Over-reliance on performance marketing is unsustainable for a growing business
In performance marketing, our goal is to achieve KPIs which often are related to revenue and ROI. With stronger AI and retargeting ability, achieving a return on ad spend (ROAS) goal is not as challenging for digital marketers as it may have been in the past.
But measurable, results-driven marketing can have a darker side: Over-emphasizing immediate impact and undervaluing the less tangible tactics that help a brand grow over the long term.
In response to broad economic uncertainty and recession fears, here’s a familiar story we’ve seen with brands recently. A brand is worried about its ROI, and they fear its top-funnel efforts are dragging down its efficiency metrics, so they reduce its marketing spend. ROAS goes up – great! The board is pleased, the CMO is excited about the results, and an additional budget is approved to increase investment to capitalize on recent performance. But wait – ROAS went down. Spend is reduced, but luckily, over time, ROAS gets a boost—but now the brand cannot meet its revenue goals.
It all seems cut and dry in the beginning. Are you not meeting your efficiency target? Pull back spend. Find underperforming areas of the account and cut them. But this push and pull is a pattern of behavior indicative of an over-reliance on—or oversensitivity to—performance marketing, as opposed to taking a longer-term (and more successful) growth marketing approach. Unfortunately, this strategy has long-lasting negative impacts that make it challenging for brands looking to be market leaders.
Here’s why.
Retargeting is made to CATCH prospects – not create them
Your acquisition campaigns should be doing the hard work, not your retargeting campaigns. If you’re relying on your retargeting, retention, and brand search campaigns to beef up your blended ROAS, the story you’re telling about performance is inflated by consumers who may have made a purchase anyway (which we’ll talk about in the next section). Acquisition is all about incrementality—introducing new consumers to your brand and sparking curiosity in your product. Without incrementality, there can be no growth.
We recommend that clients invest no more than about 20-30% of their total budget into retargeting. In a perfect world your retargeting efforts are reaching 100% of your retargeting audience, because they’ve been to your site or viewed products. But only a select percent of the retargeting audience actually wants to purchase the product. If an advertiser has more than 30% of their budget in retargeting, then that excess budget should be reallocated to prospecting tactics in the upper-funnel.
Over-investing in revenue-driven tactics creates a revolving door of cannibalization
Facebook and Google algorithms are built to achieve the goals you set for them. If you set purchase goals across the funnel, the algorithm only goes after the lowest-hanging fruit. Without a good awareness or traffic-driven strategy, you’re creating a vacuum of the highest-intent customers that will cycle in and out of your retargeting audiences.
This creates a circular problem. Think about it: your high-intent audiences have probably been to the site or other similar sites. When those users convert, sure, you’re feeding the algorithm good data on who is likely to purchase, but the only data points you’re giving the algorithm are conversions that were likely to happen anyway. The algorithm goes after similar people, who then convert and become seeds for the algorithm. This technique has no growth – your algorithm cannibalizes the highest-intent users.
Don’t get sucker-punched by an unexpected empty pipeline
The last thing you want is to enter your peak season and realize that your retargeting audiences are tapped out. Here’s a staggering statistic: In May 2022, Google found that 17% of consumers had already started holiday shopping! More than a third were already planning out what gifts to purchase. Consumers aren’t just browsing for gift ideas or sales during Q4 – they are constantly looking for inspiration or their next impulse buy throughout the year. If you’re not driving awareness of your brand ahead of your peak season, you’re missing out on valuable research and consideration time.
How do I know I’m over-relying on performance marketing?
- Pay attention to the numbers.
The number one indicator we’ve seen recently that a brand relies too heavily on performance marketing to meet business goals is that active campaigns are meeting KPIs in-platform, but the overall health of the business is declining. Revenue and traffic are down, and new customers have stopped flowing in. If your Facebook campaigns achieve strong ROAS or CPA, but your overall revenue isn’t meeting targets, it’s time to look hard at your larger marketing strategy.
Some additional numbers to consider:
As a general guideline on a last-click model, your CPC efforts should not contribute to more than 25-30% of your total business revenue.
Look at the size of your retargeting audiences – are they dwindling? Is the Facebook frequency higher than 5 or 6?
Gut check your spend allocation. Are you spending a healthy 60% or more on acquisition efforts, or does your budget lean more heavily toward retargeting and retention?
Use Google Analytics to check on organic and direct trends. Is direct traffic down YoY? If so, you probably need new prospects.
- You expect the same performance results without optimizing or restrategizing.
It sounds like an obvious statement, but let us explain. Say you launched a Meta campaign to maximize conversions. It performs like a charm the first month, but CPA and CPM start crawling up in the second month. You’re asking yourself if you’ve done something wrong or if Meta has figured out that it could make more advertising revenue from your campaign. Most likely, neither is the case.
The major social platforms’ ads auction works by trying to serve your ads to the cheapest audience pools, which are likely to take the action your campaign is set to maximize. This usually means that your campaign CPAs and CPMs are low earlier in the campaign lifetime. The longer the campaign is active, the auction depletes the cheaper audience members and is designed to serve ads to more competitive (more expensive) audience members. An audience pool is more competitive when it identifies that those users are showing a stronger indication that they will take a certain action from web and app user signals. And as the auction becomes more competitive in that tier, ads from various advertisers must beat each other out. Therefore, it’s fair to state that if you want to win in a highly competitive auction, your creative needs tell a strong story of the brand and product.
This is why brand awareness ads are important on social platforms. Users cannot differentiate your ads from other transactional ads if you’re running performance marketing ads. Expecting to see the same level of KPIs without investing in differentiating your brand and product will not produce good results.
What to do instead
We know – performance marketers telling you not to do as much performance marketing?! Appalling! But luckily, we have tons of resources to help brands invest in strategies that will move them closer to long-term growth instead of short-term gains.
Improve your measurement framework
Performance marketing channels such as Facebook or YouTube do not exist in a vacuum anymore (if they ever did at all). Modern consumers are shopping across many different platforms and are looking for a diverse set of touchpoints to inspire, inform, and facilitate purchase decisions. Google reported that this past holiday season, 54% of shoppers used five or more channels, like video and social media, to shop over a two-day period. What this means for modern marketers is that a last-click measurement model is really only telling a small piece of the story and one that is very generous towards individual platforms.
To ensure you fully understand the holistic view of your marketing efforts, evaluate the attribution model you are using and ensure it aligns with your business goal. Relying on a last-click view of your media limits your ability to properly value upper-funnel tactics and places too much emphasis on your strongest performance marketing campaigns. Consider a multi-touch attribution tool such as Nielsen, or apply proxy credit to your awareness tactics by conducting extensive brand lift studies.
Adopt a growth marketing mindset
Earlier this year, we released our Growth Marketing Report that walks through what exactly it means to be a successful Growth Marketer – but here’s a brief summary:
For a brand to have a growth marketing mindset, it must:
- Invest in all three growth drivers, including Strategy and Planning, Analytics, and Creative, AND
- Invest in at least one upper-, one mid-, and one bottom-funnel activity, AND
- Track at least one performance marketing metric, AND
- Track at least one growth marketing metric.
Even if you don’t have a sophisticated measurement program, you can still shake things up with your KPIs. Consider making click-through-rate your measure of success on discovery campaigns or view-through-rate on video efforts.
If all of this feels overwhelming—you are not alone. Many of our clients are evaluating their marketing funnel and making fundamental changes to how they think about marketing spend and strategy. This new vision of media planning and strategy requires us to be strategy-first, multidisciplinary, and collaborative. DEPT® can help you navigate to a more integrated approach and understand the bigger picture of your media ecosystem.
Reach out to us today to learn more!
Learn more about our growth services
Explore
Questions?