ROI matters. After all, today’s marketing professionals are tasked as much with executing successful creative campaigns as they are with managing costs. Balancing on the budgetary tight rope is tough. Marketers need to know how to make every dollar stretch. At the same time, they need to understand how to best allocate dollars to drive the greatest return on investment (ROI). The fundamental concern is: how much is this going to cost me?
When it comes to advertising campaigns, this pre-occupation with costs often translates into advertisers getting hung up on rate. The cost of an ad placement is simply a line item in the cumulative cost of an ad campaign. When handled like any other cost, this spend is at the mercy of budget constraints. If the budget only seems to allow for an $8 cost per mille (CPM), only impressions that fit within that cost scale will be considered. This approach places too much emphasis on rate and not enough on long-term success, and can ultimately stunt the success of a campaign.
This is particularly true for marketers targeting a niche audience. Products that cater to a very specific user profile do not benefit from the “cast a wide net” strategy, where anyone in a large geography, a broad demographic or anyone that has the opportunity to see an ad is a target. This strategy can work only when a product can be consumed by a very large audience. In this approach, the initial spend is meant to inform the campaign about the audiences likely to convert and what works. For a niche product, where a wide audience is not applicable, this strategy simply wastes costs to inform you of what you already know: who the ad should be targeting.
Take, for example, a marketer looking to target business owners for his or her company’s latest business credit card offering. They have budgeted $10,000 to spend on impressions for this digital campaign. In a “cast a wide net” scenario, the first 20 percent (in this case, $2000), would be reserved to reach as many people as possible, with the intent of optimizing towards key audiences later. At $5 CPM, this approach would reach 400,000 people for the initial $2000 investment.
But for the purposes of this niche product, perhaps only five percent of those 400,000 are business owners, and thus only 20,000 are suitable contenders for the credit card. Of those 20,000, perhaps five percent convert to customers. That’s .25 percent, or 1,000, of the total 400,000 people you spent $2000 to reach.
A targeted approach, on the other hand, would sacrifice initial CPM to reach the audience most likely to convert, ultimately increasing campaign ROI. With that same $2000, you can purchase a $20 CPM on a targeted site catering to a business audience, reaching a total audience of 100,000. Of that audience, 100% are qualified targets for the credit card. If your conversion rate remains at five percent, then you would generate 5,000 new customers. That’s five times the amount generated from the $2000 spent in a “cast a wide net” scenario.
In the latter scenario, while the initial price of the CPM was higher (which tends to turn some buyers off from the get-go), the investment generated a greater return on each dollar spent. For niche products, sacrificing large audiences for higher-cost placements with the right audience is the greatest way to boost true ROI. In the end, ROI is not contingent on stifling costs upfront, but on making the most out of the initial investment. It often doesn’t matter what we pay to get to an audience, so long as we pay enough to reach the right ones (bid prices).
This fundamental concept of targeting the right audience can sometimes get set aside in an effort to buy media at a competitive rate. While products that can benefit from a wider range of consumers can take the risk on a low CPM or bid rate, in the case of niche audiences, the right audience cannot be set aside. Diapers are another great example of this. It can be assumed that only people with babies buy diapers. Trying to reach everyone is not a good strategy, as not everyone is in the market for diapers. But bidding high enough to reach the right person (like new parents), is a good approach.
As marketers continue to face the challenges of reigning in costs while increasing ROI, re-evaluating ad spend may be a good place to start. Analyzing the impact of low-cost placements on the long-term success of a campaign may identify the need to readjust upfront costs. It may be that chasing low rates are stifling a campaigns’ success and its achievable ROI.
Traci Will is senior director of media sales analytics at Gamut.
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