Optimizing ROAS With AURA Advanced Analytics

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In performance marketing, one of the most crucial questions that often arises is how to determine the optimal return on advertising spend (ROAS) target. This target serves as a guiding light for businesses, helping them make informed decisions and allocate resources effectively. Determining the ideal ROAS target requires a delicate balance between maximizing efficiency, protecting profit margins, and cultivating high-value customers, both new and returning. We’ll be the first to admit – this is no small feat.

At Adlucent, we solved this continuous marketing problem by creating AURA^TM.

Through a combination of the AURA™ platform and our expert data analysts, we unify your data silos to help your business outperform. Developed by Adlucent to solve retail’s complexities, this Google Cloud-based analytics platform unlocks customer and product insights using AI-powered technology. 

As part of AURA™, there are three distinct solutions: Connected Insights, Predictive Analytics, and Advanced Analytics. This post – the third in a three-part series – digs deeper into the third: Advanced Analytics.

OPTIMIZING TO MULTIPLE KPIS

When one client came to us seeking to make sense of their data, our data analysts rolled up their sleeves and got straight to work.

Not all orders are created equal, and most retailers only look as far as the data in their POS (point-of-sale) system to assess the value of an order. To really understand the full picture, a deeper dive into the data is needed. 

By merging media delivery metrics with POS and CRM data, we can align our campaign performance with returns, margin, and customer data, allowing us to evaluate campaign performance based on four custom metrics:

1. ROI
2. Avg Lifetime Margin
3. Avg Order Margin
4. Avg Unit Margin

By using these metrics and evaluating campaign performance through the lens of profitability and customer lifetime value, we can see that orders with the same ROAS on the surface actually have very different values.  

DETERMINING THE RIGHT ROAS TARGET

We’ve established that determining the optimal ROAS target is key, but how exactly do we do it? By pairing Human + Machine. With our expert data analysts and our AURA^TM platform, we help clients make sense of their data.

To establish the ideal ROAS target, we first determine the profitability that a business wants to operate at. Then, using historical data, we calculate the ROI and ROAS for each campaign to determine the relationship between the two metrics. We then use the difference between the current ROI and the ideal profitability and the difference between the current ROI and the current ROAS to find the Adjusted ROAS. 

For example, if the ROAS of a campaign is 6.25 and the ROI is 1.72, we need to adjust the ROAS to 5.09 in order to hit the ideal profitability of a 1.4 ROI. 

Going through this calculation for each campaign, we can see what ROAS we need to manage each campaign to hit our ideal profitability goal. However, we know that businesses and brands like yours are juggling multiple priorities of equal importance. So, in addition to ROI, we also factor in average lifetime margin, average order margin, and average unit margin when setting target ROAS. 

To do this, we assign each campaign a score across all four metrics based on quartiles and then sum all metrics to give each campaign a total score. The scores help us identify high-opportunity areas to test, pushing spend and low-value areas to pull back in. The higher the score, the more additional value the campaign is driving, and by limiting spend based on the current ROAS goal, potentially leaving money on the table. Low-scoring campaigns indicate campaigns that may be driving top-line revenue but aren’t profitable or driving high-quality customers who are likely to purchase again. 

To determine the final ROAS target, we start with the adjusted ROAS calculated based on profitability and then make further adjustments to account for the campaign scores, Increasing or decreasing the ROAS 10% – 15% to step towards the ideal ROAS gradually. Over time, the campaign scores will move toward the median, indicating that we are no longer over or under-investing in certain campaigns.

Conclusion

When determining the optimal ROAS target for your campaigns, a data-driven approach that considers profitability and long-term customer value is crucial. With AURA^TM’s Advanced Analytics capabilities, we can seamlessly aggregate data from multiple sources, connecting campaign and customer data to gain deeper insights into performance. 

This allows us to establish customized ROAS targets that align with your business goals. If you’re looking to maximize the efficiency of your advertising spend and nurture high-value customers for long-term growth, reach out to Adlucent today and discover how our expertise can help you achieve your objectives.

As part of AURA^TM, there are three distinct solutions: Connected Insights, Predictive Analytics, and Advanced Analytics. Check out our other blogs to learn more. 

Katie Gilchrist

Katie Gilchrist is an Account Director at Adlucent with over 10 years of experience in digital marketing and data analytics. Her expertise lies in leveraging data to drive strategic marketing decisions, optimize campaign performance, and deliver measurable results. With a keen eye for detail and a strong analytical mindset, she transforms vast data sets into actionable insights that maximize a brand’s digital strategy.