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this post was submitted on 02 Dec 2023
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2 second google for some numbers: “In 2022, global internet advertising revenue stood at 484 billion U.S. dollars”
One of the metrics you measure when running ads is return on investment, and companies will soon go bust if you aren’t making money on your ad spend.
Except how is ROI estimated? I can imagine it being done both intelligently and stupidly and so I’m curious how well it is actually done.
Part of what I’m sceptical about is that it seems like a practice driven either by a lot of FOMO and vague thinking or a system where it only makes sense to run ads because everyone else is.
This is all measured and not really estimated. If you think that any substantial chunk of that 484Billion is being done 'stupidly' then you're just making presumptuous incorrect guesses without knowing much about the industry.
Revenue (sales) - Investment (total costs) = ROI There is ROAS which similiar: Revenue - Ad Spend = ROAS You can measure things in more detail like CPA (cost per acquisition) to work out how much ad spend you have per sale, again this is a measurement not an estimation.
Where previously there was mass advertisements to millions of people like TV or radio ads which were only affordable to large companies. Advertisers now can target the exact type of person they're trying to market to for their niche which is a lot cheaper and so more accessible to smaller businesses. To me that makes business sense to do if I can optimise to the right ROI, and nothing to do with FOMO or vague thinking.
How well are sales and ad spend correlated and how well are spurious correlations accounted for?
you're really determined to stick to your belief haha, don't worry about it man I don't think I'm going to sway your mind on this so peace !
Unfortunately I’m genuinely curious. Honestly is a little disheartening though that the first piece of technical pushback has you bailing out. “Correlation is not causation” being stats 101 and all.
If you do have any more to say though I’d happily read it! If not .., all the best.