Unlike most companies, they didn’t simply measure the metric between ad spend and sales (although obviously that was a significant portion of their ROI calculation). They also spent a great deal of time measuring residual sales – the backend or “add-on” purchases that customers made after their initial purchase – and tracing those sales back to the initial cost of the advertisement.
In the case of this business, the primary product was a technology item that could subsequently be upgraded or added-on to with gadgets and applications after the sale.
The interesting part of their calculation was that although the initial product was sold at a low margin, the subsequent sales had vastly higher margins. On paper, the advertising campaigns weren’t terribly profitable, but by considering the value of the back end sales, the value of the ad campaigns (and subsequently what the company could spend on future ad campaigns) was much higher.
Up-selling and cross-selling is a common tactic with retailers. There’s a reason, after all, that Amazon continuously prompts you with “You might also like..” and “Customers who bought this also bought…” messages when you’re making a purchase; they’re betting that they can find an add-on product that will increase your average order size. They carry this through with return-purchase offers in the form of discounts and dollars off your next purchase, ensuring that they’re maximizing the value of their initial advertising dollars by making you a repeat customer.
It pays to pay attention to residual sales, and correlate that back to advertising dollars to know where you should be spending your money for the most revenue.