Frequently Asked Questions
Frequently asked questions. We have our fair share here at Thoughtful, so have collated the most popular queries from brand owners and CEO’s right here, in one valuable resource for better business. Learn, browse, copy, paste and pass onto your team. Knowledge is power.
3 key areas to consider before increasing social ad spend
1. Current cost per purchase on your ad existing spend, why?
It’s vital to compare this against your average order value to ensure your current cost per conversion is stable and also scalable.
A scenario which is scalable and allows for increasing spend:
Average order value of $225 AUD can sustain a cost per purchase at $25 – $29 AUD, anything above 15% of total transaction value is something to monitor closely.
Remember that cost per purchase can fluctuate depending on high activity advertising periods (like Christmas), and also drop when promotions are held. You should look at full price items across the year for the best idea on typical cost per purchase when comparing with average order values.
2. Understand ROAS (Return on Ad Spend) On New Audience Targeting & Existing
A: Firstly, what is ROAS? ROAS is the return on your ad spend. Basically, what did you spend vs. the value of those purchases. Let’s say we spend $2,500 on social and make $50,000 in sales – you’ve seen a 20x ROAS. I hear you asking ‘isn’t ROAS just the flipped data point of cost per purchase?’ Yes and no. Cost per purchase is the cost of a transaction – whether that’s someone buying one item, or 10. ROAS looks at the relationship between the cost (cost per purchase) and value of the sale. This is important, as if cost per purchase and value of the sale are low – this may not be as lucrative as a higher cost per purchase audience, but with higher ROAS.
What you should be looking at:
– Ensure both new audience and existing campaigns are operating at a desired ROAS
– Ensure the campaign set up has consistent ROAS at full price trade before committing towards a substantial increase in spend, re-allocating spend towards better performing
– In some cases it might be appropriate to allocate spend towards a traffic campaign or social lead gen campaign where ROAS is not hitting the desired figures
3. Conduct Financial Modelling
– At Thoughtful we conduct financial modelling on spend increase for a clear picture on revenue targets associated with increased spend
– Using existing data of CTR, ROAS and average order value to determine campaigns
In summary, increasing spend in small increments each month is key to e-commerce growth – allocating spend to proven formulas of success, creative learnings and key business drivers.
With proven ROAS, you’re investing into a channel that has proven success – and in a traditional way of thinking, the more you spend, the more you make. Take the time to test the channel first, and once you’re confident, invest away.