What's a "Good" ROI in Digital Advertising?May 03, 2023
I've been working in digital acquisition since 2006. I lucked into running paid search accounts for a suite of agency clients when the team at my first internship decided they should probably learn something about Google ads... so naturally, they put their 18-year-old unpaid intern on the case. Nothing caught on fire, as far as I'm aware.
That said, I get a lot of questions from clients about what qualifies as a good ROI for digital advertising given the length of time I've spent working in paid media.
I return that question with the list of things I need to know to answer it. What else is on yours?
What part of the funnel are we talking about? If we're looking at the bottom (i.e. paid search), a higher-than-1 ROI is expected and not something to write home about. If we're talking about introductory channels that hit before the evaluation phase -- like CTV, DRTV, display advertising -- your return will likely be lower.
Are you only looking at channels in isolation, or have you looked at a blended version? There are too many factors at-play in how audiences receive your outbound comms to isolate completely. While your team needs to do their best to estimate performance by channel for optimization purposes, you need to look at the full picture to get a true estimate on your ROI.
Are you looking at first transaction only or factoring in subsequent transactions over a set period of time? Choose the latter so you can account for retention and give your investments time to breathe. Opt for ROII rather than ROI.
What's your payback timeline? Unless you're trying to cash out quick, you should be playing the long-game. February results may be different than December results -- look at the full-year in context instead of expecting every month to break even on its own. Again, nothing in isolation.
How mature is your program? If you've been investing for a few years and your overall ROI is still higher than 1, you're probably under-saturating your market. Take some risks to see what's scalable given you have plenty of wiggle room. If you're in a growth space, a high ROI is a missed opportunity.
If you're talking about a specific test, how long have you been in-market? And again, why are you looking at this test in isolation? Approach investing in acquisition in the same way you do your 401k. Give yourself a testing budget, assume you'll make no money on those tests, and let it run for long enough to get true algorithmic traction. THEN evaluate. The risk in pulling campaigns too early isn't always a direct-revenue one: the risk is in teaching your team that it isn't okay to take risks. Factor in the time they've spent creating this test campaign (the cost is sunk anyway) and what it will mean for morale before you make a potentially rash decision.
When you're ready, here's how I can help you with your investment diversification strategy:
>> Book 1:1 help to formulate your action plan or discuss a strategic objective.
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