The Future of Performance Marketing & ROAs for Direct to Consumer Brands. Read on as we dive into the future of Performance Marketing - including guidance on how your brand can better use and measure the performance of these channels to achieve short & long-term growth.

Some marketing experts predicted a mass exodus of direct-to-consumer brands from performance marketing channels due to rising costs and decreasing effectiveness across key Media Platforms like Meta & Google. However, instead of leaving, brands are getting smarter about leveraging performance marketing channels for brand growth and the tracking of ‘effectiveness’ metrics such as the alluring Return on Advertising Spend (ROAs). Read on as we dive into the future of Performance Marketing - including guidance on how your brand can better use and measure the performance of these channels to achieve short & long-term growth.

The promise of performance marketing to consumer goods brands is alluring. Tap into the high-signal purchase data that large media platforms such as Meta, TikTok & Google hold, capture engagement among different customers at various stages of their purchasing journey, and know for sure whether that customer actually purchased your product.

Performance marketing can include Pay-Per-Click, Affiliate marketing, Social Media Advertising or Email Marketing, it is primarily focused on driving measurable actions or results - like sales or leads. They are traditionally implemented for a shorter period, with the goal being to reach audiences and drive sales from those who are actively in the market for your product or service.

Tracksuit Co-Founder and Global Marketing Effectiveness Expert James Hurman explains that when implementing performance marketing: “We want to use advertising to capture as big a share as possible of the existing demand in the market — that is, the people who are out there ready to buy now.”

Direct-to-consumer brands have experienced exceptional growth through heavy investment in performance marketing over the last five years - amplified by the E-Commerce boom during COVID-19. Over this period, the ‘measurability’ of performance marketing has led to Return on Ad Spend (ROAs) being the core metric to track the effectiveness of performance marketing channels.

With the lessening availability of customer data due to increased privacy measures and the depreciation of Cookies, coupled with the everchanging convoluted customer journey and challenges with attribution, ROAs is falling out of favour as a “blunt instrument” that limits a brand's ability to grow market share and develop future demand.

ROAs is inherently a metric that prioritises profitability - which is great for brands looking to preserve margin on their revenue-driving SKUs but will hamper any growth-focused initiatives that act more to drive awareness and capture market share.

When businesses focus solely on achieving ROAs from each performance marketing channel, without understanding the nuances of attribution and the need to prioritise investment in brand marketing, direct-to-consumer brands can become stagnant. At Pilot, we see this time and time again, where brands come to us with 10 - 20X ROAs within their media channels but are falling behind on their overall revenue targets or experiencing a continuous decline in new customer growth.

No! Undoubtedly, digital performance marketing channels provide one of the easiest and cheapest ways (despite rising costs) to reach people at scale. So, we recommend having a split approach that leverages your performance marketing channels to drive brand efforts and create future demand, while also driving high return on your investment by targeting those that are currently in the market for your product.

Rather than solely focusing on product or CTA-driven adverts, you should also leverage your performance marketing channels to amplify your brand value through storytelling, engaging content and building meaningful relationships with your audience.

“It’s not that any one media channel is just capable of doing one thing. Most channels can be used for short- or long-term impact, depending on how you use them. It is not about the media channel as such, it is the way you use the media, the targeting, the format, etc. Les Binet “

This varies based on how much budget you have, how much runway you have, the type of product, the maturity of your business and the industry. However, marketing effectiveness experts Les Binet and Peter Fields recommend the following split:

• The first year of business: 65% on performance marketing, 35% on brand (to capture all of the existing demand!)

• Early growth stage: 43% on performance marketing, 57% on brand.

• Mature brand: 38% on performance marketing, 62% on brand.

• Leader brand: 28% on performance marketing, 72% on brand.

On average, a great place to start for businesses is spending around 40% of your budget on performance marketing and the rest (60%) on brand. After studying thousands of businesses that allocate budgets this way, they found that brands that split their budget this way are more likely to achieve a balanced approach that delivers both short-term results and long-term brand growth.

Use brand tracking tools and metrics to assess changes in brand perception, brand awareness, and sentiment over time. Make it a point to demonstrate the correlation between brand investment and positive outcomes like increased customer trust and higher customer lifetime value.

Using a tool like Tracksuit helps you track brand performance and perception over time, however, we also recommend measuring these key metrics for internal tracking. 

Total Sales divided by Total Marketing Spend. We have spoken about this previously and you can read more here.

This metric is one of the best overall health measures of the marketing performance of a company, especially as a brand expands its marketing efforts.

“MER better reflects all parts of your marketing efforts (field, partnerships, PR, organic, and paid) and gets companies out of the bad habit of tracking daily ROAS as a deterministic metric of whether your campaigns are working or not." (Calvin Lammers, VP of Digital & Media at buzzy beauty brand Necessaire).

Measure your marketing performance across the varying goals that your company has across different audience segments and marketing objectives.

The same tried and true metrics such as Cost per 1000 Impressions (CPM), Click Through Rate (CTR), Cost Per Click (CPC), ROAS, and New To Brand (NTB) are still great metrics to gauge investment efficiency, behavioural engagement and/or conversion however, the relevancy and weight should be considered in the context of broader marketing KPIs such as brand awareness/relevance, purchase consideration as well as category penetration.

At Pilot, we develop benchmarks for each objective and unique audience segment. For example, for Lapsed Buyers, we’re more interested in understanding the CTR and CPC benchmarks and what types of messages, creatives or products could help drive that up, while for brand awareness campaigns we are interested in CPM coupled with CTR, NTB or Branded Search Rates as indications of what ads and messages pique a potential new customers interest.

Detail Page View Rate (DPV). The number of clicks or impressions on a single detail page of an advertising product - or Engaged Time On Site.

This is a great indicator of how effective your creative is and how well it resonates with your target audience. The two metrics particularly helpful when measuring upper funnel or brand activity - as if the DPV or Engaged Time on Site is high, but the conversion rate is low, based on your price point and product, this may indicate that you are driving ‘future demand’.

This measures how many of your conversions come from customers who haven't bought from your brand within the past year.

You should track this from an overall E-Commerce perspective, as well as by each marketing activity. It tracks not just how many sales you convert with each campaign, but specifically how many new people you are brought into the fold with that activity.