When Data Isn’t Justified


Post by Kevin Theodore, Media Director

There are over 50,000 third party audience segments in most DSPs from the core data providers. And they get so granular, that you can find a segment for almost everything. A few examples:

  • In-Market for: Comic Books, Paper Plates or Door & Window Installation
  • Interest in: Italian Cuisine, Dick’s Sporting Goods or E-books
  • Demographics: Home Renters, 6-person Households, Country of Origin – Bolivia

These segments sound flashy and may match your precise target audience. The issue is that they come with a data cost. Data costs tend to be ignored with branding campaigns, but are very apparent in direct-response, performance campaigns. The data costs for these segments range from about $0.20–$3.50 CPM; in direct-response, these costs need to be justified by performance. Let’s take a look at the charts below:

Chart 1:

Type Spend Impressions Media CPM Data CPM Effective CPM Conversions Conversion Rate Effective CPA
Data Cost $10,000 4,000,000 $2.00 $0.50 $2.50 15,000 0.38% $0.67
No Data Cost $10,000 5,000,000 $2.00 $0.00 $2.00 15,000 0.30% $0.67
 

 

Chart 2:

Type Spend Impressions Media CPM Data CPM Effective CPM Conversions Conversion Rate Effective CPA
Data Cost $10,000 3,333,333 $2.00 $1.00 $3.00 15,000 0.45% $0.67
No Data Cost $10,000 5,000,000 $2.00 $0.00 $2.00 15,000 0.30% $0.67

 

Chart 1 shows how much harder the data cost line will need to work than the line without the data cost, in terms of conversion rates. To break-even in terms of performance (same CPA of $0.67), the data cost line will need to be .08% more efficient in conversion rates vs. the line without data costs.

In Chart 2, as you see the data cost increase from $.50 to $1.00. The conversion rate needed to justify that increase doubles as well. In Chart 1, we saw the data needed to be .08% more efficient in terms of conversion rate. Now, it must be .15% more efficient.

This illustrates that advertisers must be very cognizant of data costs. We must always test data cost efficiency in order to maximize ROI. When utilizing data with a cost, approximate the lift needed in conversion rate to be justified by performance. Be very cautious with segments with higher costs tied to them.

What other options are there?

As more performance marketers are realizing this tradeoff, DSPs have reacted by providing elements of their own DMPs. Many DSPs now offer their own proprietary segments. Additionally, the majority of DSPs offer lookalike prospecting models based off first-party conversion or site visitor tags. The lookalike models create brand customized segments. rather than segments populated for the masses. These costs range from free to very minimal (such as a $0.20 CPM). The price efficiency typically leads to a reduced CPA.

With a willingness to test a more open approach without data costs, we can determine new secondary and tertiary target audiences for brands through audience profiling. Without data costs, exploring the open market can provide a price efficiency to reduce CPA.


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