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

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

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

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

And whereas that type of scale can current a few of its personal distinctive issues, it doesn’t imply what we discovered can’t be utilized to your small 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 personal 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 top 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 an extra $25,000 subsequent quarter. You may soak up that type 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 are able to tackle that improve whereas staying ROI optimistic within the channel.” 

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

Your group might be proper that the general ROI of the channel will probably keep optimistic. Nonetheless, 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 method, it doesn’t matter if the ROI of the primary $150k is +30%. What issues is what the ROI is on the following $25k which may very well be. Plus 20%? Possibly adverse 50%? But it surely gained’t be greater than or equal to 30%.

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

We didn’t simply apply this on the channel-level. We’d calculate the mROI throughout each segmentation we might consider. Our purpose was to regulate our bids to try to steadiness the marginal ROI throughout each key section to make sure we had been making the precise 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 difficult, right here’s a simple information that can assist you do that with out among the overly difficult intricacies. 

1. Get your every day spend and income for every machine over some time period. You’ll section this on information each day. Your information ought to appear like this:

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

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

4. Alter your bid modifiers over the following few weeks to hit your optimum allocation.

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

Geo-Primarily based Incrementality Testing

Completely no one on this planet likes paying for one thing they’d have been given without cost. That’s true with ice cream, t-shirts, and it’s very true with prospects. 

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 area. Paid search is not any exception. Focusing on isn’t excellent, attribution is much from excellent, information laws 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 may’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, if you happen to don’t do that you’ll end up caught in one other 2-hour assembly discussing what the precise attribution mannequin is. That ultimately results in the identical conclusion each single 12 months: No attribution mannequin is ideal. 

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

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

We approached incrementality in an identical method. We discovered it typically modifications as market dynamics shift. Channels are continuously 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 check. This entails turning off the Paid Search channel in sure areas to know the general enterprise impression relative to areas the place Paid Search remained on. The concept was to create a managed surroundings the place we might isolate the impact of paid search on total conversions 

Right here’s how we did it:

1. Establish Comparable Areas: Step one was to establish pairs of areas with related behaviors when it comes to site visitors, conversion charges, and total gross sales efficiency. This would possibly 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 check. You don’t need to run an incrementality check that requires 6 months to get again statistically vital outcomes. 
3. Management vs. Check Group: In every pair, one area was designated because the management group the place paid search advertisements continued to run as typical. The opposite area grew to become the check group the place paid search was fully turned off. This allowed us to watch the modifications in total conversion charges and gross sales efficiency with out the affect of paid search.
4. Measure the Influence: Over a set interval—sometimes a couple of weeks—we carefully monitored the efficiency of each areas. The important thing metrics included conversion charges, complete income, and different enterprise KPIs. By evaluating the efficiency of the management and check areas, we might assess the true incremental worth of paid search.
5. Analyze and Alter: As soon as the check concluded, we analyzed the info. If the check 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 urged {that a} portion of the funds is perhaps higher allotted elsewhere. Sometimes this was expressed as a proportion of complete 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 often, adjusting our channel methods based mostly on the most recent insights.

There are a couple of necessary warnings on operating incrementality exams:

1. Incrementality exams might be difficult with out the precise analytics companions to assist design and analyze the info. Enterprise choices on unhealthy information are far worse than choices on no information 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 vital outcome. You should utilize statistical strategies like an influence evaluation to assist perceive what’s doable and the way lengthy the check will take.

Warning apart, if it’s not doable to associate with an analytics group you’re not caught. LLMs like GPT is usually a highly effective software to assist anyone work by means of designing and analyzing an incrementality check if completely wanted.

Buyer Lifetime Worth (LTV)

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

They’ve carried out plenty of issues to try 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 of the PPC perform, the largest differentiator you’ll management as a paid search supervisor is your information. And crucial information you will have is your conversion information – Who’s changing, and the way a lot are these prospects price.

Buyer price, aka Buyer lifetime worth, is calculated utilizing historic information. 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 whole worth they get from the shopper. They’ll typically group these prospects by the 12 months of their first buy to allow them to perceive how LTV has modified over time, and there are sometimes total groups accountable for bettering the LTV of their prospects.

Whereas some manufacturers select 12 months, others would possibly 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 following 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 a couple of 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 fabric impression on their total LTV. Dimensions like product class, and product value performed an necessary function in figuring out their anticipated buyer lifetime worth. Prospects who purchased costly gadgets with their first buy are likely to drive extra future worth as nicely.
• “Future Worth” was a significant allocation of our complete worth generated from our channel. When experimenting with totally different bidding and grouping fashions, that allocation shift was an necessary a part of our dialogue.
• You will get artistic 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 prospects throughout the identical family. The higher you will get at discovering methods to quantify worth of your prospects, the larger the benefit you will 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 essentially your capacity to know the complete worth of every new buyer and talk that again to Google. It’s the businesses with the very best conversion alerts and conversion information that win the PPC struggle.  Not simply the order worth of that first conversion, but additionally the whole added worth that buyer creates for the enterprise. 

• What number of further purchases will that buyer make with my enterprise? What are my margins on these further merchandise?
• Are we turning these prospects into model ambassadors? What number of new prospects 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 are able to 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 site visitors? Speak to your advertising companions. Determine the place you’re including worth. Take credit score for it, and feed that again into Google.

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

1. Trying Window: Decide an inexpensive lookback window on your LTV calculation. In case you’re not sure, a 1-year window is usually a protected selection. 
2. Calculate Buyer Worth: Discover your prospects’ 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 information quantity and enterprise want, you’ll have the ability to group based mostly on week, month or 12 months. You would possibly 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 consumers, calculate the typical worth. I all the time advocate computing the median worth as nicely so that you’re conscious of a small handful of outlier prospects who is perhaps skewing the everyday 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 total enterprise targets.

By specializing in the incremental worth of your spend, rigorously testing your assumptions, and understanding the long-term worth of your prospects, you can also make knowledgeable choices that drive significant outcomes. These rules will not be 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 information 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 choices 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 data relies on private experiences in the course of the writer’s tenure at eBay and ought to be thought of in that context.