In specialized articles but also in newspapers or in common language we often hear about “ROAS”. But what is it exactly? It stands for “Return on Advertising Spend”. In other words, it is the profitability index of an advertising campaign minus the cost of advertising, a quantification of how much the capital invested in a certain project or company is yielding a return.
First Party Data are instead all the data that the company acquires directly and that are its property: they may derive from user direct interactions with the company (for example, through the company website or a call center) or it can be information resulting from the production process (for instance, the time required to complete each process) or from the usage data of its products (such as smartwatch or smart band). So, what is the relationship between ROAS and First Party Data? Let’s find out together.
ROAS: how it is calculated and what factors affect it
Meanwhile, let’s see how to calculate the ROAS for an investment. The formula is very simple, to calculate it you simply need to make the ratio between operating income (i.e. the difference between turnover and investments) and net invested capital, that is the invested capital net of potential depreciations and provisions. So, if in a campaign you invest € 1.000 and invoice € 1.500, for example, the ROAS will be equal to (1.500-1.000)/1.000. The ROAS is therefore a very simple KPI and it is affected by two factors: the profit and how much has been spent for generating that profit.
At this point, to understand how first party data can affect ROAS, it is necessary to consider, within the scope of an online marketing campaign, what importance these can have in terms of both expenditure (investment) and turnover. In other words, how the first party data affect your investment and the potential success of your marketing campaign.
ROAS and First Party Data
As mentioned above, first party data are data that the company directly holds and that have been acquired through its direct channels, whether they are the website, the devices produced by the company, in-store interactions, etc. Careful, because acquiring and, above all, storing and using first party data is not – as one might erroneously think – a zero-cost operation. On the contrary, the efficient use of first party data often requires large investments, for instance, it will be of crucial importance to equip yourself with a customer data platform (CDP) such as DataLysm, or to implement algorithms that are capable of analyzing and using the enormous amount of data that will probably be at disposal. But surely making investments to use data that will remain at your disposal, with technologies that can likewise be considered a durable or, at least, reusable good is certainly different than spending on buying data or using processing originated elsewhere.
Moreover, first party data will soon become the only legally usable data. So much for the investment. But even if we consider the profit, the strategies based on first party data are often much more effective, as they allow you to build a true and lasting relationship with the customers, as well as profiling them with more care.
Increasing ROAS through marketing strategies based on first party data
In response to the question “how can first party data affect ROAS?”, the answer is: by allowing to carry out extremely effective and targeted marketing campaigns with a lower expenditure (thus lowering the investment that is required in order to bring about a certain result) and enhancing the profit (thus increasing the turnover) thanks to the fact that marketing campaigns based on first party data are distinctively far more effective and profitable.