Don't settle for any old ROI

Young-Bean Song
Web Analytics Posted on February 10, 2009

Measuring the ROI of marketing budgets often feels like attempting to fix global warming. It's long, complex, and daunting -- but you know you have to do it. This is especially true in these trying economic times, where accountability has been both a blessing and a curse for the digital marketing industry. Clicks gave us an early advantage, until we were forced to rationalize miniscule click-through rates measured in the tenths of a percent.

Then came the ability to measure "conversions"-- post-click and post-view sales -- which again helped us paint an ROI-centric story. Google is most notable for connecting the two dots, and has built a phenomenal business by simplifying the ROI equation to clicks, and direct sales from those clicks. Ad networks also rose from the ashes of the bubble burst by standardizing the pay-for-performance pricing model and monetizing billions of impressions that typically went unsold. 

Today, the appetite for "pay-for-results" media seems almost insatiable. Search and ad networks dominate most modern media plans from agencies and advertisers, and the justification of these dollars is plain and simple. Call it "cost-per-sale," "cost-per-conversion," or "return-on-ad-spend" -- these are all terms for ROI metrics that have largely become standardized online. 

First, a quick primer on how ROI is measured online: Known as the "last ad" standard, almost all reporting that keeps track of these metrics is based on a very simple methodology. When a conversion (i.e., any digital success event, for example: a sale, lead generation, or software download) occurs online, all of the credit is attributed to the last ad clicked -- this is known as a "post-click conversion." 

If there are no ad clicks, but the advertiser's ads reached the customer prior to the sale, a "post-view conversion" is counted and associated with the last advertisement. At the end of the month, sites delivering the most post-click and/or post-impression conversions for the least amount of money are the winners and get more budget.

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Comments

Gretchen Hyman
Gretchen Hyman February 10, 2009 at 12:38 PM

We apologize to The Atlas Institute for any misunderstanding over the headline of the article. It has been changed to more properly reflect the contents of the piece and intention of the author.

Young-Bean Song
Young-Bean Song February 10, 2009 at 11:16 AM

For the record, I need to point out the title of this article was not the original, and was placed without my review or consent. The original title was "Save the World with Better ROI”. The rest of the article is sound. I want to stress that my criticism regarding the Last Ad model is not directed in toward Google. Last Ad reporting is an industry wide standard, and impacts every digital channel. I also would like to point out the Microsoft owns a search and display network that is evaluated and paid based on the Last Ad model, so the company that I work for is not exempt from the same issues. All that said, there is much progress being made. One of the biggest challenges is fear of replacing one flawed model with another. I would argue that the bar is so low (said another way, the current Last Ad standard is so extreme), and the marketing touchpoints are so many, that almost any reasonable attempt to associate some credit beyond the last ad has some merit. And if anything, the exercise will expose the richness of our marketing that currently is obscured by the bluntness of our reporting. A lot more information and research can be found regarding these new methods, and how variables and weights are selected at our website: www.atlassolutions.com/emap

Daniel DeYoung
Daniel DeYoung February 10, 2009 at 10:43 AM

Young-Bean,
Excellent article!

I have been preaching to my clients for years to look at all the exposures (touch points) that lead to the conversion.

I have written a small tracking script that ties to set a cookie on the first visitor and I call this lead source the original source. Then on each future visit I append each new lead source to the list always keeping track all of the date and type of media the prospect responded to.

When the prospect is converted to a customer the cookie is written to the database and you can go back and see just what level of activity it took to convert an that prospect.

I know some clients who use a hybrid program of recording the First Source & Last Source for each prospect, while this is an improvement over the Last Source only method is still leaves a missing picture of the activity in between the bookends.

The only real issue I have with "Multi Sourcing” a lead is how do you do the weighting?

You still need to divide that budget up next month so…

How do you apply your "credit for the conversion” for the conversion that take place across multiple sources (touch points)?

Do you give equal weight to all sources?

Do you give more weight on the First & Last source?

Once again great posting,

Daniel A. DeYoung

A Direct Response Mercenary

http://www.linkedin.com/in/directresponsemarketing

Stephan Pretorius
Stephan Pretorius February 10, 2009 at 8:14 AM

This is a good general discussion of why we need to move beyond the last-click-wins model and I agree with that imperative. But I have 2 criticisms:
1) Last-click-wins is not "Google's ROI equation”, it is our industry's ROI equation. Does it benefit search in favor of display? Sure, but to imply that it is Google's model is disingenuous and implies that they have imposed it on our industry, something which is blatantly false.
2) It is not good enough to gloss over the methodology for improved conversion attribution and to rely on a system to do the math for you. We cannot go from one flawed model to another and not take the time properly to understand the underlying methodology. There are massive unanswered questions in this area (how to weight exposure to account for time-lag to conversion, how to do attribution on small conversion data sets etc) and we need to do a lot more work before we can rely on a new model for our media buying decision making. Without this rigor the whole exercise will simply look like a thinly-veiled attempt to divert money away from search to display (or should I say, from Google to Microsoft?).