What I learned managing a $100M+ Paid Ads Budget at eBay

$150 million {dollars} should purchase you lots of issues on this world. Possibly you fancy your self a mansion in Bel Air. Possibly you favor a private island in Thailand proper subsequent to the well-known Phuket seaside. Any person, someplace determined our group at eBay ought to spend that sort of cash on Paid Search visitors, particularly on Product Itemizing Adverts (PLA).

Whereas I may need most popular that non-public island, entry to an unfathomable quantity of knowledge was a pleasant comfort prize. Yearly we ran lots of of experiments and analyzed each inch of our knowledge to seek out the subsequent development alternative. If knowledge is the brand new oil, you’ll be able to think about what sort of insights $150 million {dollars} can get you.  

With billions of visits, you’ll be able to validate each concept and run each take a look at. We had been producing extra PLA impressions in a single month than there are people on earth. Nothing was off the desk. We may discover thrilling concepts like if stormy days led to greater worth clicks (they do). Or we may validate if searches from customers positioned in high-income areas led to the next preliminary order measurement (they did). And we may experiment with thrilling concepts like utilizing unfavourable key phrases to present us keyword-level bid changes in Product Itemizing Adverts (we did).

And whereas that sort of scale can current a few of its personal distinctive issues, it doesn’t imply what we realized can’t be utilized to your online business. On this article, we’re going to speak about three key classes {that a} $100M+ funds should purchase you, and how one can apply these learnings to your individual paid advertising channels. 

We’ll cowl these three ideas:

• Marginal ROI
• Incrementality
• Lifetime Worth

Marginal ROI (mROI) in Paid Search

Let’s play out a fast situation for a minute. 

You’re the pinnacle of promoting for a medium-sized enterprise spending $250,000 per quarter on Paid Search. It’s Monday morning, and also you get an e mail out of your CFO:

“Your budgets are growing. We wish you to spend a further $25,000 subsequent quarter. You’ll be able to take in that sort of funds improve, proper?”

You ship off a fast e mail to the paid search group and also you get again one thing like this: 

“We had an ROI of +30% final quarter on $150k of spend. ROIs are holding sturdy, we will tackle that improve whereas staying ROI optimistic within the channel.” 

There’s a serious flaw right here. ROI means nothing. 

Your group might be proper that the general ROI of the channel will doubtless keep optimistic. Nevertheless, digital advertising is closely depending on the legislation of diminishing returns. It means that as you saturate high-performing areas, the incremental income per greenback spent will lower. 

Put one other manner, it doesn’t matter if the ROI of the primary $150k is +30%. What issues is what the ROI is on the subsequent $25k which might be. Plus 20%? Possibly unfavourable 50%? However it gained’t be greater than or equal to 30%.

We firmly believed mROI gave us one of the best likelihood to maximise the worth of our spend. On a 9-figure funds, each share enchancment made a distinction. 

We didn’t simply apply this on the channel-level. We’d calculate the mROI throughout each segmentation we may consider. Our purpose was to regulate our bids to attempt to steadiness the marginal ROI throughout each key phase to make sure we had been making the suitable investments to maximise effectivity of the channel. We checked out segments like gadgets, international locations, and advert codecs (ie: PLA vs. Textual content). 

Whereas mROI sounds sophisticated, right here’s a straightforward information that can assist you do that with out a few of the overly sophisticated intricacies. 

1. Get your every day spend and income for every machine over some time frame. You’ll phase this on knowledge every day. Your knowledge ought to appear like this:

2. Forecast your mROI for every machine. It typically helps to plot in a scatter plot so you’ll be able to visualize your ‘mROI Curve’. 

3. Calculate the spend allocation throughout the Desktop, Cellular and Pill curves the place the mROI is analogous.

4. Modify your bid modifiers over the subsequent few weeks to hit your optimum allocation.

When this turned an excessive amount of for our group to do manually, we constructed machine studying fashions to robotically forecast the mROIs and alter bid modifiers programmatically. 

Geo-Based mostly Incrementality Testing

Completely no person on this planet likes paying for one thing they might have been given without spending a dime. That’s true with ice cream, t-shirts, and it’s very true with clients. 

Paying Google $14 for a click on from a person who would have clicked your huge blue free natural hyperlink can really feel like a punch within the intestine. On the identical time, it’s an unavoidable downside for any channel within the digital advertising house. Paid search is not any exception. Concentrating on isn’t good, attribution is way from good, knowledge rules are getting tighter, browsers are beginning to lock down your capacity to measure and retarget customers.

Regardless of it being unavoidable, it’s nonetheless mission essential. With out that understanding you’ll be able to’t correctly worth the general impression every channel is having on the enterprise. It leads you to over-invest in some channels, under-invest in others, and that lowers the impression you’re having on the enterprise. 

Even worse, in the event you don’t do that you’ll end up caught in one other 2-hour assembly discussing what the suitable attribution mannequin is. That ultimately results in the identical conclusion each single yr: No attribution mannequin is ideal. 

At eBay, incrementality was an enormous a part of our data-driven strategy to grasp and worth every channel as greatest we may in our general advertising combine. We didn’t simply run these exams one time and neglect about them, We ran these exams regularly. 

Internally they had been nicknamed “dipstick” exams. For the uninitiated, a dipstick is a straightforward instrument used to measure the extent of liquid in a container, such because the oil or gasoline in a automotive engine. They’re constructed to permit for straightforward retests since you don’t simply verify how a lot gasoline you could have left and neglect about it. You verify early and sometimes. 

We approached incrementality in an identical manner. We discovered it typically modifications as market dynamics shift. Channels are always evolving and incrementality shifted as our channel technique advanced. Incrementality is one thing that must be in your plans year-in and year-out.

Whereas there’s many approaches to designing and operating incrementality exams we went with a geographic-based incrementality take a look at. This entails turning off the Paid Search channel in sure areas to grasp the general enterprise impression relative to areas the place Paid Search remained on. The concept was to create a managed surroundings the place we may isolate the impact of paid search on general conversions 

Right here’s how we did it:

1. Establish Comparable Areas: Step one was to determine pairs of areas with related behaviors by way of visitors, conversion charges, and general gross sales efficiency. This may imply pairing two metropolitan areas with comparable demographics, or two areas with related market circumstances.
2. Measure Noise: Conduct energy evaluation and stability exams to validate the minimal detectable change for the take a look at. You don’t wish to run an incrementality take a look at that requires 6 months to get again statistically important outcomes. 
3. Management vs. Check Group: In every pair, one area was designated because the management group the place paid search adverts continued to run as typical. The opposite area turned the take a look at group the place paid search was utterly turned off. This allowed us to look at the modifications in general conversion charges and gross sales efficiency with out the affect of paid search.
4. Measure the Impression: Over a set interval—usually just a few weeks—we carefully monitored the efficiency of each areas. The important thing metrics included conversion charges, whole income, and different enterprise KPIs. By evaluating the efficiency of the management and take a look at areas, we may assess the true incremental worth of paid search.
5. Analyze and Modify: As soon as the take a look at concluded, we analyzed the information. If the take a look at area (with out paid search) noticed a big drop in conversions, it indicated that paid search was driving incremental worth. Conversely, if the impression was minimal, it recommended {that a} portion of the funds could be higher allotted elsewhere. Usually this was expressed as a share of whole gross sales.
6. Iterate and Evolve: As market dynamics shifted, so did the outcomes of our dipstick exams. That’s why these exams weren’t a one-and-done train. We repeated them usually, adjusting our channel methods based mostly on the most recent insights.

There are just a few necessary warnings on operating incrementality exams:

1. Incrementality exams may be tough with out the suitable analytics companions to assist design and analyze the information. Enterprise selections on unhealthy knowledge are far worse than selections on no knowledge in any respect. 
2. Not each enterprise is suited to operating incrementality exams. The smaller your channel’s contribution to the general enterprise, the extra conversions you want for a statistically important outcome. You need to use statistical strategies like an influence evaluation to assist perceive what’s attainable and the way lengthy the take a look at will take.

Warning apart, if it’s not attainable to associate with an analytics group you’re not caught. LLMs like GPT could be a highly effective instrument to assist anyone work by way of designing and analyzing an incrementality take a look at if completely wanted.

Buyer Lifetime Worth (LTV)

During the last 10 years, Google has slowly made increasingly more modifications to attempt to make advertisers’ lives simpler. They launched variant-match key phrases to cut back the burden of discovering and managing key phrases. They launched auto-bidding fashions to manufacturers bid smarter and simpler. They’ve rolled out completely new marketing campaign sorts with none key phrases to handle, they usually’re robotically producing advert creatives now.

They’ve accomplished lots of issues to attempt to assist advertisers however the draw back to all of that’s the differentiation between you and your rivals is slowly shrinking. As Google continues to automate increasingly more of the PPC operate, the largest differentiator you’ll management as a paid search supervisor is your knowledge. And a very powerful knowledge you could have is your conversion knowledge – Who’s changing, and the way a lot are these clients price.

Buyer price, aka Buyer lifetime worth, is calculated utilizing historic knowledge. Companies like eBay have a look at issues like “What number of orders did the typical buyer have of their first N months as a buyer?” to begin to perceive the full worth they get from the shopper. They’ll typically group these clients by the yr of their first buy to allow them to perceive how LTV has modified over time, and there are sometimes total groups answerable for bettering the LTV of their clients.

Whereas some manufacturers select 12 months, others may select longer home windows to seize all of the potential future worth from that buyer. 

The window you select has significant repercussions:

1. You need a lengthy sufficient window to precisely seize the anticipated worth {that a} buyer will generate over their lifetime. If a buyer spends the subsequent 5 years utilizing your service, a 1-year window will undervalue the contributions of your channel.
2. You need a brief sufficient window to measure the change in LTV in a well timed method. For companies that use a 5 year-window, they should wait a full 5 years to get a full image of how their buyer LTV has shifted. 

Whereas I gained’t share what LTV window eBay used throughout my tenure, I’ll share just a few attention-grabbing insights from my time there.

• For one factor, there are different segmentations that matter. For instance, the primary product a buyer purchased had a cloth impression on their general LTV. Dimensions like product class, and product worth performed an necessary position in figuring out their anticipated buyer lifetime worth. Prospects who purchased costly gadgets with their first buy are inclined to drive extra future worth as properly.
• “Future Worth” was a significant allocation of our whole worth generated from our channel. When experimenting with completely different bidding and grouping fashions, that allocation shift was an necessary a part of our dialogue.
• You will get inventive with mining methods to extract and measure worth. We explored the idea of the “halo impact” of a brand new buyer in a family and the way it helped us seize new clients throughout the identical family. The higher you will get at discovering methods to quantify worth of your clients, the larger the benefit you could have over your rivals. 

As extra of the market adopts these paid fashions (the identical fashions you and your rivals are utilizing) the distinction between success and failure is basically your capacity to grasp the total worth of every new buyer and talk that again to Google. It’s the businesses with one of the best conversion indicators and conversion knowledge that win the PPC battle.  Not simply the order worth of that first conversion, but additionally the full added worth that buyer creates for the enterprise. 

• What number of extra purchases will that buyer make with my enterprise? What are my margins on these extra merchandise?
• Are we turning these clients into model ambassadors? What number of new clients are they creating for our enterprise? Can we measure that too?
• What was the advertising worth of the preliminary conversion to our model now that we will talk and retarget this buyer? How does the e-mail advertising group worth every new e mail deal with? How does the show group worth the power to retarget all of our incremental paid search visitors? Speak to your advertising companions. Work out the place you’re including worth. Take credit score for it, and feed that again into Google.

Should you’re not calculating buyer lifetime worth, right here’s the easy method to strategy it.

1. Wanting Window: Choose an inexpensive lookback window on your LTV calculation. Should you’re uncertain, a 1-year window is usually a secure alternative. 
2. Calculate Buyer Worth: Discover your clients’ first buy date and add up the order worth of all of their orders inside 1-year of that interval.
3. Buyer Grouping: Relying in your knowledge quantity and enterprise want, you’ll be capable to group based mostly on week, month or yr. You may have to even group a number of years collectively in case your conversion volumes are too small.
4. Common The Values: For every group of shoppers, calculate the typical worth. I all the time suggest computing the median worth as properly so that you’re conscious of a small handful of outlier clients who could be skewing the standard buyer worth you’ll expect from Paid Search.

The methods and insights we’ve mentioned—Marginal ROI, Incrementality, and Buyer Lifetime Worth—are highly effective instruments for any marketer, no matter funds measurement. The important thing takeaway is that success in paid search hinges on a deep understanding of how every greenback contributes to your general enterprise objectives.

By specializing in the incremental worth of your spend, rigorously testing your assumptions, and understanding the long-term worth of your clients, you may make knowledgeable selections that drive significant outcomes. These rules aren’t only for large-scale campaigns; they are often utilized to campaigns of any measurement to optimize efficiency and maximize return.

As digital advertising continues to evolve, your capacity to leverage knowledge and adapt to altering dynamics will set you aside. Whether or not you’re operating a small enterprise or managing a bigger funds, these classes may help you make smarter selections and obtain higher outcomes in your paid search efforts.

Disclaimer: The views and experiences shared on this article are the writer’s personal and don’t replicate the official positions or opinions of eBay. All info is predicated on private experiences through the writer’s tenure at eBay and must be thought-about in that context.