working for you is paramount to ensuring your success.
A great place to start is to try to determine the cost to either acquire a customer, or to get an order. What’s the difference? The cost to acquire a new customer, or to get a customer to place their very first order is called Cost per Acquisition (CPA). The cost to get any order is referred to as Cost per Order (CPO). Looking at these metrics in tandem with the overall product cost can help us to ascertain overall profitability, and if a business is sustainable in the long term. Outside of this, the only other major expenses come from salaries and overhead, so as a business grows CPO can have a major impact on a company’s growth potential.
What about Return on Advertising Spend (ROAS)? You can think of ROAS and CPO interchangeably because they yield the same insight.
Avoiding Data Analytics Pitfalls
One of the biggest mistakes we see lies in the mix up between CPO and CPA – and it’s not hard to see why. Outside of the names themselves, it can be confusing to differentiate what a vendor reports as CPA (which often times is really CPO) and a true CPA that you would calculate on your own. For example, Facebook reports on CPA, but this metric is really CPO (the cost it took you to get that order from Facebook). Confusing, right? Understanding this nuance is critical both from a general perspective, but also in how you make strategic decisions for your business.
Your goal should be to acquire new customers via paid channels like Facebook, and to attract returning customers (2nd purchase and onward) though unpaid channels (like email, direct, and SMS). Looking closely at Cost per Acquisition and Cost per Order can help you to ensure you’re making the most of your paid dollars in the channels that are driving acquisition, and how overall Cost per Order is affecting your bottom line.
Understanding marketing metrics is essential to your strategy, but making sense of them can be tricky. Vendors often report numbers that are better than they actually are because they have the underlying goal to make their paid channel look attractive from a customer order perspective.
Here’s a few tips to help you get to the truth in your data:
- Keep in mind that vendor-reported numbers are oftentimes skewed
- Always compare self-reported to last-click
- Run customer surveys to help you better understand the attribution
- Look at the channel distribution for first time orders vs. returning customers
- Ideally, you want returning customers to come from the channels you’ve won (direct, email, SMS, non-paid social, etc.)
You spend a lot on your marketing budget, so making sure that investment is strategic and driving business growth is important. Understanding your data can mean the difference between campaigns that are a shot in the dark and those that are nuanced, targeted, and primed to drive growth. Be sure to check out our Data Snacks series for helpful tips, tricks and more to make your data work for you.