Social media has become one of the most extensively used tools for eCommerce brands for promotions. Most brands are investing hefty sums to cut through the noise and get their products and offers noticed.
However, recent trends indicate an alarming shift. Once a reliable path to customer acquisition, the social conversion funnel has fractured, leaving brands struggling with soaring Customer Acquisition Costs (CAC) and lean Return on Investment (ROI).
According to recent research, brands spend a staggering $29 for each new customer acquired, a harsh increase from the $19 a decade ago. This figure takes into account all expenses, from overheads to returns.
So, the social media game has clearly changed for eCommerce. And in this blog, we’ll explore how the social conversion funnel broke and how you can tackle the rising CAC and increase the ROAS.
Let’s dive right in!
How did the social conversion funnel break?
Two primary reasons behind this broken social conversion funnel are consumer privacy regulations and the constant changes in social media algorithms.
Prioritization of consumer privacy
The prioritization of consumer privacy is transforming the rules of engagement on social media channels. Initiatives such as the phasing out third-party cookies and Apple's assertive move with iOS 14.5 to ask apps not to track users are creating seismic ripples.
As eCommerce brands this privacy-centric issue, the way customer acquisition used to work is undergoing a profound transformation.
The very tools that once allowed precise targeting are now being dismantled, challenging brands to find cost-effective ways to connect with their audience.
Changing social media algorithms
Everyone has a hard time understanding when a social media platform changes its algorithms. It’s as dynamic as it can get and not necessarily in favor of brands.
Consumers spend an average of two and a half hours daily on social platforms. Every brand knows it’s one thing they must capitalize on. So, the competition for attention is increasing. The dwindling attention span, averaging a mere 8.25 seconds, makes things even more challenging for brands.
And with each algorithm tweak, the social media funnel fractures further. The changes determine what the users see in those 2.5 hours. It makes it increasingly difficult for brands to create campaigns that capture attention and drive the desired sales outcomes.
How is the broken social conversion funnel impacting brands?
In the early days of social media advertising, reaching the right audience was quite easy. However, attracting the right audience has become a challenge with increasing competition, algorithmic changes, and strict consumer privacy regulations. It's one of the reasons why TikTok's CPM has risen by 92% since 2021.
These challenges have rippling effects. You can see the soaring bounce rates, mainly affecting eCommerce businesses with a concerning 72% bounce rate.
The repercussions extend beyond mere numbers. The conversion process is also much more complicated now with the introduction of diverse intents through wider targeting. As third-party cookies are phased out and privacy settings embedded into browsers, eCommerce marketers need a new strategy.
Let’s say your brand invests $10,000 to drive 50,000 clicks to your ecommerce site. Firstly, you’ll lose most visitors, say around 34,400, because of the high bounce rate of the Product Detail Page.
This not only decreases the conversion rates, typically half of the site average, but also leads to disappointing revenues, a lower Return On Ad Spend (ROAS), and a spike in Customer Acquisition Cost (CAC).
These metrics highlight the harsh reality of customer acquisition. What makes this data particularly interesting is the profound impact of seemingly minor adjustments at the top of the sales funnel.
A modest 20-point improvement in bounce rate translates into an amazing 44% increase in revenue. Likewise, a slight enhancement in conversion, from 0.3% to 1.8%, results in a compounding effect, bringing a staggering 73% increase in revenue for the same ad spend.
The potential for improvement is enormous, urging marketers to scrutinize their strategies from end to end, seeking efficiencies in their social media conversion strategy.
What is the average ROAS for eCommerce - by industry and by platform?
When it comes to measuring the success of advertising campaigns in e-commerce, understanding the average Return on Ad Spend (ROAS) by industry provides crucial insights.
Let's break down the data and see the average ROAS both by industry and across various platforms.
Average eCommerce ROAS by industry
Determining a universal average ROAS for e-commerce is not easy, if not impossible. It depends on many reasons influenced by the product type, target audience, and market competition.
On a broad scale, the e-commerce average ROAS revolves around 2.87, indicating a 287% return on investment.
However, this average showcases interesting nuances across industries. Baby products, for example, have a higher average at around 3.71, while health and beauty clock in at 2.82.
The variance in averages emphasizes the impact of the industry you’re serving on ad campaign success – a higher ROAS signifies more revenue generated from ads than spent, showing the value of effective advertising.
Average eCommerce ROAS by platform
The choice of platform is also a crucial factor that determines what ROAS you can expect. Here's a glimpse into the average ROAS you can anticipate on various platforms:
Google Ads: It stands out with an impressive average ROAS of 13.76. The affordability of its cost-per-click rates adds allure, making it a go-to for budget-conscious businesses.
Facebook Ads: It comes with an average ROAS of 10.68. With a robust toolkit for tracking and analyzing results, it maintains a strong position in digital advertising.
Instagram Ads: Using Instagram's 800 million users and creative tools, businesses find an effective platform for ad campaigns with an average ROAS of 8.83. However, success depends on research, ensuring the target audience is actively engaged on the platform.
Amazon Ads: Amazon, with its engaged user base familiar with the platform, proves fruitful for ad campaigns. The ROAS is a decent 7.95. Businesses targeting consumers already acquainted with Amazon often find success.
Twitter Ads: Twitter's effectiveness depends on campaign goals and target audiences. The ROAS is 2.7. So while it may excel in increasing brand awareness among a broader audience, other platforms outshine it in driving conversions or sales.
Pinterest Ads: Similar ROAS as Twitter, a 2.7. Pinterest's effectiveness depends on audience engagement. Brands seeking to boost awareness, especially with a promoted pin campaign, can find success on this visually-driven platform.
TikTok Ads: TikTok's focus on user-generated content creates debate. Some laud its engaged user base, anticipating higher conversion rates, while others caution about conveying clear messages in short videos. The ROAS is a low 2.5.
How to improve the ROAS of your eCommerce business?
To become truly profitable and make your business sustainable, you need to improve your ROAS. Here’s how you do it.
1. Refine your keywords timely
To maximize ROAS, precision in keyword selection is important. Tailor your keywords to not only reach a broader audience but, more importantly, the right audience.
For businesses with physical locations, incorporating location-specific keywords down to specific neighborhoods can significantly enhance targeting accuracy.
Additionally, integrating trending and timely long-tail keywords ensures your campaigns align with user intent and capitalize on current conversations.
2. Create seamless customer journeys
The journey doesn't end when a prospective customer clicks on your social media ad; it's only the beginning.
You must create a strong social media campaign landing page. Align it seamlessly with the promise made in your ad, maintaining consistency in messaging and style.
Beyond a clear Call-to-Action (CTA), use social proof and time-limited offers to encourage visitors to take the next step in their purchase journey.
You can easily create a persuasive social media campaign landing page with SimplicityDX that retains customer interest and boosts the likelihood of conversion.
3. Probe beyond ad-related issues
ROAS reflects the overall effectiveness of your social media advertising campaign. However, exploring issues unrelated to ads can also offer valuable insights.
Factors like website user experience, navigation clarity, and checkout processes influence campaign effectiveness. A high click-through rate may not translate to success if your site navigation is unclear or loading times are extended.
A holistic assessment of your customer journey ensures a more detailed understanding of campaign performance.
4. Your ads should be data-driven
Embrace a data-driven approach for precise campaign management. A/B testing goes beyond elementary elements, helping you understand the user experience.
Consider testing video autoplay versus user-initiated play, giving insights that can substantially boost ROAS. Leverage advanced analytics for deeper insights into customer journeys, identifying patterns that inform strategic investments. Real-time analysis allows you to make swift adjustments, maximizing the potential for campaign success.
5. Expanding reach for scale
Scaling your ads is crucial for increased reach and, consequently, heightened ROAS. First, consider boosting your ad spend, which extends the exposure to a larger audience over an extended period.
Simultaneously, explore alternative strategies like adjusting bidding to target new keywords. This expansion allows your ads to resonate with diverse audiences, potentially amplifying your ROAS.
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SimplicityDX allows you to create dedicated stores for each campaign or content piece. It revolutionizes top-of-funnel merchandising, attracting a diverse audience effortlessly.
With the power to reduce Customer Acquisition Cost (CAC) and boost Return on Ad Spend (ROAS), brands experience proactive success. ModCloth has already witnessed a 50% reduction in CAC.