Increase ROAS: CheatSheet Explainer
Here is the PDF version.
Link: https://drive.google.com/file/d/1zIRx55mFgbwfOnYXr5A9nAl_xZTZIca0/view?usp=drive_link
There are 4 core levers to optimize ROAS:
1. Cost per Order
2. AOV
3. Profit Margins(reduce expenses)
4. LTV
Cost per Order
There are 4 core levers for optimization here:
CPM
Here are some of the factors that influence CPM:Audience size
Minimum 20 Lakh. Narrower the audience size, higher the CPM
External Event
You may attract higher CPMs during holidays due to higher competition. Campaigns that run during a holiday or a major sporting event may cost more than campaigns that run during lower-traffic times of the year.
Frequency cap
Higher the frequency > Higher the CPM. If Frequency > 4, refresh creative or expand audience.
Creative quality and relevance
Higher engagement (likes, comments, shares)> Lowers CPM
Audience overlap
Higher audience overlaps lead to higher CPMs, i.e., if you're running multiple campaigns that target the same audience at the same time, it can drive up the cost of that audience.
Audience overlap of any 2 audiences should always be less than 30%
If the audience overlap is more than 30%, then combine both audiences.
If you still want to run an audience with high overlap, then ensure different creatives are present in both audiences.
Few other factors
Target audience
Placements (Facebook or Instagram) – where your ads appear
e.g., if your ads appear only on Instagram or both Instagram and Facebook.
Creative type – the creative format of your ad determines where it can be placed and how it will be received.
e.g. Canvas ads can only be delivered on mobile.
Objective and optimisation – If you choose to optimise for video views vs conversion events, CPMs will be different.
Budget – the maximum amount that you're willing to spend on a campaign.
Market demand – the market demand for your target audience at the time when your campaign is reserved.
Market supply – how available and responsive your target audience is on Facebook and Instagram.
Always check the comments your ads receive on FB/Instagram. Is it negative or positive, and then take action appropriately? But always ensure you reply to those comments.
CTR% (Click Through Rate)
There 3 core factors influencing the CTR%. And one can take the below measure to improve CTR%.
Ad Messaging
Identify top 3 consumer segments for the product.
For each segment,
Identify top 3 Desires & Motives to purchase
Identify top 3 Barriers((pain points, fears etc)) to purchase
Go deeper by asking "Why" for each of the behaviour identified.
For each behaviour above, identify what's 1 key takeaway you would TG to get after watching the ad.
You will get list of ad messaging. Shortlist the one you find TG will relate to the most.
Delivering Ad Messaging
Ad messaging can be delivered through 2 core ways i.e. Static and Video. Though one can also use carousels, it’s the least scaling/impactful as compared to static & videos. But do give it a test.
I will share different creative themes one can use to deliver the same messaging in both static and videos and the definition of each.Static
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Video
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General Principles
Great Offer significantly influences the CTR% & Click to Purchase. Eg:
15% discount on First order.
50% discount on orders above 2K.
Duration of Video: Try to keep it under 40 sec.
Have a 70-30 mix of video & static.
Input the right aspect ratios of creatives for the right placements
- Square templates: for square placements (1:1), such as feed and in-stream video
- Vertical templates: for vertical placements (9:16), such as stories
Ad Saturation: Ad fatigue has seeped in as it may have run repeatedly to the same TG for a longer period.
How it impacts: Higher the ad fatigue/saturation, lower the CTR%
How to diagnose: Check “Frequency” as a metric for your ad. Anything above the frequency of 3 suggests an ad fatigue/saturation.
Solution: The only way to solve it is by launching new ads
Brand's Share of Voice: How much the brand dominates the conversation in the category. It highlights the brand's awareness in a given market.
Ex: Let’s say there are 2 time periods.
A: Where the brand campaigns where not running.
B: Where the brand campaigns where running
Now in B time period, if the brand campaign is successful, it may also influence the CTR of the paid campaign as the awareness of the brand campaign is increased.
Click to Purchase %
Ad Click to Landing page View %
Landing Page Speed
Higher Speed > Better CR%
Ensure LP passes Core Web Vitals
Quality of Audience
High-quality users wait for a longer time till the page loads as the need-product fit is higher
Higher Quality > higher CR%
Quality is driven by Offer, Creative & Audience Targeting
Landing page view to Order
User Interface
Look & Feel of the LP
E.g., White space % on the LP. The higher it is, the better the CR%
User Experience
LP Fow: Asking 5 fields in 1 go VS 3+2 Fields in two screens.
Have different LPs for Different channels/campaign
High Intent Campaign/Channel > Have low friction LP (Ask 2 fields)
Low Intent Campaign/Channel > Have high friction LP(Ask 5 fields)
Content
Persuading, Logical & Emotional Content
Social Proof - testimonials, publications etc.
Eg: "Rohit from Delhi bought these pants Just now "
Claims & Results
Audience
Better quality audience > better LPV to Conv%
eg: people searching for your product (search ads) will have higher CR% than pushing ads to people (meta ads)
Great Offer
The higher the need & crazier the offer, the higher the LP's CR%. Eg: FIRST15: 15% off on First Order.
Convert Abandon Cart
Retargeting ads on platforms to remind user of items in their cart + give strong offer/discount
Abandon Cart Email/WhatsApp Journey
- On D+2 hr, D+1, D+2, D+7 & D+10
Optimize Checkout Process
E.g., the guest checkout option should be there.
E.g., minimize clicks from ATC to purchase journey.
Implement Exit intent popups
Create a sense of urgency with limited-time offers or stock.
Multiple Payment Options
Transparent Pricing and Policies:
Display the total cost, including taxes and shipping fees, upfront.
Provide transparent information about return policies, warranties, and customer support.
Media Buying Optimizations
Out of Learning:
Input min. budget to get al least 7-8 events per day
Structure
1 Product per Adset or Campaign.
1 Category or product per Campaign
Top of Funnel(Interests, Advantage, LAL etc) & Remarketing Adsets should be in different campaigns.
Audience Overlap
High Overlap > High CPMS
Overlap between 30- 50%: Run Different Creatives
Overlap greater than 50%: Consolidate Adsets
Prioritize Channels:
Eg: For a D2C brand, don't try to make Linkedin, X work before cracking Meta
E.g., If you are selling products on Marketplaces, it doesn't make sense to compete with the likes of Amazon for your own brand query on Search Ads/Shopping campaigns.
Average Order Value (AOV)
Here are various ways to increase AOV of a D2C brand. I have also given an application for each of the various ways to implement it for a frictional d2c skincare brand and d2c clothing brand for sportswearBundle Offers:
Create product bundles with a discount compared to purchasing items individually.
Promote bundles as a way for customers to save money while getting a complete solution.
Skincare brand: Create a "Complete Radiance Set" that includes a cleanser, toner, moisturizer, and a speciality serum at a bundled price, offering customers a 20% discount compared to purchasing each item individually.
Sportswear Clothing brand: Create a "Performance Pack" bundle featuring workout leggings, a moisture-wicking tank top, and a sports jacket at a bundled price, encouraging customers to purchase a complete workout outfit.
Cross-Selling and Upselling:
Implement cross-selling strategies by recommending related products during the checkout process.
Upsell higher-priced or premium versions of products to increase the overall transaction value.
Skincare brand: During the checkout process, recommend adding a premium anti-aging serum or an SPF-infused day cream as an upsell, emphasizing their additional skincare benefits.
Sportswear Clothing brand: During the checkout process, suggest adding premium athletic accessories like a sweat-wicking headband or compression sleeves to enhance the customer's workout experience.
Free Shipping Thresholds:
Set a minimum order value for free shipping. This encourages customers to add more items to their cart to qualify for free shipping.
Skincare brand: Set a free shipping threshold at $50. Encourage customers to explore additional skincare items, like a face mask or exfoliating scrub, to qualify for free shipping.
Sportswear Clothing brand: Set a free shipping threshold at $75. Encourage customers to add more sportswear items like additional activewear or gym accessories to qualify for free shipping.
Limited-Time Promotions:
Offer limited-time promotions such as "buy one, get one free" or discounts for orders placed within a specific time frame.
Skincare brand: Introduce a weekend promotion offering a "Buy 2, Get 1 Free" deal on a popular moisturizer. This encourages customers to stock up on a product they love and potentially try new items.
Sportswear Clothing brand: Run a limited-time promotion offering a discount on a popular sportswear set, such as a "Weekend Warrior Set" including shorts and a performance tee, to create urgency and drive higher AOV.
Loyalty Programs:
Create a loyalty program that rewards customers for spending more. Offer points, discounts, or exclusive access to premium products.
Skincare brand: Implement a loyalty program where customers earn points for each skincare purchase. After accumulating a certain number of points, offer a discount on their next order or a free travel-sized product.
Sportswear Clothing brand: Implement a loyalty program where customers earn points for each sportswear purchase. Once they accumulate enough points, offer a discount on their next order or exclusive access to new athletic gear.
Product Recommendations:
Leverage personalized product recommendations based on the customer's purpose of visiting the website
Skincare brand: Utilize personalized product recommendations on the website based on a customer's skin type. If a customer regularly purchases products for sensitive skin, suggest a calming facial mist or a gentle exfoliator.
Sportswear Clothing brand: Utilize personalized recommendations based on a customer's workout preferences. Suggest additional items like specialized running socks or cross-training shoes to complement their sportswear collection.
Minimum Purchase Discounts:
Provide discounts or special offers for orders that exceed a certain monetary threshold.
Skincare brand: Offer a 15% discount for orders over $75. This encourages customers to explore additional skincare items like serums or masks to take advantage of the discount.
Sportswear Clothing brand: Offer a discount of $20 for orders over $100. This encourages customers to explore and add more high-performance sportswear items to their cart.
Product Customization:
Introduce personalized product customization options with an additional cost, providing a unique and premium experience.
Skincare brand: Introduce a customizable skincare set where customers can choose their preferred cleanser, serum, and moisturizer, allowing them to tailor the bundle to their specific skin concerns. Offer a small discount for purchasing the customized set.
Sportswear Clothing brand: Utilize personalized recommendations based on a customer's workout preferences. Suggest additional items like specialized running socks or cross-training shoes to complement their sportswear collection.
Volume Discounts:
Introduce discounts for customers purchasing larger quantities of a product. This can be particularly effective for consumable goods.
D2C Skincare brand: Introduce a tiered pricing model for a popular cleanser, offering a 10% discount for purchasing 2 bottles, a 15% discount for 3 bottles, and a 20% discount for 4 or more bottles.
Sportswear Clothing brand: Introduce volume discounts for basics like moisture-wicking T-shirts. Customers receive a discount when purchasing a pack of three or more, encouraging them to stock up on workout essentials.
Tiered Pricing:
Implement tiered pricing structures, where the price per unit decreases as the quantity ordered increases.
D2C Skincare brand: Implement tiered pricing for a line of natural face masks, where the price per unit decreases when customers buy a pack of 3 or more.
Sportswear Clothing brand: Implement tiered pricing for premium sportswear items, such as compression leggings. The per-unit cost decreases when customers buy two or more pairs, encouraging them to consider multiple styles or colors.
Post-Purchase Upsells:
Implement remarketing strategies to target users who have made a purchase and showcase complementary products.
Skincare brand: Launch a remarketing campaign on social media targeting customers who have previously purchased a basic skincare set. Showcase a new, advanced skincare line and offer an exclusive discount to encourage them to upgrade their routine.
Sportswear Clothing brand: Implement remarketing ads on social media platforms targeting users who viewed specific sportswear products but did not make a purchase. Showcase those products again, along with a time-limited discount.
After a customer completes a purchase, present them with exclusive offers or upgrades to increase their spending.This can be done via CRM messaging like WhatsApp & Email. Be careful and don’t overdo it as it may appear to salesly.
Skincare brand: After a customer completes the purchase of a facial cleanser, present them with a one-time offer to add a matching toner at a discounted price to enhance their skincare routine.
Sportswear Clothing brand: After a customer purchases a pair of running shoes, present them with an exclusive offer to upgrade to a premium insole or purchase moisture-wicking athletic socks at a discounted price.
One non salesy way to do so is by providing content that educates customers about additional products or accessories that complement their initial purchase. We can do so via WhatsApp and Email channels.
Skincare brand: Share blog posts or video content educating customers about the benefits of incorporating a specific serum or vitamin C treatment into their skincare routine. Include links to the products being discussed to drive additional purchases.
Sportswear Clothing brand: Create blog posts or video content educating customers about the benefits of compression wear for muscle recovery, and provide links to the sportswear items featured in the content.
User Experience Optimization:
Optimize the website's user experience to streamline the purchasing process and encourage customers to explore and add more items to their cart.
Skincare brand: Optimize the website's user interface to prominently display related products, special offers, and product bundles on the product pages and during the checkout process, making it easy for customers to discover and add complementary items to their cart.
Sportswear Clothing brand: Optimize the online shopping experience by featuring a "Complete Your Look" section on product pages, suggesting complementary items like matching workout accessories or outerwear.
Gift with Purchase:
Offering a complimentary item when customers make a qualifying purchase to incentivize higher spending.
Skincare brand: Offer a free, exclusive gift (such as a travel-sized serum or a branded skincare accessory) with orders over a certain amount. This incentivizes customers to spend more to receive the bonus gift.
Sportswear Clothing brand: Offer a free branded water bottle or a compact workout towel as a gift with any purchase over $50. This not only adds value to the customer's order but also encourages them to reach the minimum threshold for the free gift.
3. Profit Margins
Right Pricing Strategy- Nothing boosts margins than playing on a premium price point.
High AOV helps in higher margins.
Reduce Overall CAC by increasing organic acquisition %
Referral programs + WOM
Reduce RTO, Returns & Cancellation
Reduce RTO
RTO stands for "Return to Origin" in logistics and e-commerce. It refers to situations where a shipment or package is returned to its point of origin, typically the seller or the distribution centre.
Return to Origin can occur for a variety of reasons including:
Incorrect address provided by the customer.
Customers are not available to receive the package during delivery attempts.
The customer refused to accept the package.
Packages are undeliverable due to issues with the address or recipient information.
Reducing RTO is important for businesses as it helps minimize shipping costs, improve delivery efficiency, and enhance customer satisfaction by ensuring timely and successful deliveries.
Here are some measures to reduce RTO
Accurate Address Verification: Ensure accurate address validation during the order placement to minimize the chances of incorrect deliveries and subsequent returns.
Real-time Tracking and Communication: Implement real-time order tracking and communicate shipping updates to customers, reducing the likelihood of missed deliveries and returns due to unavailability.
Flexible Delivery Options: Provide flexible delivery options, such as specific delivery time slots or alternate delivery locations, to accommodate customers' preferences and reduce delivery failures.
Collaborate with Reliable Logistics Partners: Partner with reliable logistics providers to ensure timely and accurate deliveries, minimizing the chances of returns due to delivery issues.
Clear Return Policies: Communicate return policies to customers, including the conditions under which returns are accepted. This transparency can help set expectations and reduce unnecessary return shipments.
Address Quality Control: Implement stringent quality control measures to minimize the chances of defective or incorrect products being shipped, leading to returns.
Reduce Returns
"Returns" refer to the process where a customer sends back a product to the seller or the retailer after they have purchased it.
The reasons for returns can vary and may include:
Product Defects or Damage: The received product is defective, damaged, or not in proper working condition.
Wrong Product or Size: The customer receives the incorrect item, size, color, or variant they ordered.
Changed Mind or Dissatisfaction: The customer changes their mind or is dissatisfied with the product for reasons such as not liking the color, fit, or overall quality.
Expired or Short Shelf Life: For products with a limited shelf life, customers may return items close to or past their expiration date.
Misrepresentation: If the product received does not match the description or images provided on the website.
Here are some of the measures to reduce returns
Detailed Product Information: Provide comprehensive and accurate product information, including sizing guides and specifications, to help customers make informed purchasing decisions, reducing the likelihood of returns due to dissatisfaction.
Visual Content: Include high-quality images and videos showcasing the products from various angles to give customers a better understanding of what they are purchasing.
Customer Reviews and Ratings: Display customer reviews and ratings to build trust and help customers gauge the quality and fit of products, reducing the chances of returns based on misconceptions.
Size Guides and Fit Predictors: Implement size guides and fit predictors to assist customers in choosing the right size, reducing returns due to sizing issues.
Quality Control: Strengthen quality control processes to minimize the chances of shipping defective or damaged products.
Cancellation: Provide a Cancellation option before the order is shipped
Reduce Cancellations
"Cancellations" refer to a customer or the seller cancelling a confirmed order before it is shipped or delivered.
Here are a few reasons for cancellations
Delayed Delivery: Customers may cancel if they perceive the delivery time as too long or if there are unexpected delays in the delivery process.
Unsatisfactory Product Information: Inaccurate or insufficient product information, including images, specifications, or reviews, may lead customers to cancel their orders.
Competitor Offers: Customers might come across better deals, discounts, or promotions from competitors after placing their orders, prompting them to cancel and switch to a different provider.
Few measures to reduce cancellations
Delivery Speed: Improve delivery speed to reduce cancellations.
Clear and Transparent Product Information: Ensure your product listings include detailed and accurate information, including specifications, sizing charts, and high-quality images. Clear and comprehensive product details can help customers make informed decisions, reducing the likelihood of cancellations.
Customer Support: Provide responsive and accessible customer support to address any queries or concerns promptly. A proactive approach to customer service can resolve issues before they lead to cancellations.
Order Confirmation Communication: Send a confirmation email or message immediately after the order is placed, reiterating the purchase details. This can serve as a reminder to customers and help prevent cancellations resulting from forgetfulness or confusion.
Two main levers to reduce RTO, Returns and Cancellations in one go
1. Reduce Cash on Delivery (COD)
Higher COD is correlated to higher RTO, returns and cancellations.
Hence, either you can avoid COD completely or give incentives on prepaid options in the form of monetary discounts or physical products as gifts.
Communication Post Purchase
Real-time order tracking and communicate shipping updates to customers
Communicate social proof, benefits of the product, etc., to intensify the excitement.
Supply Chain Efficiency
Optimize the supply chain for cost-effectiveness
Negotiate better terms with suppliers and explore bulk purchasing options.
Minimize storage costs.
Utilize data analytics to forecast demand accurately and avoid overstock or stockouts.
Shipping and Fulfillment:
Negotiate favourable shipping rates with carriers.
Offer various shipping options to customers with transparent pricing.
Minimize transaction fees by exploring alternative payment methods.
Have a lean team as much as possible.
Lifetime value
10x better Product with high PMF
All the below points are useless if the above point is not met.
High PMF = f(50% NPS, 50% Referral, 50% Renewal)
Exceptional Customer Service: Provide outstanding support to build customer trust and loyalty.
Subscription Models: Introduce subscription services with incentives for recurring purchases.
Cross-selling and Upselling:
Leverage CRM(WhatsApp, Email, SMS) with educational & offer based content to Cross-sell & Upsell
Repeat Purchase:
Send timely reminders for product replenishment with incentives for repeat purchases.
Community Building: To build brand loyalty and foster a sense of belonging through social media or forums(Slack, Discord, WhatsApp).
Surprise and Delight: Occasionally surprise customers with exclusive discounts, gifts, or early access.
Acquire high-intent customers.
High-intent customers from organic, referral & WOM may be more likely to contribute to higher LTV.