The shift in advertising from traditional mediums to online began in the late 90s, and during that time Return on Ad Spend (ROAS) became the standard metric to ultimately answer the question, “how much sales did my online ad generate?” While ROAS may consider how sales are exposed to advertising it doesn’t have any notion of profit.
So is there a better metric to measure ad spend against? Yes, net margin profit. Solely focusing on ROAS as the goal metric limits a brand’s view of the full financial picture of ad effectiveness and product sales. Our platform has the capabilities to look at and optimize ad spend to ensure this profitability down to a SKU level to enable brands to achieve top-line growth while also improving the bottom line. This case study explores how one brand was able to incorporate net margin into its advertising strategies to find greater success.
Before working with Incremental (formerly Tradeswell), a health and personal care brand saw good results during Prime Day 2019, surpassing their ROAS goal. However, they felt constrained by ROAS as a target, believing they were leaving money on the table. The team at Incremental helped them create a strategy for Prime Day 2020 that focused on driving profitable incremental sales.. This included greater advertising investments in non-branded/category search that the Incremental platform identified as driving more incremental sales more efficiently generate greater net profit potential.
The 2020 Prime Day campaign was a success. More was spent on advertising but with a greater return. The brand saw total sales double versus Prime Day 2019, as well as a 4x increase in incremental sales, with 25% driven by new customer acquisition, and ultimately, surpassed their net margin goal. If the brand had solely measured the campaign based on ROAS, they would’ve missed out on the potential for greater sales and profit.
4x Growth in Incremental Sales
20% Increase in New Customer Acquisition
45% Decrease Traditional Metric – ROAS
65% Decrease iROI (incremental return on advertising)
By focusing on ROAS in 2019, the brand constrained itself in the number of sales and profit it could generate. ROAS acted as a ceiling, limiting potential, instead of acting as a floor from which generated growth. Instead, by focusing on net margin and incremental sales, the brand was able to maximize its advertising spend to target and convert more new consumers. With this shift in strategy, the brand was able to increase sales and profit achieved for Prime Day 2020.
To learn more about how can help your business find financial ecommerce success, get started today.