Home Commerce Marketer’s Guide: Why You Need To Know About The New Ecommerce Ad Metrics

Marketer’s Guide: Why You Need To Know About The New Ecommerce Ad Metrics

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Warning (and an apology): You are about to be hit with a new crop of three, four and five-letter acronyms.

The purpose of traditional programmatic metrics is to measure site and ad-related activity, such as click-through rate, app downloads, traffic and the trusty CPM.

These metrics have helped brands feel comfortable spending on digital advertising. But as ecommerce grows – and advertisers become increasingly wary of proxy measurement – newer metrics are emerging to help buyers better understand how ad spend affects their bottom line.

The Amazon metrics

Although retail media is forecast to hit $45 billion this year, roughly $40 billion of that sum will go to Amazon.

As a center of gravity for commerce budgets, Amazon also has an outsize influence on how brands measure ecommerce advertising.

Take “advertising as a cost of sales,” which is the Amazon standard metric known as ACOS. Amazon measures ACOS by dividing ad spend by the revenue generated by those ad campaigns, then turns it into a percentage.

ACOS = Ad Spend / Paid Media Revenue X 100

ACOS doesn’t measure total sales, since that includes organic traffic. But if an account spent $50,000 and Amazon attributed $100,000 in sales to that campaign, it’s an ACOS of 50%.

ACOS exemplifies the difference between Amazon and the general digital ad mindset. Google’s main metric, by comparison, is return on ad spend (ROAS) because Google’s focus is on the performance of the advertising itself: the campaign, the creative and the data.

For Amazon, advertising is a way to close sales.

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That’s not to say Amazon doesn’t measure ROAS (you can’t offer ad tech and not measure ROAS), but Amazon puts its own spin on that metric, too.

Last year, Amazon Advertising began a beta program, which is still in beta, to test a “total return on ad spend” (TROAS) metric. [Editor’s note: If you’re put off by these acronyms, just know that “total advertising cost of sales” is a metric Amazon actually calls TACOS.]

TROAS is an interesting metric that will become even more important as brick-and-mortar retailers build their online ad businesses. That’s because TROAS combines all sales – organic and paid traffic – and divides the sum by the cost of advertising.

TROAS = All Sales / All Ad Spend

But wait, that’s not fair! Why should Amazon get credit for organic sales?

Amazon is a pay-to-play platform, meaning that organic traction requires ad investments, according to two marketers participating in the TROAS beta who can’t speak publicly about the closed program.

The ecommerce giant wants advertisers directly aware, via the metrics they use, that paid media creates organic sales. Traditional retailers will follow Amazon’s lead with TROAS because the metric captures shopper marketing tactics.

For instance, a brand like Campbell Soup pays a lot of money to participate in a week-long seasonal charity drive for Walmart. In that scenario, Campbell is paying for ads that primarily promote Walmart and don’t even necessarily mention soup. The payoff for Campbell comes from organic sales – because its soups are on display in special kiosks every Walmart shopper will see all week.

A retailer will want those sales attributed to their marketing platforms, the same as they would for online sponsored product listings.

Search and social metrics

While Amazon has pioneered retailer-centric ecommerce ad metrics, Google and Meta are forming their own retail media metrics primarily based on lifetime customer value and, especially, new customer acquisition.

Last year, Google began testing options for advertisers to increase bids for new customers or to bid exclusively on new customers. Those are available in beta and only to merchants via Search or Performance Max. PMax is Google’s machine learning-based optimization feature, which uses its first-party data to create new audience segments.

Meta is following the same playbook.

Facebook Advantage+ Shopping Campaigns (ASC) can be segmented by new or existing customers to create different bid values and tracking, like seeing how long new customers stay on a site compared to current customers. Advertisers can select what Meta calls an “existing customer budget cap” to prevent spending more than a preset amount on retargeting ads.

Commerce caps

Speaking of caps, Google and Meta have been promoting a tactic called cost capping.

Cost caps are rules set by advertisers for how much they’re willing to pay per sale or new customer. These caps don’t replace daily budgets, but do incentivize advertisers to set much higher daily budget thresholds because they have the ability create preset rules dictating how much can be spent on a profitable sale.

Meta and Google prefer cost caps because they can direct more spend towards certain bids or during a high-performing sales blip by anticipating higher ROAS even if a campaign “overspends” on one day.

Getting advertisers to actually use cost caps requires trust in Google and Meta, though – and that’s in short supply.

In April, for instance, a Facebook ad platform glitch caused cost caps to stop working for North American merchants who’d adopted a new ecommerce optimization product. The glitch only occurred for a few hours on a Sunday morning before most East Coasters had their coffee. Still, even in a few predawn hours, Facebook managed to blow through everyone’s daily budgets.

And because those advertisers used cost caps, the daily budget caps were extremely high. (Remember, the point is to give the platform a way to quickly ramp up spend if the intent is there). Facebook was spending as if each brand was experiencing a viral boom, when in fact the platform was forcing advertisers to buy useless inventory at crazy-high rates because the cost caps had stopped working.

Meta eventually said it would refund most of the lost ad spend for affected accounts (although it only ended up refunding them with ad credits).

Metric madness

But despite high-profile snafus, Google, Meta and Amazon must win trust for their new metrics, even though these measurements overtly bias their own platforms.

Google and Meta in particular have gradually doled out access to new ecommerce bidding features and metrics.

Facebook wants all advertisers to use ASC, eventually. But if every clothing brand simultaneously adopted ASC, it would drive up acquisition rates for the whole category. The Facebook algorithm, untethered by bid caps or low daily budgets, would bid against itself on behalf of all these similar advertisers.

ASC campaigns have remained in an unusual hybrid beta for the past year. The campaign type is ostensibly out of beta, so any account can apply for access. But sources have told AdExchanger that it appears Meta gates which brands can join from the waiting list, so that influxes of demand from new advertisers don’t impact acquisition rates for the whole category.

Then there are questions of self-favoritism.

For example, another way to think about Amazon’s “total return on ad spend” metric, or TROAS, is, simply: “Give Amazon credit for everything.” Doing so, to nobody’s surprise, improves the self-reported value of the Amazon DSP.

Google and Meta’s focus on “new customers” is also a bit of misdirection. A person who has purchased in-store 100 times and then shows up to the site might be considered a new customer, and someone who changes their credit card, home address or email could be considered a new customer as long the data is new to the brand’s first-party data or isn’t a match to the platform’s identity graph.

Some advertisers pay a lot more for new customers compared to reattracting existing customers, so they need to trust that “new customers” are actually new, not just the result of a match rate miss.

But despite these trust issues, new commerce-related ad metrics are winning adoption and likely to become standard with products like PMax, ASC and the Amazon Ad Server (formerly the Sizmek Ad Suite, which Amazon rebranded in August).

“The tests are all going well,” said one commerce agency buyer active on all three platforms.

That buyer specifically called out Facebook’s cost cap campaigns set only to target new customers, Amazon’s TROAS bidding strategy and Google Demand Gen campaigns. Demand Gen, which exited beta this month, is meant to bring new customers into the shopper funnel.

There is still some reticence, though.

The buyer AdExchanger spoke with put it like so: “I’m still not sure if we’re running the tests or if we’re the guinea pigs.”

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