by Lee Elliott
A ROAS By Any Other Name Smells Just As...Confusing, Actually
You may be looking at the ROAS in your retail media platform and wondering "is this good?"
You may not even have a retail media buy in place yet but, being the diligent and results oriented media planner you are, have already considered the question "what is a reasonable ROAS that I may expect to obtain from these campaigns?
Whatever position you're in, we've got all the info you need to succeed when making your retail media investment.
Different Retailer Margins
One factor most strategists and buyers who haven't worked with retail media before may overlook is an extremely critical fact not about the media, but the retail sales channel itself: it's going to have different profit margins than your clients' direct to consumer website.
Additionally, if you're running at multiple retailers, they're all going to have different profit margins than each other, as well.
This means that your ROAS, in general and at the product level, is going to need to be different for every retailer. It's important to go beyond the standard product COGS / margin report from Shopify that cuts it for DTC, and get retailer specific product margin sheets for every retailer your client is running retail media in.
Different Profit Margins Within The Same Retail Media Partner
There are also many cases where different product profit margins lurk sneakily beneath the surface on a single retailer!
Target, for example, takes a significantly higher portion of total revenue for online sales, meaning online sales on Target.com have a meaningfully lower profit margin for brands than the same sales in store.
This is not reflected anywhere in media buying platforms that report on both in-store and online purchases, nor do most general analytics outputs from the retailers highlight this to help you with your general sales analysis!
Retailers will also frequently run promotions at the category, or even product level, which doesn't make it into your analytics as cleanly as, say, total discounts do in a Shopify commerce report.
In addition to being vigilant about getting every retailer margin right, you'll need to monitor basic margin differences by sales channel and active promotions within each retailer.
Summary & Action Plan
There are a few simple, but important, steps to take to ensure you understand what ROAS on retail media platforms works for you:
Understand retailer specific margin and adjust ROAS targets from your baseline, such as what you use for your DTC website, accordingly.
Determine how many different sales channels are in play for each retailer, such as: online, online purchase to in-store pick up, in store purchase, etc. Determine if these have different margins and account for them as best you can in your analysis, and in turn, inform your buying with that analysis.
Discover and monitor seasonal promotions, product category level discounts, and other factors that may negatively or positively impact your product level profit margins at a given retailer.
The net result of all this, to generalize, is that you generally need to shoot for a ROAS 20% or so higher than you do on a direct to consumer website. This is a gross generalization, however, and the point of this article is to encourage you to do the homework and arrive at the right numbers for your brand and all of its products.