September 21, 2022
Insights

How to validate the ROI of a new ad channel

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Starting any new ad channel is daunting. It’s easy for your marketing team to default to hiring an agency or “expert” who obviously knows what they’re doing, but doing so can turn a two-week project into a three month behemoth. This is often accompanied by weekly update meetings, countless back-and-forth communication, and a whole lot more money than you really need to spend to test just one new ad channel out of dozens of available platforms.

But a better way exists. Below, I’ve outlined just how we think about validating new ad channels here at Ramp, intentionally designed for speed of execution and learning. The goal is not to have your marketing team build the perfect Facebook campaign in a few weeks, but rather quickly learn if a channel is worth investing in without the overhead or bureaucracy. Here are eight steps we take at Ramp to validate new ad channels, perfect for using with your own marketing team to drive ROI. 

1. Align internally on what success looks like

Ads (for better or worse) are massively visible artifacts that represent your company. Everybody will have opinions, so it’s important to internally align before starting any new channel test.

Our goal, when going from 0 to 1, is not to find perfection, but rather to quickly validate that the clicks you’re buying from this new channel are directionally valuable and successfully convert into customers. CPC, CAC, CPM – all of these can be optimized over time, but the baseline belief that a platform is worth investing in has to be validated first before you can think about incremental improvements. 

2. Pick the right channel based on first principles

Which channel you choose to test is far more important than you might think. Focus on where you’re seeing success right now. Here are a few dimensions to consider:

  • Low intent vs. high intent traffic
  • If you’re seeing a ton of success on ad channels that drive high-intent traffic—e.g. somebody searching “best chocolate cookies” is likely very eager to buy your chocolate cookies—then consider other high-intent platforms. In other words, if you’re thriving on Google Ads, try Bing Ads.
  • Targeting types available on your potential new ad channels
  • If you’re seeing a ton of success by targeting users interested in accounting or business, look for ad platforms that allow you to target by similar interests.
  • What medium your advertisement will show up in
  • If you’re seeing success with mobile ads, don’t try a desktop-first product—go where your happiest prospects are, instead of making them chase you.

It’s easiest to pick platforms that look very similar to where you’re already thriving. No need to reinvent the wheel!

3. Set the campaign up yourself—don’t outsource it

Ad platforms are designed to make your job—spending money on their ads—as easy as possible. They’re incentivized to make it dead simple to get a V1 of a campaign up and running.

While there may be hyper-specific optimizations that an expert Facebook or Google Ads campaign manager wouldn’t know to unlock, they’re not necessarily required to validate a channel. The goal here is to see if the clicks are valuable, not hyper-optimize ad groups to save a few pennies.

The other part of this is your creatives. While it’s good to test your best creatives on this channel, spend the time to shoot or design new creatives that you think will fit well on that new platform. Scroll through the platform to see what kinds of creatives—like IRL photoshoots, or images filled with text—appear most frequently, and replicate them yourself.

4. Deep dive into the types of ad targeting offered

Spend some time trying to set up a campaign by thoroughly investigating each type of ad targeting offered by the platform. Some will offer the standard set (topics or interest-based groupings, “show my ads to people who are interested in X”), some will offer platform-specific targeting (for example, on Twitter Ads, you can target ads to individual account’s followers—“show my ads to people who follow @elonmusk”) 

Pick two or three ad targeting methodologies that either mirror what you’ve had success with on other platforms or that align with your first-principles understanding of the platform and your target audience

For most platforms, you can use this simple framework for your campaign, ad group, and creative architecture & UTMs:

Campaign #1 → Ad Targeting Type #1 → Creative #1, #2, #3, #4, #5

Campaign #2 → Ad Targeting Type #2 → Creative #1, #2, #3, #4, #5

5. Pick a budget 

Picking a budget for a new platform is always a difficult task—how do you know you’re investing enough in each new platform to see results?

At a minimum, you should be investing enough in each new channel to fulfill the following:

  1. You see results quickly enough for your own needs. For some teams, this is one week while, for others, it’s three months.
  2. Your results are statistically significant based on your funnel conversion.
  3. The required investment isn't materially detracting from your ability to deploy into proven existing channels.

Here is a simple process for calculating your budget: 

  1. Look at your benchmark funnel conversion—on average, how many website visitors do you need to acquire one customer? 100, 300, 1000?
  2. Look at benchmark CPC figures for your new channel—how much does a typical click cost?
  3. Based on your desired confidence level (eg. 80%, 95%) in your experimental results, and a benchmark cost per conversion on another channel, you can calculate the minimum spend required to reach statistical significance for your experiment.

There’s no one right answer here, but by working through these requirements with your team, you should come to an easy answer that you can re-use for every new channel. Some teams set aside an “experimental” budget every month (call it 5% of your overall spend) to validate new channels, while others pick a standard flat amount ($10K) that’s automatically green-lit into any new ad channel.

6. Standardize as much as you can

Keep as much as you can standard—it’s tough to change too many variables. If you have a standard/default landing page, use it. Have a standard set of creatives that you’ve succeeded with? Make sure to use at least a few of them so you have a benchmark to compare your new creatives to. 

The less you change, the better you’ll be able to compare ad efficiencies between platforms. When we test a new platform, we’ll typically use two existing creatives and three new platform-specific creatives.

7. Analytics and tracking

At a baseline, you need full end-of-funnel attribution in order to validate an ad channel. It’s not enough to know that the traffic is coming from Facebook Ads—you need to be able to track which ad targeting type and which creative drove each conversion across your entire campaign.

In order to do this, you need to make sure each creative is 1:1 to each ad targeting type—you should be able to track the specific combination of ad group and creative converted each customer or email submission on your site, even if you need to create duplicate “ads” whose only difference is the UTMs attached to the URL it leads to.

This architecture solves for a handful of common pitfalls:

  • One ad targeting type out of three succeeds at your cost-efficiency targets, but the rest fail. 
  • One creative eats up your entire budget (great engagement → cheap clicks), but none of the traffic converts.

8. Now… you wait!

And now for arguably the most challenging part: waiting. Don’t mess with the campaign after you set it as it’s best to leave it alone and move onto another project. It’s fun to track progress over time, but you should spend your entire budget before calling a platform a success or failure. 

Remember: you never know when a giant whale will flip your entire experiment at the last second. 🙂

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Nick Abouzeid
Growth Innovation Lead, Ramp

Nick is a Growth Lead at Ramp. Previously, he ran marketing at MainStreet and was a Partner at Shrug Capital where he invested in SaaS & fintech

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