Effective contextual advertising strategy

How to grow profits with the help of contextual advertising and build a brand identity online, practical tips from Finepromo.

The content of the article:
• User’s path in e-commerce
• Development of traffic channels
• How to evaluate investments in online promotion
• Budgeting of advertising channels
• Traffic optimization
• How to evaluate the effectiveness of display advertising
• Case study on setting up display advertising for an online store
• LTV > CAC
• Conclusions

A user on the Internet contacts the website or application several times before buying. Each contact has its own source of visits.

User’s path in e-commerce

Initially, the consumer who is just interested in something in general has no clear need in buying a specific product or service. He just sees the banner or looks at what the company is doing.

After some time, the consumer recognizes a need and begins to search for something specific Then he or she compares the offers of several companies. Then, after the transaction, the customer has some kind of communication with the company, after which the company will stimulate him or her to make a repeat purchase or give a recommendation to a friend, because acquiring a customer through a recommendation is cheaper than organizing the entire sales path when you need to buy traffic at every touch.

Each touch has its own traffic source – paid or free channels. This process is complicated, and the type of traffic contacts change depending on how the user moves through the purchase funnel. This affects the analytics, the evaluation of the result and the launch strategy of these channels.

Development of traffic channels

The strategy of launching channels – what to launch and why – forms the sequence of connecting advertising tools, as well as the development of analytics. It is not necessary to run all the tools at the same time. It is necessary to launch those sources that immediately bring customers. As a rule, these are tools related to contextual advertising, search or targeting.

This is the hottest demand, because the user initiated a request for a specific product or service in the city. The user prescribes important details or immediately indicates the product model. You need to target this kind of traffic, because it is the most specific traffic. There is simply no more targeted traffic on the Internet. Therefore, it is worth starting with such very narrow target queries so this will give the first sales.

To see if people are buying or not buying, you need analytics. In the basic version, this is web analytics with configured goals. Next, you can set up e-commerce when you send web information about expenses to web analytics. Then it all evolves to more complex end-to-end analytics. Ultimately, this grows into BI reports for the business owner to manage every process through numbers that are related to traffic or brand development online.

Now let’s go through the tools

Performance tools that immediately provide new customers, sooner or later will exhaust themselves. You will have to enter the stage of interest to use display advertising. When customers who come through performance advertising become very costly or you run out of them, you need to gradually start media advertising. As a result, you get a clearly sequenced set of advertising tools. Analytics is developed at the same time. Then it all gets more complicated, there are more and more touches, so you need to start small. Start from something that immediately gives a result.

Ways to evaluate investments in online promotion

Let’s talk about performance indicators you should focus on when you invest in an e-commerce project or when you provide some services and want to acquire customers from the Internet. There are a lot of Internet marketing performance indicators, so you need to understand which are significant for an investor or business owner, and which are of secondary importance. It is very easy to go into a discussion of some details and lose track of the main indicators.

The main indicators to focus on:

profit,
SAE (share of advertising expenses),
ROI (the inverse of the return on investment),
expenses,
number of sales,
customer acquisition cost

It is enough to take two indicators that you like best, because the rest will be based on them. Only one indicator should be responsible for the inflow of money (revenue or profit), and the second one will refer to expenditure – SAE, expense or ROI.

This is how the Internet traffic purchase table should look like:

Expense = 5 474 usd.
Number of sales = 245.
The average check amount= 74,76 usd.
Marginality of the business = 37%.

These four values should be known in any case, even if you do not have a CRM system or you do not use any calculation software. In any case, you should know the number of sales, how much money you spent, how much you earned.

The marginality of a business takes into account all expenses that are not related to marketing. Based on this, we can calculate the revenue:

Revenue = average receipt × number of sales = 18 316,53 usd.
Advertising profit = marginality × revenue – marketing expenses = 1 303,52 usd.
SAE = expenses / profit from advertising = 419.9%.
ROI = advertising profit / expenses = 23.81%.

It turns out that the advertising report for a certain period will look like this:

budget = 5 474 usd;
revenue = 18 316,53 usd;
net profit = 1 303,52 usd;
ROI = 23,81%;
SAE = 419.9%.

Of course, in the future it is better to look at the dynamics, because there are no indicators of the quality of keywords and CTR. These indicators are needed, but they are secondary, because only specialists need them to see how advertising affects the indicators.

Budgeting of advertising channels

Imagine that we have calculated all our figures, but at some point, with the same budget, our revenue, profit and ROI have changed. In this case, the investor begins to figure out what went wrong with the spent budget. This budget used to give a good result, but now it has become much worse.

To understand the real reason for the sales drop, you need to decompose revenue between those channels that are invested by paid traffic, as well as conditionally free, organic traffic and SMM.

It often happens that the drop in revenue falls on conditionally free traffic channels. It is important to decompose revenue and expenses through these channels, and then calculate the profit for each channel separately. Then it will be clear why the total is falling. It seems to be a simple case, but in practice very often people get confused and do not sort out revenue and expenses through channels.

Analytics is a basic thing.

You need to count the numbers to understand what happened to users after they got to the website. Look at the basket conversion – it will help to increase profits. By raising the conversion rate at each stage of the funnel, you increase the profit accordingly.

This is where the concept of end–to-end analytics arises – this is the highest level of analytics that can be configured. It all starts with marking up UTM traffic with tags. Where calls are made, call tracking is used, and the general principle is exactly the same – traffic is marked with tags that track the user: where s/he came from, which ad was clicked. The user leaves a trace that is saved in several databases.

End-to-end analytics combines data into one system, sticking together all user visits so that it is clear that this is the same person. Such a database stores the user’s history, the effectiveness of advertising channels, a funnel with conversions from stage to stage, which are considered in financial indicators. This helps to broadcast the business goal to each channel and campaign, as well as to link any launches to the overall result.

Then you can summarize the profit, CRM, closed transactions and the actual receipt of funds. It turns out that there are channels that bring in more money, but there are also channels that bring in less money. Based on the reports, you will be able to pull up the conversion rate where it falls. You can invest money where there is more profit. For example, in contextual advertising.

It is important not to forget about associated conversions

The advertising campaign interacts with the user several times and each interaction has its own source. But the analytics system assigns the sale to only one of these sources. At the same time, the role of other touches can also be significant. In our system, if we have assigned a sale to some source, then other sources are not reflected in the statistics, but in order to analyze the whole situation, it is necessary to take into account the associated conversions.

Attribution is the logic by which you assign a sale to one of the sources. This is usually the last click when you assign a sale to the last source, although there may be a first click. All conversions except the last one are called associated. That is, they helped the last touch to happen. Accordingly, looking at different attribution models, we can take into account the most complete contribution of all channels to the sale.

Traffic optimization

At the micro level, you can use the same metrics to optimize traffic. To set bids for targeting keywords in advertising systems. We look at those indicators that are money or sales–related and the cost of sale. Focusing on these indicators, we highlight those targeting, those audience settings that give the best results in terms of money and profitability. Accordingly, we try to increase traffic on them, and we try to optimize those words for which the efficiency is lower, so that the results become better. This way we will improve the financial results of each advertising channel.

How to evaluate the effectiveness of media advertising

There comes a time when performance advertising ends or we run out of users who bring low-cost customers. So we need to connect media advertising.

The effectiveness of media advertising can be assessed by the following indicators:

increased brand queries and direct traffic;
deferred conversions (first click, post view);
promo codes (they work well with bloggers);
behavior in search results (audience bid adjustments);
increase in total profit.

Media advertising affects profit. When a brand is reinforced through media sources, it gives a good impact contributing to the brand value that works for your company in the future. However, this process should be constant so that competitors do not take away loyal users.

LTV > CAC

LTV is the profit received from one client. It should be more than the CAC – customer acquisition cost. It is important not to forget that the profit from one customer is not measured by revenue from the first purchase. That is, the customer might use your service, product for a very long time. There are areas where this is especially relevant, for example, pet stores. When you acquire a pet owning customer for the first time, you understand that s/he will use your service or product for a very long time, so it is important not to lose a loyal user. To evaluate investments, you must understand that all the profit from the client is not measured by the revenue from the first purchase – here you need to count the revenue for a year or two.

Contextual advertising strategy: conclusions

First of all, it is important to set up an analytics system to track financial results and keep in mind different attribution models. You need to budget contextual advertising traffic taking into account the financial result. Start investing with those channels that work for instant demand.

When you have run out of all the performance capabilities, the next step will be to launch a media ad, the effectiveness of which should be measured by associated and post view conversions. Focus on multiple traffic tools and a step-by-step launch. At each stage, track the result. Use this result to optimize the next launch of an advertising campaign. Then with each new launch, the result will improve. Evaluate LTV for optimization – this will help you better understand how much money you really earn.