Grant Lapping, MD at DataCore Media, suggests that companies should be moving towards measuring the lifetime value of the customers they convert through their digital campaigns and channels. This is easier said than done because it demands that digital agencies look beyond digital campaign data and also draw on company-owned insights about their customer base.
Brands often ask their digital agencies what the industry norm is for cost per click (CPC), cost per lead (CPL) or even cost per acquisition (CPA), presuming that they will know whether their marketing is efficient and effective and if their cost per engagement compares favourably to the average in their sector.
Leaving aside that the comparisons are not always meaningful because each business is unique. Knowing that one business’s CPA is lower or higher than the competition does not paint a complete picture of customer lifetime value (CLV). A brand could, for example, be achieving a low cost per acquisition, but attracting customers who quickly churn to the competition or are unprofitable to serve.
This is outside digital media agencies’ comfort zone, since they are more accustomed to working with creative agencies to ensure that the creative is seen by the most relevant audience. They do not, for the most part, have the technical skills to tap into customer data housed in back-office systems to get a clearer picture of how campaigns are driving ROI.
Digital marketers can no longer merely be the people who load and optimise ads across programmatic ad platforms — they must also understand the customer metrics that drive the profitability of the business.
Closing the customer insight gap
Yet, the benefits of closing this gap are potentially large. Marketers would gain a far better grasp of ROI if they could not only understand CPC, CPL and CPA, but also the CLV of converted customers and the cost of sales (COS – media spend as a percentage of the revenue generated).
They would be able to see which channels, sources and campaigns are bringing in the most valuable customers, and could optimise executions accordingly. With a clear perspective on profit margins for a product or customer profile, marketers could adjust COS targets for each. This has created a powerful opportunity for digital media agencies to set themselves apart.
Digital agencies know how to work with clients to use programmatic ad platforms such as Google and Facebook to drive smart campaigns. The key performance indicators (KPIs) for these campaigns are usually determined by an action a user takes on the website, be it clicking through to a landing page, completing a lead form or making a purchase. In the background, algorithms harvest customer behaviour data via site tags and automatically adjust to targeting and bid ranges in line with the KPIs.
Understanding the tech stack
This approach is already more measurable than traditional media and offers ways to rapidly optimise performance. It can, however, be taken to a whole new level when the algorithms can be fed data from a company’s internal business systems for a more comprehensive view of CLV.
The advertiser could then pay more per click for a product with a bigger margin or for an audience segment likely to have a higher CLV, knowing that it is achieving a good ROI. Conversely, it could spend less on customers or products that are ultimately less profitable. The business is thus empowered to look beyond industry-standard KPIs to smart goals tailored to its own definition of business success.
To support clients with this transition, digital agencies will need to develop new technology skills and partnerships. They will have to be able to analyse a client’s tech stack and then integrate it with the relevant analytics and ad platforms. Again, this is not a simple shift to make, but it will be a major differentiator for those that get it right.
Great creative paired with the right media placements remains important, but we believe that this will just be table stakes in the not-too-distant future. Agencies that really want to add value and set themselves apart will need to be able to help their clients maximise profitability by optimising their campaigns based on the metrics that really matter to their business – not KPIs based on industry averages.