Below is a guest post by Aubree Parsons, a bright and energetic writer/journalist focused on many topics including marketing.
John Wanamaker, one of the pioneers in advertising and marketing in the United States, once commented with no small amount of tongue in his cheek:
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
When billboards and television commercials were the main sources of advertising, it was impossible to tell how influential each individual ad was on consumers – which produced the results, and which were totally wasted.
Such has been the plight of businesses, great and small, around the world until direct-response marketing changed everything.
The rise of consumer data and targeted advertising online completely flops this kind of thinking on its head. Now, it is possible to follow individual clicks from the ads a company posts around the web, and one day, it may even be possible to directly trace traffic from ad source to purchase.
The new, advanced, and developing world of real-time bidding is a big step toward this bright future. For those who remain unfamiliar with the term, real-time bidding (RTB) allows businesses to select consumer criteria and a bidding price for each impression. Online ad companies then communicate bid price over their network, placing the business’ ad where its bid wins the contest. Think AdWords but taken to visual ads that are placed strategically on high-traffic websites – the billboards of the Web’s superhighway.
Since the preliminary data from Facebook Exchange hit the streets last month (“Facebook Partners Say Exchange Increased Ad ROI By Up to 20X”), small businesses have taken a new interest in real-time bidding. That is good news, because these new, targeted ads have the potential to improve online ad markets and continue to shift the advertising game online.
The bad news is, the increased traffic will also increase prices. Businesspeople should get in on real-time bidding now and learn how to maximize their ROI.
There is not currently a completely precise way to evaluate the return on RTB advertising, but there are a few strategies and applications, which can help.
Let’s start with a basic formula:
Site traffic (unique visitors) * purchases/visitor * average profit per purchase = profits from web site
Only businesses can supply this data from their own web analytics software. If you don’t know how many consumers are bouncing off your landing pages versus purchasing your products or signing up for your newsletter, then you’re stuck. Install some web analytics software.
The rest of the data needed for calculations (the number of visitors per ad, and the price of each ad) will depend on the ad company you choose. For instance, AdRoll will either provide basic data (average order value) or more advanced features that provide conversion ratios. In order to be precise, businesses need to know the conversion ratios.
In order to avoid the more nuanced calculations, a business can always estimate the success of its advertising by playing with the amount it spends and by tracking its profits from week-to-week, or month-to-month. However, this generalized system does not take full advantage of the RTB system and will not lead to better ad campaigns in the future.