May 2, 2019
How to Derive Business Insights Using SQL, BigQuery, and Google Data Studio
Just about every time we ask a new client if they would like to prioritize growing revenue or improving Return on Ad Spend (ROAS), the business owner replies “Well obviously, I want both!”
And certainly every business owner does want to grow revenue while improving ROAS. In the long-term, we often drive increases in both total sales and account efficiency for our clients. But there’s a reason we always ask if the client wants to prioritize improvements in growth or efficiency: there are very practical differences to the strategies employed in each scenario that guide us in the day-to-day decisions we make in accounts. Most importantly, it determines where in the sales funnel we target customers.
The customer sales funnel represents the relationship between reach and nearness to a purchase decision for potential customers. The top of the funnel casts a wide net geared toward potential customers who are not yet close to a purchase decision. Advertisers target the top of the funnel in order to acquire new customers. The bottom of the funnel represents potential customers who are very close to making a purchase decision. In advertising, the bottom of the funnel often represents buyers already familiar with your brand.
Take a look at your PPC campaigns through the sales funnel lens. It becomes clear that your Brand campaign is the bottom of your sales funnel, capturing searchers who already know you by name. Your Display campaigns cast the widest net at the top of the funnel, prospecting for new customers who may not even know to search your non-brand terms yet.
Not surprisingly, the ROAS you see on these campaigns also follows the sales funnel. It’s easiest to convert customers who already know your name, so Brand campaigns have the highest return. It’s most difficult to convince someone who is passively reading a website or watching a YouTube video to come to your site and make a purchase, so these campaigns have the lowest return.
Unfortunately, there are a limited number of people searching for you by name. You should already be maxing out your revenue on brand terms; if not, this is one of the easiest ways to grow revenue without sacrificing ROAS. Though your brand searches may grow over time, it’s a slow process, and usually takes investment in top of funnel efforts to increase brand awareness. (If you’re wondering why you should bid on brand terms, read this case study.)
To grow, you have to fill the sales funnel. The way to get more brand and remarketing clicks is by introducing more people to your company when they don’t yet know to look for it – by reaching them on general non-brand terms or on YouTube or elsewhere. Unfortunately, this comes at the cost of direct ROAS.
Aside from the conceptual implications, choosing whether to focus on efficiency or growth is necessary to determine practical day to day optimizations in your account.
Imagine your PPC account is currently performing at a 1.5 ROAS, and you are only profitable at a 2.0 or above ROAS. Like all business owners, you want to both be profitable and grow revenue. So when your account manager asks which you’d like to focus on, it’s difficult to choose one or the other. However, your answer will direct your account manager’s account strategy. If reaching a 2.0 ROAS is the primary goal, your account manager may pause efforts that are performing well below goal (say below a 1.0 ROAS) until you have reached a profitable level. If growth is the primary goal, your account manager would not pause those efforts – instead, she will adjust bids, create more granular ad groups, and test new ad copy to try to improve ROAS over time.
Most actions in an account can be grouped as either growth or efficiency focused:
In general, efficiency strategies shift spend from the top of the funnel (e.g., general non-brand keywords) to lower in the funnel (e.g., “long-tail” descriptive non-brand keywords). Over time, your account manager will execute strategies from both columns. But in the immediate term, your primary goal will dictate which actions she prioritizes in order to drive performance improvements.
A robust paid search strategy addresses every state of the sales funnel to prospect new customers and close returning customers. But the lower ROAS typical of top of funnel efforts like Display can be a hurdle for many advertisers.
However, if you cut off all customer prospecting efforts, you will choke off long-term sales as you struggle to acquire new customers. A balanced approach starts from the bottom-up, maximizing revenue from your highest return campaigns, and branching out into prospecting efforts over time.
Consider an advertiser running only brand and YouTube efforts. They have a minimum ROAS threshold, but want to grow their business. Not surprisingly, YouTube does not drive much direct revenue.
In the first week working with this advertiser, Metric Theory paused their YouTube efforts. Why? Shouldn’t you move to the top of funnel if you want to grow?
Yes, but use the funnel as your guide, and build from the bottom up. Launch thoughtful Remarketing efforts to nurture the visitors you bring to your site. Build coverage on non-brand search terms and launch Shopping ads. Eventually, launch targeted Display and YouTube efforts to reach a broader audience of potential customers not captured by your existing campaigns.
There are certainly cases where revenue and ROAS increase at the same time. Your account manager may find a new non-brand keyword category that converts at a strong ROAS. Positive media attention may increase the number of people searching for your brand. New landing pages may increase conversion rates. A competitor may leave your space. You should capitalize on these opportunities as they come along, but don’t rely on them to drive results.
Over time, investment in prospecting efforts will expand the nurturing and closing stages of the funnel as well. Consider how your PPC efforts align with your customer sales funnel, and avoid stifling future revenue growth in exchange for higher ROAS now.