By: Tom Murray | Managing Director
Retargeting is one of the best forms of direct response advertising from an efficiency perspective. It tends to drive the best return-on-ad-spend (ROAS) and the lowest cost-per-acquisition (CPA). Because of this, most advertisers pump as much money as they can into retargeting until they reach their max CPA goal.
And why wouldn’t you? If you are getting purchases at $20, and your goal is $50, why not add more budget and get more sales, even if that means your CPA goes up to $40?
The answer is because how the platforms operate when you have smaller pools of audience, which retargeting tends to be. When pools are smaller, if you add more budget to those audiences, the platforms are still going to try to spend it, which means one of two things typically will happen (and sometimes both): 1) CPMs go up, so you pay more for impressions and 2) you increase your frequency, but not your reach. In both of these scenarios, you’ve either paid more to reach the same person on a CPM basis, or hit the same person even more times, which is likely not necessary since retargeting frequencies can already be quite high (3 or more per week).
We’ve seen it time and time again, where advertisers add more money to retargeting, thinking that they are getting incremental conversions, but diving deeper to understand what is really going on is where you can see there is true wastage.
An example is a client we had that was spending around $1,000 per day on retargeting at a CPA of $40. They wanted to raise the remarketing budget by 3X per day since the CPA target was around $100. However, looking at the reach numbers, we could see that we were already reaching about 75% of the total retargeting pool. By adding more money to that campaign, we would have just paid more to reach the same people, saw our conversions stay the same, while raising our CPA.
The goal should be to spend on retargeting that nets you around a 2 frequency per week, and no more than that, as you’ll likely just pay for extra impressions that aren’t going to be any more likely to drive a conversion on impression 5 or 6, compared to 2 or 3. This can help you conserve budget, and focus more of your budget on prospecting and top of the funnel branding initiatives that helps fuel your efficient retargeting campaigns.