While many clients understand digital channel performance from an overall ROAS perspective, it is more challenging to account for differences between acquisition and retention. This is something that is built into every direct mail campaign we run for clients – we can accurately measure ROAS for acquisition and retention because the match back is done at the customer level. This can make it challenging to compare direct mail ROAS to digital, if digital ROAS does not account for the difference in customer segment.
To ensure an apples-to-apples comparison across channels and understand where to spend the next best acquisition dollar, it is important to understand ROAS and goals by customer segment.
Define Acquisition and Retention
While acquisition usually means driving a first purchase, this is not always the case. For some clients with a high percentage of one-time buyers, acquisition might include ensuring a customer has made a second purchase. For other clients, email acquisition may be the most important step and then acquisition efforts are focused entirely on lead generation.
For an even deeper understanding of how to define and measure acquisition versus retention, take lifetime value by acquisition source or product category into consideration. For example, a women’s fashion brand might spend more to acquire a dress customer than an accessories customer because of a dress buyer’s propensity to spend more in subsequent purchases.
Analyze and Measure Percent of Orders from New Versus Returning Customers by Channel
This can be achieved in various ways depending on the sophistication of data and reporting capabilities:
- Crawl: Create a segment in Google Analytics or your reporting platform for users with transactions greater than or equal to one. Use this segment to compare returning versus new customers by Channel in Google Analytics.
- Walk: Run a customer file analysis using last-click Source / Medium and Transaction ID data from Google Analytics to identify the percent of orders from new versus returning customers by month. (Note: We run and analyze this for many of our clients!)
- Run: Utilize a Customer Data Platform to create a single view of the customer, which will allow for robust segmentation and reporting.
Calculate ROAS by Acquisition and Retention
Once there is an understanding of sales performance by customer segment, the next step is to calculate cost per acquisition versus cost per retained customer. This is most important in scalable digital channels that are used for customer acquisition – which for many of our clients is Paid Social.
Ensure campaigns are set up by audience type (e.g., acquisition, remarketing, retention) and measure last click and Facebook-attributed revenue by the top-of-funnel campaigns to understand the pure acquisition ROAS. Split remarketing spend by the percent of orders by new-to-file customers.
Defining clear segments, measuring performance by segment, and calculating ROAS and cost per order by segment will help answer the crucial planning question of where to spend the next best marketing dollar.