Measuring Paid Media

Up to now, we have explored the major paid media channels and how you can utilize them to execute your marketing plan. We have also examined how OOFOS has crafted its paid media strategy and what you can learn from them about the nuances and challenges of using paid media.

As you know, the next step is to ensure that your paid media strategy is working well. And to do this, you need to analyze and monitor relevant metrics to gauge its effectiveness.

We introduced several metrics and the role they play in a marketing plan. We discussed the importance of aligning your metrics with your goals and using them to improve your marketing plan. We also discussed how you might utilize different metrics for various goals in the marketing funnel, whether it is to increase awareness, consideration, or conversion.

But the sheer amount of information and data that marketers have access to raises some important questions. How are different metrics calculated? What are the strengths and limitations of the various metrics? What factors should guide your choice of metrics? And what are the implications of these choices?

We'll now take a deeper dive into the metrics that we introduced and discuss the strategic considerations involved in selecting the right metrics to measure the success of a campaign.

Recall that in search engine marketing (SEM), OOFOS had to consider how much to allocate between branded and non-branded search, both to drive more conversion at the bottom of the funnel as well as to help drive greater consideration at the mid-funnel.

OOFOS tracks impressions and clicks for both branded and non-branded (or generic) keywords for its search ads. As you learned, impressions refer to the number of times an ad appears in front of consumers, regardless of whether they interact with it or not. And clicks measure the number of times people click on your ad to go to your website.

OOFOS should expect to receive more impressions for search ads on generic keywords, as there are likely to be more people using generic search terms rather than branded ones.

In general, fewer people are likely to search for your brand by name, such as with keywords like "OOFOS shoes" or "Hilton Hotel in LA," compared to the number of people searching for the product category with keywords like, "shoes for foot pain," or "hotels in LA." This is especially true if you have low brand awareness.

This suggests that generic keywords are likely to get more impressions than branded keywords. However, branded keywords operate at the bottom of the funnel for the people who are already actively searching for your brand. Therefore, a large percentage of people who see an ad in response to branded keywords are likely to click on it.

In other words, generic keywords are likely to get more impressions, but branded keywords are likely to have a higher click-through-rate or CTR, which is equal to the number of clicks divided by the number of impressions.

CTRs can vary greatly, depending on the type of ad, how it is targeted, the product category, and your brand awareness. The CTR of most search ads is usually in the low single digits. CTRs are generally much lower for display ads. Banner ads often have a very low click-through-rate of about 0.02%, but native ads on websites such as BuzzFeed can have significantly higher CTRs at 1% to 3%.

Another metric related to click-through-rate is the cost per click or CPC. CPC measures what it costs the company for each click on its ad and is calculated as the media cost divided by the number of clicks.

Of course, not all customers who click on your ad will end up buying your product. Conversion rate measures the ratio of customers who bought your product after clicking on your ad, or in other words, the number of buyers divided by the number of clicks.

Another useful metric is cost per order or CPO, which measures what it costs the company to get an order from a customer. Cost per click and conversion rates can be combined to get cost per order.

Here is a summary of how to calculate some key metrics:

• Number of impressions = (Ad Spend / CPM) * 1,000     
• Click-through rate (CTR) = Number of impressions / number of clicks
• Number of clicks = Number of impressions * CTR 
• Conversion rate = Number of orders / number of clicks
• Number of orders = Number of clicks * Conversion rate 
• Cost per order = Ad spend / number of orders
• Revenue = Number of orders * Price

In addition to the metrics that were covered, recall that we introduced the metric of CPM, or cost per mile, which measures the cost per thousand impressions. 

Measuring Display Ads

Display ads can serve multiple objectives. They can help improve brand awareness at the top of the funnel. They can increase consideration of your brand in the middle of the funnel. Or they can lead to conversion and purchase.

So while search ads are usually shown to people who are actively searching for your brand or product, display ads can be shown to people who might be interested in your product. For example, Nikon may place a display ad for its new camera on Facebook to target people who are enthusiastic about photography. These consumers may not be actively searching for a new camera, but the goal of the display ad is to make them aware of Nikon's new camera, so they might consider it when they do make their next purchase.

In this scenario, the company may not expect a lot of clicks on its ad. And impressions might be a better measure. To assess the cost-effectiveness of these impressions, companies often track CPM or cost per thousand impressions.

If the goal of a display ad campaign is primarily to enhance brand awareness, you might then want to use surveys to track unaided and aided brand awareness to see if the impressions you are getting are actually building awareness.

Display ads can also be designed for conversion at the lower part of the funnel. For example, the ad might contain a call to action, such as 20% off during a limited time. In such cases, lower funnel metrics such as clicks, CTR, CPC, and conversion rate are relevant.

CPM pricing might be a better option if the goal of an advertiser is brand building. When brand building is the focus, the goal is to reach a broad range of consumers and get as many of them aware of the brand as possible; so, the pricing option based on impressions might be a better choice.

Some of the metrics we discussed can be combined to calculate revenue and profit:

• Revenue = (Impressions * CTR * Conversion rate * Price)
• Profit = (Impressions * CTR * Conversion Rate * Margin) – Ad Spend

Next, let’s take a closer look at some of OOFOS’s paid media metrics from the year 2021:

In addition, here are the formulas for calculating key metrics that you were just introduced to, reprinted here for convenience (you will need them for the next activity):

• Number of impressions = (Ad Spend / CPM) * 1,000
• Click-through rate (CTR) = Number of clicks / number of impressions
• Number of clicks = Number of impressions * CTR
• Conversion rate = Number of orders / number of clicks
• Number of orders = Number of clicks * Conversion rate
• Cost per order = Ad Spend / number of orders
• Revenue = Number of orders * Price

Let's give this a try.

Use the data provided and the metrics formulas to calculate the impressions and the revenue generated from each paid media channel, as well as the total revenue generated from all channels for OOFOS.

Assume $100 for the price of OOFOS shoes.

Calculate Impressions in Column F and Revenue in Column G.  Total Revenue is calculated in cell G6.

To calculate impressions, you need to use the formula (Ad Spend / CPM) * 1000.  For example, in Row 2, the formula used in cell F2 would be =(B2/C2)*1000

After that, you can calculate revenue using the formula Revenue = impressions * CTR * conversion rate * price.  For example, in Row 2, the formula used in cell G2 would be =F2*D2*E2*100

Finally, to calculate the total, you would sum the revenue from each line into cell G6 using the formula =SUM(G2:G5)

Your completed spreadsheet should look like this:

According to the calculations you just completed, you will see the search ads yielded the highest revenue. But revenue alone does not tell us how effective a channel is. You need to also consider how much was spent on each channel to generate this revenue.

One metric that we have mentioned earlier in this course and that OOFOS is closely tracking is return on ad spend or ROAS. Recall that ROAS is the revenue directly attributed to an ad divided by the marketing dollars spent on it.

For example, if OOFOS spent $25,000 on Facebook and got 500 orders, each at a price of $100, then the total revenue from the 500 orders is $50,000. This would mean that the ROAS of these ads is $50,000 divided by $25,000 or 2. In other words, for every dollar that OOFOS spent on advertising, it received $2 back.

So what is a good benchmark for ROAS? You may think that a ROAS of 2 is good. After all, it is doubling your initial investment, right? But this is not correct. If you spend $1 on ads and get $2 back in revenue and your margin (the percentage of revenue that remains as profit after deducting costs like production, shipping, etc) is 50%, then you're actually getting $1 in profit. And after you deduct the $1 you spent on advertising, your net profit is 0.

In other words, your ROI or return on investment in this example is 0. While ROAS focuses only on revenue generated from each dollar on ad, ROI measures the net profit or return from each dollar of ad spend.

To summarize:

• ROAS = Revenue / Ad spend
• ROI = (Revenue * Profit margin – Ad spend) / Ad spend

Using the revenue from each channel that you calculated in the prior question, calculate the ROAS and ROI of each channel (and the total) and enter it into the spreadsheet.

Assume the price of OOFOS shoes is $100, with a profit margin of 50% (or .50)

Calculate ROAS in Column H and ROI in Column I. Total ROAS is calculated in cell H6. Total ROI is calculated in cell H7.

To calculate ROAS, you need to use the formula Revenue/Ad Spend.  For example, in Row 2, the formula used in cell H2 would be =G2/B2

After that, you can calculate ROI using the formula ((Revenue * Profit Margin) - Ad Spend) / Ad Spend.  For example, in Row 2, the formula used in cell I2 would be =((G2*.50)-B2)/B2

To calculate the total ROAS, you would divide Total Revenue by Total Ad Spend. In Row 6, the formula would be =SUM(G2:G5)/SUM(B2:B5) or =G6/B6

Finally, to calculate the ROI, you would take the total Revenue*Profit Margin-Total Ad Spend. In Row 6, the formula would be ((G6*.5)-B6)/B6

Your completed spreadsheet should look like this:

Search is the most effective channel for the company, resulting in the highest ROAS and ROI. Does this information mean that OOFOS should spend more money on paid search?

At this point, you should recognize that making these types of decisions about paid media can be quite complex. It is rarely as simple as putting more money into a channel with the highest ROAS. There are several things to keep in mind here.

Remember, that different channels are usually associated with different goals. Paid search, especially branded search, is typically a bottom-of-the-funnel tactic. It is aimed at converting consumers who are already aware of the brand and may be close to purchasing. So it is likely to have the highest ROAS and ROI.

In contrast, display and digital videos are often not expected to lead directly to purchase. Their goal is usually to build brand awareness and increase consideration that might eventually help search ads to convert those consumers. Not surprisingly, these types of ads have lower ROAS and ROI than paid search.

But how do we know that display and digital videos are, in fact, moving consumers down the funnel? The process of determining how certain ads influence the consumer is known as the problem of attribution. There are quite a few dimensions to this problem. We'll return to this topic later.

For now, just be aware that simply analyzing the ROAS or ROI of each channel and shifting more of your dollars into the highest-performing channel is not necessarily the best decision without considering other factors.

Let’s summarize the common metrics that we’ve discussed, along with formulas for calculating them:

Brand Building versus Performance Marketing

OOFOS wants to grow its revenue in the short run and also improve its brand awareness, which would help the company in the long run. Let’s turn to Kate Laliberte to learn more about the metrics that OOFOS and its agency, Rain, are tracking, and how they balance these dual objectives.

Return on ad spend is always important. Conversion is always important in lifetime value to see if we're getting those customers, they're staying with us. But we do also look at the media that we're using, are we getting impressions in front of that target audience we're going after?

So we will analyze a placement and say, OK, is this going to reach 25 to 44-year-olds, or what's the potential for us to reach that audience? So we do analyze and say, are our campaigns reaching our target audiences? And then we also look at how much is the cost per acquisition or the cost per click or the CPM?

Tied into that, we look and see, are we driving new users? So as these campaigns are running, do we see more new users coming to the site? Do we see more orders coming from new customers? Then we do use brand lift studies to say, OK, after they've seen our campaigns, is there more awareness now for them of our brand?

It's evolved, over time, the targets that we give our agency. So, first and foremost, it has been, we need to hit a specific return on ad spend. We want to make sure we're spending responsibly. We want to make sure we're spending profitably and that we're doing the best that we can for the business.

So we have really focused on return on ad spend in the past. More recently is where we're branching out and saying, OK, let's look more at brand awareness. Let's look more at the impact to our retail channels. Because even though it's not as measurable, we want to look at it and say like, OK, is the overall business rising because we're spending more on some of our high-reach channels?

So we've given them that goal this year of, OK, if we invested incremental dollars, do you think you can create a greater return for both D2C but also beyond D2C?

One approach OOFOS has taken to build its brand is through its mOOvers campaign. The successes with Alex Smith and Dawn Staley led the OOFOS team to add new mOOvers to the campaign, such as Olympic skier Ashley Caldwell and Boston Ballet principal dancer Chyrstyn Fentroy.

Even more people have come forward organically and volunteered to become brand ambassadors. Let’s turn to Darren for more details on how the campaign has been successful.

The advocacy that we've earned for the product and the people that we've authentically engaged, who may have higher profile visibility and are excited to be part of the brand and what we're doing, what they say about the brand, how they feel about the brand is one of the core pillars of our creative and brand approach.

We are as good as what people think and can say about us. It's our job to educate them and to guide them so that they know the uniqueness of the brand. So that they know about our technology. So when they do speak, they're speaking about those things.

But at the end of the day, when we can use their words to describe what our product does and can do for people, I think that transparency and that authenticity comes through to the new consumer. And that's one of the things that I think encourages them to want to try it for themselves, to want to get that experiential moment.

When Alex Smith says, "I remember the first time I put them on, it was crazy. It was like somebody released the pressure." There's tons of consumers out in the world who want to know what it feels like to release the pressure. There's people with knee pain, back pain, hip pain. There's athletes who just feel run down.

When Dawn Staley calls them life-changing footwear, I mean, that seems absurd for a pair of footwear to be life-changing. But it's true and it's genuine. And what you see and what we've been able to watch and have fun with through social media, through our customer testimonials that come in through our customer care program is people write in and go, "She's right, these things absolutely changed my life. They helped me live better, feel better, move better. They allowed me to get back to doing this when I couldn't before."

And we know that there's a lot more of that out there. It's our job to bottle it and deliver it for more people to hear.

This brings us back to a question that we have raised before. How do you balance brand building and performance marketing?

Building a brand and improving brand awareness helps you grow in the long run and creates a sustainable competitive advantage. In contrast, performance marketing through lower funnel tactics, like search ads, helps grow sales in the short run.

The question of whether to spend money on brand-building by allocating resources at the top of the funnel, using channels such as TV and digital video, or to allocate more money at the bottom of the funnel using channels such as paid search is really a trade-off between long-term and short-term goals.

While it is difficult to measure the direct impact of brand-building, companies need to invest in the long-term and not focus exclusively on short-term metrics, such as ROAS. Although there are some approaches that can help us assess the impact of the top of the funnel investment on sales, which we'll discuss later, marketing remains a combination of art and science and requires keen judgment.

Let’s consider OOFOS’s marketing strategy broadly. It has had success with its mOOvers campaign so far.

OOFOS could continue to invest heavily in this campaign, which might be a good idea. But keep in mind that OOFOS is trying to be especially careful about the efficiency of its ad spend, as it also seeks to grow revenue, so the decision to invest many of its resources into an expensive campaign is a risky one.

As the company considers its goals, its target audience, and its resources, what should be its next step?

• Focus more on brand building
• Focus more on performance marketing
• Something else

Evaluating a Paid Media Budget

At this point, you are very familiar with OOFOS. But it may be helpful to reiterate once more the key strategic decisions that OOFOS is facing regarding paid media.

• OOFOS has aggressive revenue goals, so it needs to be very efficient with its ad spend to meet these goals.
• At the same time, OOFOS recognizes that it has low brand awareness and needs to improve this significantly for long-run success.
• OOFOS has had a lot of success with its mOOvers campaign, but it needs to consider how to craft the messaging for the campaign (considering its target segments and value proposition), as well as the channels it should select.
• Finally, the company needs to make sure that its ads are effective by examining the relevant metrics and how they might impact various parts of the marketing funnel.
• These factors all exist in the context of a rapidly growing recovery footwear segment with many new competitors entering the space, and the ever-increasing costs of digital paid media.

Considering all these factors, examine OOFOS’s digital marketing budget from the previous years:

Let’s turn again to Darren to learn more about his thinking on budget allocation for OOFOS.

I think where we've moved to as a brand and a business, which has been a great position for us to get to, is we now have a tremendous amount of learnings that we can apply to a mixed media approach to our marketing and to our advertising. This tells us how much we need to fill the funnel with enough people that we can then spend on higher return tactics to get them to convert, come back, buy a second pair, and get to advocacy with the brand.

But if you aren't continuing to refill the top of that funnel, then the well dries up. So there's got to be a balance. And I think for us, it's been getting a little more fine-tuned with understanding where that balance is and how much of an investment we have to put into very low return and sometimes slightly immeasurable tactics that we know are getting our brand recognition and first, maybe second touchpoints out in the marketplace.

But ensuring that we're following that up with higher return, targeted tactics with more targeted messaging and more customized messaging, lowering the funnel to get that experience, that trial, and that conversion that we need.

Budget allocation is a combination of art and science as a company balances multiple objectives. OOFOS has many moving parts to consider for its paid media strategy.

Even with careful planning, you need to constantly test and adjust your paid media strategy.

With this article, we’ve just covered a lot of information about how to execute your marketing plan using paid media. Let’s summarize the key learnings.

First, we learned that there are three approaches to acquire customers—through paid, owned, and earned media. Here, we discussed paid media in detail. We also learned that the paid media landscape is very complex and fragmented and is continuously evolving.

Then we went into more depth about two broad categories of paid media—search and display advertising. With these, we discussed how these types of advertisements are commonly purchased and what they are commonly used for.

In search engine marketing, we discussed the role of branded and generic keywords. Both of these tend to be bottom-of-the-funnel tactics. Display advertising encompasses a wide variety of ad types, from static banner ads to video and TV ads, to audio ads, to native advertising. Because of the huge variety of options under this group, their strategic usage can vary greatly.

After learning about the mechanics of buying ads, we then turned to discussing the strategy behind paid media and how your objectives, target audience, and value proposition shape the decisions you make about paid media. We also examined how you track and measure the effectiveness of your ad campaigns.

We also discussed the need to have a balance between brand-building and performance marketing activities. Finally, we applied all of this knowledge to help OOFOS determine its budget allocation for the coming year.

Paid media can be expensive, and it requires significant resources to execute something like OOFOS' mOOvers campaign. How can a company like OOFOS continue to grow without spending more dollars on paid media? This is where owned and earned media can prove useful.

As you will discover in the next set of articles, there is quite a lot that marketers can do to grow their business without spending more money on paid media.