Facebook advertising - benchmark report-retail

08 Fall

[Type text] [Type text]

Predictive Lifetime Value

www.nanigans.com | 60 State St., 12th Floor, Boston, Ma | 02109 | [email protected] | Phone: 857-277-0364 | Fax: 857-350-3614

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In This Report

Part I: Overview & Methodology 3 Introduction 3 Report Goals 3 Data Overview 3 Key Performance Indicators 3 RPC and ROI Calculations 3

Part II: Global Retail Facebook Advertising KPIs 5 Figure 1: Retail Facebook CTR, Q3 2012 – Q3 2013 5 Figure 2: Retail Facebook CPM, Q3 2012 – Q3 2013 6 Figure 3: Retail Facebook CPC, Q3 2012 – Q3 2013 6 Figure 4: Retail Facebook RPC, Q3 2012 – Q3 2013 7 Figure 5: Retail Facebook ROI, Q3 2012 – Q3 2013 7 Strategy Recommendations 8

Part III: Retail Facebook Mobile Advertising KPIs 9 Figure 6: Facebook Advertising Budget Allocation to Mobile 9 Figure 7: Retail Facebook Mobile Budget Allocation, by OS 10 Figure 8: Retail Facebook Mobile CPMs, by OS 10 Figure 9: Retail Facebook Mobile CPCs, by OS 11 Figure 10: Number of Retailers Tracking Revenue from Facebook Mobile 11 Figure 11: Retail Facebook Mobile RPC, by OS 12 Figure 12: Retail Facebook Mobile ROI, by OS 12 Figure 13: Retail Facebook Mobile Engagement and Return, CTR vs. ROI 13 Strategy Recommendations 13

Part IV: The Shift to News Feed 14 Figure 14: Retail Budget Allocation on Desktop, by Delivery Location 14 Figure 15: Retail KPIs on Desktop, by Delivery Location 15 Figure 16: Retail Facebook Budget Allocation, by Ad Type 15 Figure 17: Retail Facebook CTR, by Ad Type 16 Figure 18: Retail Facebook ROI, by Ad Type 16 Figure 19: Retail FBX Budget Allocation, by Delivery Location 17 Figure 20: Retailer FBX CTR and ROI, by Delivery Location 18 Strategy Recommendations 18

Part V: The Shift from Proxy Metrics to Lifetime ROI 19 Figure 21: Retail Facebook CTR and ROI, by Gender 19 Figure 22: Retail Facebook RPC and CPC, by Gender 20




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Figure 23: Retail Budget Allocation, by Age Range 20 Figure 24: CTR and ROI, by Age Range 21 Figure 25: Retail RPC and CPC, by Age Range 21 Figure 26: Retail Engagement and Attributed Revenue, by Day of Week 22 Figure 27: Retail Spend and ROI, by Day of Week 22 Strategy Recommendations 23

Part VI: Key Takeaways for the Holiday Season 24 152% ROI in 2013, with 3.75X CTR increase from Q3’12 to Q3’13 24 37% increase in CPMs from first to last month of the quarter 24 iOS averaging 17.9X higher ROI than Android 24 74% of desktop spend is delivered in News Feed 24 Proxy metrics like CTR and CPC are not predictive of ROI 24

Appendix: Technology & Team Behind This Report 25 Mission, Platform & Value Proposition 25 Our Great Customers 25 History & Team 25 Contact Information 25




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Part I: Overview & Methodology Introduction

• Incremental sales have become core to retailer Facebook advertising goals • Measuring true ROI from these efforts is being increasingly demanded • Benchmark KPIs help retailers evaluate performance and market trends • Nanigans is uniquely positioned to offer meaningful benchmark KPIs given

– The volume of ad spend managed by retailers through its SaaS platform – Its lifetime value based prediction, measurement and optimization platform

Report Goals

• Provide retailers with actionable Facebook advertising benchmark KPIs • Surface trends specific to retailer CMO efforts worldwide • Offer strategy recommendations across a wide variety of parameters, sub categories

and views Data Overview All data, pricing, analyses and recommendations included in this report are specific to advertisers leveraging Nanigans’ predictive lifetime value platform, and does not necessarily reflect the data and pricing information across the entire Facebook market.

• Companies: 100+ retailers, ranging from traditional to online only • Data analyzed: Facebook ad spend, impression, click and revenue volume • Scale: Comprised of nearly 200 billion Facebook ad impressions • Timeframe: First nine months of 2013, with comparisons to the prior year

Key Performance Indicators

• Engagement: Click-through rate (CTR) • Pricing: Cost-per-impression (CPM) and cost-per-click (CPC) • Return: Revenue-per-click (RPC) and return on ad spend (ROI)

RPC and ROI Calculations Definitions

• ROI is defined as return in sales revenue on the cost of the Facebook ad spend • Consistent and statistically significant windowed revenue data is available from

Nanigans in aggregate as of September 2012




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A Conservative Approach • ROI and RPC are underrepresented in this report due to a conservative approach • Revenue for RPC and ROI is measured using a 30-day attribution window (while many

retailers leverage a longer attribution period); additionally, retailers measuring only first purchase revenue are included in the analysis

• Outliers are excluded, such as retailers leveraging view-based attribution and those not spending at scale

• Mobile revenues are not accounted for prior to March 2013 (Nanigans launched its mobile revenue measurement, attribution and optimization solution in Q1 2013)

• The data for this report was compiled on October 1, 2013 and thus attributed revenue from retailer ad spend in September 2013 is not fully realized (thus, both September 2013 and Q3 2013 ROI and RPC are significantly underrepresented in this report)




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Part II: Global Retail Facebook Advertising KPIs Consumer engagement with retailer Facebook ads as measured by click-through rates (CTRs) has increased by a factor of 3.75 when comparing Q3 2013 to Q3 2012. (see Figure 1). The greatest quarterly increase in engagement occurred from Q4 2012 to Q1 2013 – a 58% increase from 0.08% to 0.13%. This can be attributed in part to Facebook broadly launching unpublished Page post ads in News Feed (see Part IV: The Shift to News Feed). Global CTRs for the retail sector across desktop, mobile and Facebook Exchange (FBX) increased from averaging 0.13% and 0.14% in the first two quarters of the year to 0.20% more recently in Q3. Figure 1: Retail Facebook CTR, Q3 2012 – Q3 2013

Retailer Facebook advertising CPMs have increased by a factor of 2.71 to $0.89 when comparing $0.33 CPMs in Q3 2012 to the $0.89 CPMs in Q3 2013 (see Figure 2). One trend apparent in charting historical CPMs on Facebook for the retail sector is the spike in costs during the last month of each quarter (on average a 37% increase from the first to last month of the quarter). This is likely due to heightened demand for inventory at this time as brands and agencies rush to meet quarterly volume goals.

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Figure 2: Retail Facebook CPM, Q3 2012 – Q3 2013

Facebook advertising CPCs have decreased 27% from Q3 2012 to Q3 2013 for retailers, and appear to be normalizing at $0.45 in recent quarters (see Figure 3). Figure 3: Retail Facebook CPC, Q3 2012 – Q3 2013

When comparing average CPCs and RPCs, retailers can expect to reap greater value in sales revenue than the cost of their Facebook advertising investments (see Figure 4).

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Figure 4: Retail Facebook RPC, Q3 2012 – Q3 2013

* Q3’13 RPC is underrepresented; October revenue has not been fully realized and attributed to September ad spend Despite price increases, with CPMs more than doubling from Q1 2013 to Q3 2013, the ROI of Facebook advertising for retailers has remained positive – averaging 152% for retailers leveraging Nanigans in 2013 (see Figure 5). Figure 5: Retail Facebook ROI, Q3 2012 – Q3 2013

* Q3’13 ROI is underrepresented; October revenue has not been fully realized and attributed to September ad spend

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Strategy Recommendations

Recommendation #1: Performance focused retailers should frontload quarterly budgets and increase budgets accordingly to avoid price inflation from heightened demand for Facebook advertising inventory at the end of the quarter. Recommendation #2: Retail CMOs focused on ROI should increase Facebook advertising budgets, as the sector is achieving strong and increasing engagement and return from their advertising investments.




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Part III: Retail Facebook Mobile Advertising KPIs

Mobile represented 22%, 14% and 18% of overall retail Facebook ad spend in the first three quarters of 2013. This contrasts to the distribution of spend across all sectors, which Facebook reported averaging 30% in Q1 and 41% in Q2 (see Figure 6). This indicates that retailers have a large opportunity in their adoption of Facebook mobile advertising. Figure 6: Facebook Advertising Budget Allocation to Mobile

* Facebook had not released Q3 earnings on mobile advertising revenues at the time this report was published. Facebook mobile advertising engagement, pricing and return varies for retailers by operating system, be it Android or iOS. Retailers allocated their mobile budgets more heavily on Android in Q1 and Q2; however, this allocation was spread more evenly across operating systems in Q3 (see Figure 7).

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Figure 7: Retail Facebook Mobile Budget Allocation, by OS

Facebook mobile CPMs have increased 16% from Q1 to Q3 of this year, averaging $4.87 for Android and $4.99 for iOS (see Figure 8). Figure 8: Retail Facebook Mobile CPMs, by OS

Facebook mobile CPCs have increased 70% from Q1 to Q3 of this year, averaging $0.18 for Android and $0.40 for iOS (see Figure 9).

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Figure 9: Retail Facebook Mobile CPCs, by OS

Retailers are looking at Facebook mobile through the lens of driving incremental sales, demanding the ability to understand how their Facebook mobile ad investments impact their bottom line. An indication of this is represented in the number of retailers measuring, attributing and optimizing their mobile ad investments for purchase revenue and ROI – a number that has tripled from Q1 to Q3 (see Figure 10). Figure 10: Number of Retailers Tracking Revenue from Facebook Mobile

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Retailers are realizing significantly greater return from audiences on iOS than audiences on Android, as measured by both RPC and ROI (see Figure 11 and Figure 12). For the first three quarters of 2013, RPC on iOS averaged 6.1 times higher than Android and ROI on iOS averaged 17.9 times higher than Android. Figure 11: Retail Facebook Mobile RPC, by OS

* Q3’13 RPC is underrepresented; October revenue has not been fully realized and attributed to September ad spend Figure 12: Retail Facebook Mobile ROI, by OS


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When comparing engagement and return by operating system, it is clear that CTRs are not a proxy for ROI. While Android averaged the highest CTR for the year at 2.73%, the operating system also averaged the lowest ROI. In contrast, iPhone CTRs were lowest at 1.25% yet generated far greater return (see Figure 13). Figure 13: Retail Facebook Mobile Engagement and Return, CTR vs. ROI


Recommendation #1: Higher funnel metrics like CTRs are not a proxy for ROI on Facebook mobile, and retailers should ensure to test by device and audience. Recommendation #2: Retailers should employ revenue tracking technology to better understand the quality of customers acquired through Facebook mobile as well as the mobile purchasing behavior of their customer base. Retailers are achieving increasing return from their Facebook advertising efforts and lag other sectors in their adoption of Facebook mobile, offering support for CMOs to increase budgets. This is especially the case for retailers looking to gain first-mover advantages over competitors.

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Part IV: The Shift to News Feed The fraction of retail Facebook ad spend on desktop delivered to News Feed has increased steadily from Q1 to Q3, growing from averaging 35% to 74% of spend (see Figure 14). Most recently in September, News Feed averaged 79% of spend on desktop while right-hand side (RHS) averaged 21%. Figure 14: Retail Budget Allocation on Desktop, by Delivery Location

Engagement rates for retailer ads in News Feed on desktop and mobile generated on average 26.4 times higher CTRs than RHS in the first three quarters of 2013 (see Figure 15). News Feed CTRs increased 18% from Q1 to Q3, averaging 1.19% most recently in September, while RHS CTRs remained stable at 0.04% during the same period. With regard to pricing, retail News Feed CPMs nearly doubled from Q1 to Q3, averaging $5.48 most recently in September. CPCs in News Feed increased 69% during the same period, averaging $0.56 most recently in September. A more mature delivery location, the RHS remained more stable. RHS CPMs ranged month-to-month from $0.22 - $0.26, averaging $0.24 for the year, and RHS CPCs ranged from $0.49 - $0.63, averaging $0.55 for the year.

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Figure 15: Retail KPIs on Desktop, by Delivery Location

Unpublished Page post ads – both photo and link versions – have been at the core of increased budget allocation to News Feed (see Figure 16). Adoption of these ad products grew from representing 20% of spend in March to 68% in September. With a new format announced recently, retailers have increased spend on unpublished Page post link ads, growing from representing 3% of spend in August to 15% in September. With unpublished Page post ads touting testing and targeting benefits over organic Page posts, the latter has decreased from comprising 39% of retail spend in Q1 to 1% in Q3. Similarly, budget allocation to Domain Ads directing to External URLs has decreased from representing 50% of retailer spend in Q1 to 19% in Q3. Figure 16: Retail Facebook Budget Allocation, by Ad Type

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Of note with Facebook’s recent simplification of ad products, sponsored stories and other ad types such as sponsored results have collectively represented only 1.4% of retailer Facebook ad spend in the first three quarters of 2013. In examining the most widely adopted Facebook ad products by retailers, it is evident that CTR is not a proxy for ROI (see Figure 17 and Figure 18). Figure 17: Retail Facebook CTR, by Ad Type

Figure 18: Retail Facebook ROI, by Ad Type


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While domain ads to external URLs averaged 0.04% CTR for the first three quarters of 2013, a fraction of the 0.99% and 1.4% CTR averages unpublished page post link and photo ads, it generated more than double the ROI. Another trend apparent for retailers is the trend of decreasing ROI for unpublished Page post ads, with photo versions averaging 61% lower ROI in Q3 than Q1 and link versions averaging 71% lower ROI in Q3 than Q2. This is likely due to both increasing demand for News Feed as well as the novelty of the ad units in the first quarters of 2013. The trend of retailers increasing spend in News Feed is similar with Facebook Exchange (FBX). Nanigans was one of three companies participating in a Facebook alpha program enabling remarketing in News Feed with Page post link ads. Since this launch in May, News Feed has grown from representing 14% of retail FBX spend to 66% in September (see Figure 19). Figure 19: Retail FBX Budget Allocation, by Delivery Location

Retailer CTRs for remarketing campaigns in News Feed averaged 28.3 times higher than RHS in the first three quarters of 2013 (see Figure 20). The ROI for these delivery locations is strong and very similar, with retailers averaging 335% ROI on RHS and 386% on News Feed in Q3.

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Figure 20: Retailer FBX CTR and ROI, by Delivery Location


Recommendation #1 Coupling media buying strategies in News Feed and the RHS is core to successful retail Facebook advertising campaigns. While News Feed delivery offers increased prominence and larger creative (among other benefits), it is critical to measure post-click behavior such as purchases to understand the true ROI of these efforts. Through this lens, the RHS continues to be core to scaling successful campaigns and delivering strong ROI on Facebook. Recommendation #2 Performance differs by both delivery location and ad type on Facebook. Retailers should test multiple strategies to understand what resonates best with their customers, focusing on downstream metrics like RPC and ROI as opposed to upper funnel metrics like CTR.

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Part V: The Shift from Proxy Metrics to Lifetime ROI When examining retail KPIs at the audience level, it is clear that higher funnel metrics are not proxies for ROI. For example, while male audiences averaged 15% higher CTRs than female audiences during the first three quarters of 2013, male audiences averaged 26% lower ROI (see Figure 21). Figure 21: Retail Facebook CTR and ROI, by Gender

Likewise, while male audiences averaged 9% lower CPCs than female audiences for the first three quarters of 2013, male audiences averaged 28% lower RPCs (see Figure 22).

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Figure 22: Retail Facebook RPC and CPC, by Gender

A similar trend is apparent when charting KPIs of traditional age ranges (18-24, 25-34, 35-44, 45-54 and 55-64) – which collectively represent 36% of retailer ad spend in the first three quarters of 2013 (see Figure 23). Figure 23: Retail Budget Allocation, by Age Range

While audiences in lower age brackets averaged 40% higher CTRs than older audiences, the older age ranges averaged, in some cases, double the ROI (see Figure 24).

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Figure 24: CTR and ROI, by Age Range

Similar trends surface when comparing RPCs and CPCs by age range (see Figure 25). Figure 25: Retail RPC and CPC, by Age Range

This trend of proxy metrics not being predictive of ROI continues to emerge when examining KPIs by day of week. Retailers averaged the lowest CTRs on Mondays and Tuesdays, yet also attributed the greatest revenues on these days (see Figure 26).

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Figure 26: Retail Engagement and Attributed Revenue, by Day of Week

Additional inefficiencies and opportunities emerge when charting spend and ROI on a daily basis. For example, while in aggregate retailers are allocating the bulk of budgets on Thursdays, they reap the greatest ROI from Saturday through Tuesday (see Figure 27). Figure 27: Retail Spend and ROI, by Day of Week

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Recommendation #1 Proxy metrics like CTRs and CPCs are not necessarily predictive of return. Retailers moving beyond optimizing for proxy metrics to lifetime value and lifetime ROI will spend their media dollars most effectively. (Note: While this report examines ROI on a 30-day attribution window, retailers measure ROI differently and most leveraging Nanigans utilize a longer lifetime attribution window.) Recommendation #2 Retailers should analyze the performance of their Facebook advertising spend on a daily basis to understand inefficiencies and opportunities.




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Part VI: Key Takeaways for the Holiday Season 152% ROI in 2013, with 3.75X CTR increase from Q3’12 to Q3’13 Retail CMOs should increase Facebook advertising budgets, as the sector has achieved increasing engagement in the past year and strong, positive return in 2013. 37% increase in CPMs from first to last month of the quarter Retailers have an opportunity to increase budgets at the beginning of the quarter. Costs rise at the end of quarter, likely due to heightened demand for inventory at this time as brands and agencies rush to meet quarterly volume goals. iOS averaging 17.9X higher ROI than Android Retailers have a large opportunity on mobile, currently lagging other sectors in their adoption of Facebook mobile ads. Despite this, the number of retailers tracking revenue from their mobile ad investments to better understand the quality of customers increased 3X from Q1 to Q3. Retailers should continue to understand their audience by operating system, with iOS on average generating significantly greater return. 74% of desktop spend is delivered in News Feed, with RHS continuing to deliver strong ROI The fraction of retailer ad spend on desktop delivered to News Feed has increased steadily in 2013, growing from comprising 35% of spend in Q1 to 74% in Q3 – averaging 79% most recently in September. Adoption of unpublished page post ads in the News Feed grew from comprising 20% of spend in March to 68% in September. At the same time, through the lens of ROI, domain ads to external URLs on RHS continue to deliver strong return for retailers, averaging 211% ROI for 2013. Proxy metrics l ike CTR and CPC are not predictive of ROI Retailers moving beyond optimizing for CTR and low cost metrics like CPC to lifetime value and lifetime ROI will spend their Facebook advertising dollars most effectively, as showcased by:

• Unpublished Page post link ads average 23X higher CTRs than domain ads, yet average 53% lower ROI

• FBX in News Feed averages 28X higher CTRs than the RHS, yet average 15% lower ROI • Android averages 2.2X higher CTRs than iOS, yet iOS averages 17.9X higher ROI • Male audiences average 9% lower CPCs than females, yet average 26% lower ROI




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Appendix: Technology & Team Behind This Report Mission, Platform & Value Proposit ion

• Mission: Transforming performance marketing at scale via SaaS for data- and metrics-driven marketers

• Platform: Predictive lifetime value platform for performance marketing at scale • Technology: Measures, predicts and optimizes ad spend for lifetime ROI across

social and mobile

Our Great Customers

• 250+ of the world’s largest, data-driven performance marketers • Industry leaders across retail, gaming, travel, lead generation, education,

financial services and more

History & Team

• Founded in 2010 and backed by Avalon Ventures • Designated by Facebook as a Strategic Preferred Marketing Developer (sPMD) • Offices in Boston, New York, San Francisco, London and Singapore • Have delivered 1 trillion ad impressions and 1.75 billion conversion events • 120+ employees, including PhD level engineering and data science teams

Contact Information

• Direct advertisers: [email protected] • Agencies and trading desks: [email protected]

Ric Calvillo!Co-Founder and CEO!•  Formerly Founder/CEO, Incipient, Inc.;

Founder/CEO, Conley Corp. (acq. by EMC)!

Claude Denton!Co-Founder and CTO!•  Formerly CTO of CourseAdvisor (acq. by

Washington Post)!

Marc Grabowski!COO!•  Formerly VP North America Media Sales,

Yahoo!!

Dr. David C. Parkes!Technical Advisor !•  Prof. of Computer Science at Harvard; global

authority on algorithmic economics!

John Marsland!SVP Growth!•  Formerly Head of Facebook User Acquisition,

Zynga; Yield Management, CNET!

Scott Ward!SVP Finance!•  Formerly CFO of ad network Chitika!

Dan Slagen!SVP Marketing!•  Formerly Head of Global Marketing

Relations, HubSpot!

Joe Cuccinelli!SVP Product!•  Formerly VP Product, Care.com, Bluefin Labs

(acq. by Twitter), Quattro/iAd (acq. by Apple)!

Ben Tregoe!SVP Business Development!•  Formerly Founder/CEO getSugar, Good

Connective and Moeo (acq. by GoldPocket)!




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