Measuring ad performance beyond ROAS for DTC brands

Measuring ad performance is a significant process for most successful DTC brands. In today's digital age, where consumers are increasingly connected and online shopping has become the norm, effective advertising plays a pivotal role in the success of e-commerce brands. As these brands often rely heavily on digital advertising channels to reach their target audience, understanding the impact and effectiveness of their ad campaigns is crucial for driving growth and staying competitive in the market.

A common metric traditionally used to measure ad performance is ROAS (Return on Advertising Spend). ROAS provides DTC brands with a tangible measure of the revenue generated in relation to the amount of money invested in advertising. This metric has been valuable in determining the immediate return on investment and assessing the potential of individual ad campaigns.

However, relying solely on ROAS as a performance metric has its limitations. While revenue is undeniably important, it does not capture the complete picture of ad performance. DTC brands need to go beyond ROAS and consider additional metrics that comprehensively understand their advertising efforts. By doing so, they can gain deeper insights into customer acquisition, the profit of their ad spend, and the overall impact of their marketing strategies. In this blog post, we will explore the limitations of ROAS as a performance metric and delve into other key metrics that DTC brands should consider to measure ad performance effectively.

Limitations of Return on Ad Spend as a performance metric

ROAS is a metric that focuses solely on the revenue generated from ad spend. It is calculated by dividing the revenue generated from an advertising campaign by the cost of that campaign. The resulting ratio explains how efficiently the advertising budget was used to drive sales and generate revenue.

While ROAS provides a clear measure of the immediate impact of advertising campaigns on revenue, it has its limitations. One major drawback is that it offers a narrow perspective by solely focusing on revenue generation. It fails to consider other essential factors that contribute to an ad campaign's overall success and effectiveness.

To truly understand the effectiveness of ad campaigns, DTC brands need to broaden their measurement approach and consider additional metrics that provide a more comprehensive view of ad performance. These metrics should encompass the customer acquisition cost (CAC) and profit and ad spend (POAS), and other non-financial metrics related to brand awareness, customer engagement, and customer satisfaction.

Read on to discover key metrics and how they offer a more holistic assessment of ad performance, empowering DTC brands to make data-driven decisions and maximize their advertising efforts.

Inaccurate attribution 

The first challenge is accurately attributing revenue solely to a specific ad campaign. In the complex landscape of multi-channel marketing, where DTC brands often employ various advertising channels such as social media, search engines, display ads, and influencer partnerships, determining the precise impact of a single ad campaign on revenue becomes a complex task.

Customers today interact with multiple touchpoints and engage with different marketing efforts before making a purchase. This journey is often non-linear and involves various interactions across devices and platforms. As a result, attributing revenue to a single ad campaign becomes increasingly challenging. 

Moreover, the time lag between exposure to an ad and the actual purchase can be significant. Customers may encounter an ad but purchase days, weeks, or even months later. This delay in conversion makes it difficult to accurately attribute revenue to a specific ad campaign, especially within a specific time frame.

Another significant challenge is accurately attributing revenue solely to a specific ad campaign or even ad channel, especially with the introduction of the iOS 14+ update. This update, implemented by Apple, has profoundly impacted how data is collected and tracked for digital advertising.

With the iOS 14+ update, users now have greater control over their privacy settings and can opt out of tracking across different apps and websites. As a result, the ability to track user behavior and attribute revenue to specific ad campaigns has become more limited.

The update enforces the App Tracking Transparency (ATT) framework, requiring apps to obtain explicit user consent before accessing their Identifier for Advertisers (IDFA). This unique identifier was previously used to track user actions and attribute revenue to specific ad campaigns effectively. However, with fewer users consenting to tracking, the availability of this data has significantly decreased.

The reduction in data availability poses a significant challenge for DTC brands relying on precise attribution for measuring ad performance. Without access to granular data on user behavior, it becomes more challenging to accurately attribute revenue to specific ad campaigns and understand the true impact of marketing efforts.

These attribution challenges highlight the need for DTC brands to adopt more sophisticated attribution models and analytics tools that consider the entire customer journey. By doing so, they can gain a more accurate understanding of how different marketing efforts contribute to revenue generation and make informed decisions about optimizing their ad campaigns.

Key Metrics for measuring ad performance beyond ROAS 

Customer Acquisition Cost (CAC)
CAC is a vital metric for measuring ad performance beyond ROAS. It provides insights into the cost-effectiveness of acquiring new customers through advertising efforts.

CAC is calculated by dividing the total cost of marketing and sales activities by the number of customers acquired within a specific time frame. This metric helps DTC brands understand how efficiently their ad campaigns generate new customers and whether the associated costs align with their overall business goals.

By analyzing CAC, DTC brands can identify areas of improvement in their customer acquisition strategies. They can assess the effectiveness of different advertising channels, campaigns, and targeting methods in attracting and converting customers. This allows them to optimize their ad spend by focusing on channels and campaigns that yield lower CAC and higher customer acquisition rates.

Measuring CAC also facilitates benchmarking and comparison against industry averages or competitors. It provides valuable insights into the competitiveness of customer acquisition efforts and helps DTC brands gauge their performance in relation to the market. Monitoring CAC helps track the impact of changes in marketing strategies, ad campaigns, or pricing structures. It helps identify trends and patterns to inform future decision-making and drive continuous improvement in customer acquisition processes.

By considering CAC as a key metric alongside ROAS, e-commerce brands can understand the cost-effectiveness of their advertising efforts. This knowledge enables them to make data-driven decisions, optimize customer acquisition strategies, and allocate their ad budgets efficiently for sustainable growth. 

Profit on Advertising Spend (POAS)

In addition to ROAS, DTC brands can consider POAS as a key metric for measuring ad performance. POAS goes beyond revenue and considers the profitability of an ad campaign by factoring in both revenue and associated costs.

POAS provides a more comprehensive understanding of the true impact of advertising efforts on the bottom line.

To calculate POAS, marketers need to consider additional costs and profit margins.  This involves understanding the actual performance and outcomes, excluding the costs of goods sold (COGS) and other operational expenses like variable shipping costs, which can vary across different regions or countries. 

To calculate POAS, it is important to first define the concept of profit as in commerce, different metrics are known as contribution margins 1, 2, and 3 (CM1, CM2, and CM3).

These contribution margin metrics can be calculated as follows:

CM1 = Net revenue - COGS

CM2 = Net revenue - COGS - shipping and transaction costs

CM3 = Net revenue - COGS - shipping and transaction costs - advertising spend

The contribution margin metrics are often expressed as a percentage relative to the generated revenue.

The formula for calculating POAS is:

POAS = CM2 / advertising spend

POAS = (Net revenue - COGS - shipping cost - transaction cost) / advertising spend

This metric helps determine the profitability of ad spend and enables DTC brands to make informed decisions regarding budget allocation and campaign optimization. Continue reading why POAS is a better metric than ROAS.

Non-Financial Metrics to Consider

A. Brand awareness

Measuring brand awareness holds significant importance for DTC brands. Brand awareness represents the extent to which consumers are familiar with and recognize a particular brand. It’s a foundation for building customer trust, increasing market share, and driving long-term growth.

Establishing a strong brand presence is crucial for DTC brands to stand out from the competition. By measuring brand awareness, DTC brands can evaluate the effectiveness of their marketing efforts in creating visibility and recognition among their target audience.

Several metrics can be used to gauge brand awareness for DTC brands

Social Media Engagement: Tracking metrics such as the number of followers, likes, comments, and shares on social media platforms provide insights into the level of engagement and interaction with the brand. High engagement indicates a growing brand presence and increased awareness among the target audience.

Website Traffic: Monitoring website traffic and analyzing metrics like unique visitors, page views, and bounce rate helps assess the effectiveness of driving traffic to the brand's online presence. Increased website traffic signifies a higher level of brand exposure and awareness.

Search Engine Visibility: Monitoring search engine rankings and organic search impressions can provide valuable insights into the brand's visibility in search results. Higher rankings and increased impressions indicate improved brand awareness among users actively searching for related products or services.

Surveys and Market Research: Conducting surveys and market research studies can directly measure brand awareness by asking respondents about their familiarity with the brand and its products. This qualitative data provides valuable insights into the brand's reach and recognition among the target audience.

Brand Mentions and Sentiment Analysis: Tracking online mentions and sentiment analysis helps gauge the brand's reputation and perception in the digital sphere. Monitoring mentions on social media, review platforms, and online forums provides an understanding of the brand's visibility and the sentiment surrounding it.

A comprehensive understanding of brand awareness empowers DTC brands to enhance their visibility, expand their customer base, and establish a strong brand presence in the market.

B. Customer engagement

Evaluating customer engagement is essential in assessing ad performance for DTC brands. Customer engagement refers to customer interaction and involvement with a brand and its marketing efforts. It is a key indicator of how effectively ad campaigns resonate with the target audience and drives meaningful interactions.

By measuring customer engagement, DTC brands can gain insights into the effectiveness of their ad campaigns in capturing and maintaining customer attention, generating interest, and fostering deeper connections. It helps evaluate the extent to which customers actively engage with the brand and its content, ultimately influencing their purchase decisions and brand loyalty.

Several metrics can be used to gauge customer engagement for DTC brands

Click-Through Rates (CTR): CTR measures the percentage of users who click on a specific ad or call to action. It indicates the level of interest and engagement generated by the ad. Higher CTRs suggest that the ad is compelling and successfully captures the target audience's attention.

Time Spent on Site/Page: Tracking the average time users spend on a website or specific landing page provides insights into the level of engagement with the brand's content. Longer durations suggest higher interest and involvement, indicating that the ad campaign effectively engages and retains visitors' attention.

Social Media Interactions: Metrics such as likes, comments, shares, and mentions on social media platforms measure the level of engagement with the brand's social media content. Higher interactions demonstrate an engaged audience that actively interacts with and promotes the brand's messaging, indicating a successful ad campaign.

C. Customer reviews

Customer reviews are also important as they can shape the success of DTC brands. 

They hold significant importance for several reasons:

Social Proof: Customer reviews serve as social proof for potential customers. When considering a purchase from a DTC brand, consumers often seek validation from the experiences of others. Positive reviews act as endorsements and instill confidence in the brand, products, and customer service. They reassure that the brand delivers on its promises and offers a satisfactory customer experience.

Trust and Credibility: Genuine customer reviews build trust and credibility for DTC brands. In an increasingly digital world, where face-to-face interactions are limited, customers rely on the opinions and experiences of others to make informed purchase decisions. Reviews from real customers help establish trustworthiness, authenticity, and transparency, creating a sense of reliability and credibility around the brand.

Influence on Purchase Decisions: Customer reviews significantly impact consumer purchase decisions. Studies have shown that most consumers read online reviews before making a purchase. Positive reviews can sway potential customers towards choosing a DTC brand over competitors, while negative reviews can deter them. The experiences shared by customers through reviews carry weight and influence the buying behavior of others.

Feedback and Improvement: Customer reviews provide valuable feedback to DTC brands. They offer insights into customers' perspectives, highlighting what works well and areas that need improvement. Brands can learn from positive and negative reviews, identifying strengths to leverage and weaknesses to address. This feedback loop helps drive continuous improvement, enhancing products, services, and customer experiences.

SEO and Search Rankings: Customer reviews contribute to search engine optimization (SEO) efforts. Search engines consider user-generated content, including reviews, when ranking websites. The quantity and quality of reviews can positively impact search rankings, making it easier for potential customers to find the brand through organic search results. Encouraging customer reviews can boost online visibility and attract organic traffic to the brand's website.

E-commerce brands should actively encourage customers to leave reviews and engage with the feedback provided. Responding to positive and negative reviews demonstrates a commitment to customer satisfaction and shows that the brand values customer input. By leveraging the power of customer reviews, DTC brands can build a strong online presence, foster trust and credibility, and drive customer loyalty and advocacy.

How to measure ad performance using Admetrics 

Admetrics Data Studio empowers DTC brands to optimize profitability by delivering comprehensive reports on essential metrics such as COGS, shipping costs, CM1, CM2, CM3, and POAS. These metrics are accessible at the campaign, ad set, and ad level across all marketing channels. By providing in-depth insights into the overall health of an e-commerce business, these metrics enable brands to make informed decisions when selecting and scaling the most profitable marketing strategies.

How to calculate ROAS and POAS -  Formula
Paid Advertising Dashboard.

Additionally, Admetrics integrates Quantify, an advanced Bayesian statistics engine, which enables the processing and analysis of marketing data from multiple sources, resulting in valuable and actionable insights. Marketers can leverage the engine to conduct tests on comparable datasets, providing them with unbiased and precise results. 

The capabilities extend beyond traditional A/B testing, allowing DTC brands and e-commerce businesses to experiment with various elements such as channels, placements, campaigns, creatives, messaging, email copy, audiences, and bidding strategies, among others. With the ability to test A/B/n variants, marketers can explore a broader range of possibilities and make data-driven decisions to optimize their marketing strategies effectively.

If you want to understand the value derived from your marketing efforts and move away from vanity metrics toward tangible profits, start your free trial here

For a limited time, we offer assisted onboarding and a complimentary data audit, ensuring that your business decisions are founded on accurate and reliable data.