Why commission % is about sales for retailers not profit for RedBrain
Are you wasting a substantial part of your advertising budget? If you haven’t looked at Cost Per Action (CPA) and commission-based ad solutions, then it’s a strong possibility.
Anyone with a passing knowledge of digital advertising and marketing will be familiar with paying agency retainers or bidding for advertising on a pay-per-click model. But neither option provides a cost-effective solution if a brand or business is actually looking for customers to take action.
That’s why eCommerce retailers need to put Cost per acquisition higher on par with other channels.
Commissions based on a percentage of sales has worked well for affiliate marketers. And it’s slowly integrating into the display and paid search advertising platforms. But CPA is incredibly effective for interest-led promotions, such as Shopping Ads on Google. And that’s why the RedBrain AI Shopping Service has been built from the ground up to operate on that model.
“Founding RedBrain allowed us to invest upfront in AI and machine learning to provide CSS in a unique way. Most services are manually updating everything which incurs fixed costs, but by layering our human experts on automated insights, we can better understand the businesses we work with. That gives us the confidence to provide a model where we take all the upfront costs and risks. It’s a true partnership model as if we don’t deliver sales, we don’t get paid,” said Alastair Campbell, Chief Growth Officer at RedBrain.
This is why we’re focused on delivering actual sales rather than impressions or clicks. And as a brand, you only pay when you’ve generated revenue, so there are no upfront costs. The costs of our business, including providing a full managed service to optimise your campaigns, is covered by our success in targeting customers ready to purchase your products. Which means increases in the commissions from our clients can be reinvested into the campaigns to generate even more traffic and sales.
If this sounds too good to be true, you can see many of the retailers we’ve successfully worked with, and read more details on how the RedBrain CPA model operates, with examples, below.
Retainers, CPC and CPA
Each payment model will work well, but only if it’s used for the right advertising or marketing purpose. But it’s often tempting to stick with what you already know for every task.
Agency retainers and fees are great ways to fund ongoing work, such as Search Engine Optimisation, or Conversion Rate Optimisation, as it allows your partners to plan medium and long-term resources and improve your results over time.
Cost-per-click or Pay-per-click is a great tool for generating awareness of a band or business. That’s why it’s common for advertising with search engines, social networks and display ads for websites. You’ll be able to reach lots of people and generate high numbers of impressions, whilst only paying when a customer clicks on your advert. But this doesn’t mean a click will result in a sale, particularly when online shoppers will browse and research products repeatedly before making their purchases.
And that’s where CPA comes in. It’s not a new model, as even traditional media companies have sold print, radio and TV advertising on a “per inquiry” basis. And it’s been the model of choice for both affiliate marketers and direct response advertising for many years. But many eCommerce advertisers can overlook it. This may be due to their experience of search and social media advertising, and because with Shopping Ads on Google, a small number of Google Premium CSS Partners are confident enough to offer a pure CPA model with no fees.
How do CPA commissions work?
It’s quick and simple to add a CPA-based Shopping Ads on Google campaign alongside your existing advertising. As a brand or business, you simply need to decide what amount of sales revenue can be used to generate a purchase. This can be between 1-25% depending on your profit margins, and it’s really about what you’re comfortable will provide a return on advertising spend (ROAS).
Multi-channel attribution has become increasingly important to advertisers and marketers, due to growing awareness of the multiple ways a customer might see a product before buying it. And that’s also part of the smart attribution used by some of our platforms to assign the right commission value to each stage of the consumer journey. For example, it may be set up as a 2-1-2 distribution, meaning the first click receives 2/5ths of the commission, 1/5 goes to the click in between, and 2/5ths is assigned to the final click. Obviously, if a consumer buys on first sight, then all of the commission is given to that interaction.
This is particularly important when it comes to promotions at eCommerce checkouts, such as voucher codes. If a discount is provided as a last-ditch tactic to secure purchase when a customer is close to checking out and gets all the commission, it means that the rest of the consumer journey is uncredited.
The result is that your CSS partner, for example, RedBrain, will have invested in generated awareness, interest and clicks to your website. But without any smart attribution assigning value and commission, we won’t be able to cover or increase those upfront costs, meaning your campaigns will be limited in bidding amounts. So not only are you getting fewer profits due to the voucher code, but you’ll also get less traffic and customers in the first place by restricting what we can bid on your behalf.
How Waterstone and Clockwork Affiliates benefitted from CPA commission increases
We recently shared the experience of Clockwork Affiliates, who was kind enough to provide a great example of how commission increases really boosted the sales generated for book retailers Waterstones in the space of just 24 months.
With a large existing affiliate network managed by Clockwork Affiliates, a RedBrain Shopping Ads on Google campaign launched in January 2018 on a base rate CPA which ran for six months with solid results. This led to a review and 2% CPA increase with a monthly assessment of performance.
“Everything was coming back fine. So, we thought, ‘OK, what else can we do?’ Going into peak quarter 4 of September 2018 we thought let’s have a raise of another 1% here… The results were phenomenal, to be honest, and the peak season generated huge amounts of incremental traffic”. Clockworks Affiliates Director, Chris Brown.
At this point, RedBrain became the biggest performer in a well-established Affiliate Network with 700 existing partners. And analysing the revenue generated showed 90-92% was incremental, which led to Clockwork Affiliates going further with their Shopping Ads on Google campaign, adding to their product feed and increasing the CPA by a further 2% to prepare for Waterstones peak Christmas sales period.
“We were getting less than 20% of the traffic share at the current rate… by increasing the CPA by a further 2% we’d get an extra 10-15% of those potential customers.
We had a phenomenal Q4, it was Waterstones’ best ever. And that incremental volume is really impactful here”.
You can see more of the details on how we helped Clockwork Affiliates drive huge growth for Waterstones, here.
How RedBrain analyses the effect of CPA increases
As the biggest Comparison Shopping Service in Europe, we’re able to provide a quality service to every retailer by combining our AI and machine learning capabilities with human expertise. That includes how we analyse and forecast the effect of CPA increases at a massive scale.
At the top level, we examine the Impression share and Search lost (Impression Share Rank) to see if there are any improvements which can be made.
Search impression share is the number of impressions you’ve received divided by the estimated number of impressions you were eligible to receive. Eligibility is based on your current ads’ targeting settings, approval statuses, bids, and quality scores.
Search lost IS (Impression share rank) estimates how often your ad wasn’t displayed due to poor Ad Rank. For Shopping Ads on Google, this will depend solely on how much is being bid in the advertising auction for each product and category. So, the ability for us to increase bids based on higher commissions can have a big impact.
You can see for this example that the Waterfalls and Pond Plants categories are displaying a high percentage of Search lost IS, showing that there is definitely an opportunity to increase sales.
We also analyse the “Search absolute top impression share” which records the percentage of ad impressions shown in the most prominent positions on search results, as this will give you the highest click-through rates (CTR), resulting in more users and more sales.
This shows the top level of investigation for a single report. With more than 15,000 retailers and delivering £1 billion in sales every year, we have the experience to interpret large volumes of data quickly and effectively. We know what results that brands should be expecting, and understand the steps required to get there.
Why higher commissions drive more sales, not RedBrain profits
It’s easy to believe that increasing the commission rates on your products would simply mean RedBrain could make more profit from each sale. But it wouldn’t be true.
As our examples show, commission increases are all used to generate more traffic and sales by allowing us to bid more on your behalf. Often beyond even our expectations. We would have expected to see an increase of 50% in sales when one fashion retailer increased its commission rate by 4%. Instead, their week-on-week sales volume jumped by 366% and total revenue by 226%.
The main reason we’re able to successfully reinvest commissions into client campaigns is that RedBrain is one of very few CSS partners based around the CPA model. Our investment in AI and machine learning positions us to deliver insights and analysis as a scale which would be impossible to match with staff trying to do it all. As a result, our expert resources can be directed exactly where they’re needed.
“RedBrain is the largest Google CSS partner in Europe, and we’re focused on growing even further. The best route for us to achieve that is by reinvesting increased commissions to deliver even more success for our retailers”. said Alastair Campbell, Chief Growth Officer at RedBrain.
Having worked with digital businesses for more than 15 years, RedBrain is based around long-term, sustainable success both for us, and the retailers who work with us.