Facebook Leveraged Most by Direct-to-Consumer brands
Written by: Adam Doolittle, Sam Isaac
Thesis: Facebook is the number one channel for early-stage DTC brands, but it is how brands invest their budget beyond Facebook, and beyond last-click attribution, that will allow them to continue acquiring customers and disrupt legacy brands.
This study uses 2PM’s panel of 254 direct-to-consumer brands. Each brand’s site had SimilarWeb data collected to capture the traffic allocations across all brands to view where DTC brands are investing into digital channels. SimilarWeb traffic numbers are averaged across three months to reduce any seasonality in traffic or drastic changes to a brand’s traffic or marketing allocation.
Social commands a significant percentage of overall paid investment, representing 11.4% of overall traffic and 41.33% of total paid traffic. As a ubiquitous platform with sophisticated ad products, massive reach, and a core part of discovery in consumer’s lives, it makes sense that Social commands such a large share of marketing budgets and site traffic for direct-to- consumer brands. In a recent study, 34.6% of consumers said they discover new brands through Social while search was the second largest channel for consumer discovery.
Across all DTC brands, Facebook remains nearly twice as large as a source of traffic. Facebook, unlike recent industry headlines would have you believe, is still the largest discovery platform for DTC brands. Compared to legacy brands, DTC brands allocate a significant portion of budgets to Facebook, and can be up to twice as large from a traffic view as Paid Search. For Fortune 500 brands, Paid Social can be half the allocation of Paid Search. As brands scale, the need for scalable channels beyond social with comparable targeting and optimization capabilities make brands turn to Programmatic and Search post-VC funding.
Brands’ revenue growth justifies this level of investment–even beyond last-click attribution. Facebook tends to offer some of both the best last-click attributable performance and scale. On average, cost-per-click for Facebook is around $0.85 vs Paid Search’s average of $2.69. On top of the lower costs-per-click, and more sophisticated prospecting models, the investment is further justified by Facebook’s halo effect on other channel revenue. For the purposes of this analysis, the halo effect refers to the influence of one channel on another that is not captured by last-click attribution. Results from this study suggest that Facebook drives an 11-33% halo effect on on revenue from all other channels.
Facebook prospecting ads show a higher percentage of new user traffic, and are responsible for a larger number of new-to-file customer acquisition as well as driving a high return on ad spend for the majority of direct-to-consumer brands.
Facebook Halo Effect on All Other Channels
This study analyzed the effect of weekly Facebook investment on revenue that was last-click attributed to non-social channels across multiple retail brands’ Google Analytics data. The percentage shown for each channel reflects the median percentage of estimated non-social revenue resulting from Facebook investment. Medians are calculated from the coefficients returned for Facebook spend in multivariate regressions that incorporated all paid spend channels, fit separately for 5 SocialCode brands across in-market periods in the last 2 years.
The results in the included chart (See Figure 2) saw Facebook’s highest contribution to revenue from Google Analytics email channel (ranging from 12% to 34% of total channel revenue) and total referral revenue (11% to 33%), suggesting that Facebook investment is contributing a substantial amount of revenue to view-through, untracked, halo purchase revenue registered in Google Analytics.
This study also reviewed the impact of Search, Display, and Shopping investments and their impact on other channel revenue. And while organic search and referral revenue saw a marginal, positive impact from increasing investment from Search, Display, and Shopping, other channels saw a decreasing impact. This suggests increasing investment into demand capture channels like search does not increase the overall demand for the brand (See Figure 3).
These analysis results are intended to summarize explanatory factors influencing total firm revenue tracked in Google Analytics. Models were not evaluated for predictive power, and coefficients are intended for interpretation in the context of the study period examined for each brand. Although each brand’s regression included all paid spend channels, relatively high magnitude of error for each coefficient is likely due to omission of variables likely to impact revenue outside of digital advertising investment, such as non-digital investment, or promotional variability.
With these caveats in mind, these results suggest strong directional evidence that Facebook drives a significant halo effect through other channels. As the largest platform where consumers discover brands, Facebook influences demand capture platforms like Paid Search. The data suggests that Facebook creates demand for new brands, while Paid Search captures pre-existing demand. This could also explain the large difference between DTC and Legacy brands’ investments into Paid Search. Legacy brands already have a large demand based on years of brand awareness and positioning. Paid Search offers the best channel to maximize demand capture, while Facebook offers brand building opportunities for new DTC brands to build brand awareness, consideration, and purchases.
Venture Capital Funded DTC Brands Turn to Other Channels
As brands grow and receive funding they must increase the sophistication of their marketing stack to maintain growth as well as diversify into a balanced portfolio of traffic and revenue. When it comes to paid channels, the data indicates that VC-funded companies are likely to increase their share of investment relative to the average DTC brand in the following paid channels: Increasing Paid Search; decrease Paid Social, Referrals. This isn’t an overall decrease, merely a decrease in reliance for brands that have venture capital.
The major differences are in traffic from Organic Search & Direct. Decrease in Organic Search as brand awareness and marketing budgets grow, we’d expect a lower percentage of overall transactions to come via Organic Search (as customers are more likely to go directly to the site), and a higher overall percentage of transactions are coming from paid channels.
While some of this change can be attributed to a higher number of consumers going direct to site, we also can assume that some of this change can be directly attributed to investments the brand is making in other channels (e.g. Podcasting, Out of Home, or Direct Mail) that are not effectively tracked via last-click attribution or traffic data from SimilarWeb. Therefore, what shows up in the data as direct is a reflection of increases in these ‘new’ channels. In other words, as brands become funded, they are diversifying their marketing budgets to fuel growth.
Portfolio Allocation Distribution
Not all brands make the decisions to invest in social the same way. Some of this is a knowledge, access gap. Looking at social specifically in this study found VC-funded companies have a much more normal distribution of how they are choosing to allocate budget–concentrating their investment between 5-10% of overall traffic. Non-VC backed companies have a much flatter distribution than independent founders, with highly varying levels of access, knowledge and capital, and will choose to allocate their budget in dramatically different ways. Non-VC brands investing larger percentages of the overall portfolio could also indicate the impact of Social for companies with limited funds turning to one channel: Facebook. Instead of risking budgets by testing on other channels that could require more effort to see a return on investment, these brands concentrate budgets on a high impact channel. This echoes consumer research showing Facebook as the largest discovery platform for consumers to find and experience new brands. On the other hand, channels like Paid Search are largely searches flowing to known, established brands with little to no impact on generating new demand. For building new brands or finding new consumers, Facebook still shows larger returns than other channels as shown based both on the portfolio allocation and halo effect of Facebook.
Portfolio Allocation Quartiles
Quartile channel allocations give a lens into leaders and laggers to highlight a number of marketing allocation and strategy considerations. The median is relevant for a reflection of average channel distribution, whereas the minimum and maximum are relevant for how aggressively advertisers are willing to dial down or dial up a channel. The minimum in this study uses a non-zero minimum to show the smallest possible allocation brands use to guide brands on testing a channel. On the lowest quartile for Direct, Email and Organic Search, firms that don’t have any presence on organic channels will have a challenging time scaling revenue with an overreliance on paid channels. On the other hand, a 90.80% of Organic Search traffic in the top quartile of firms means these companies aren’t scaling revenues as fast as possible given the low levels of investment into paid channels. There’s a delicate balance between paid and organic traffic investment. Paid traffic average across all firms hovers around 27.58%–leaving organic channels to nearly 70% of all DTC traffic. Having a healthy balance of paid to organic traffic means firms can scale revenues at a sustainable way leading to more generous rounds of raising capital. Different unit economics means the paid to organic ratio can move up and down based on profit margin, average order value, and lifetime value of each customer from each channel.
Brands are using a combination of Paid Social, Search and Display the most at 55.9% of all brands. The second highest count of firms include Paid Search and Paid Social at 25.9%. In this study, zero firms turned to Paid Search as the only paid channel. If brands have limited funds to invest in marketing, the single channel brands turn to is Paid Social with 11.3% of brands in this study using Paid Social as their only paid channel. This allocation aligns with the study’s results around Paid Social influencing Paid Search channel revenue. Facebook drives the demand, Google captures that demand. Selection effects are worth highlighting for paid search. The selection effects happen in search when brands spend dollars in Paid Search where clicks and purchases would have happened with or without advertising. On the other hand, impression-based platforms (Paid Social, Display) have lower selection effects and higher advertising effects. Advertising effects are where the advertising is responsible for the increased demand. Selection effects still occur frequently in Paid Social–albeit to a lesser degree than Paid Search.
Specifically, when working across different verticals, the ubiquity of DTC in that category, and the price point and margin of a brand’s offering, will dictate how brands prioritize spend between different marketing channels and the level of investment into paid vs organic channels. Historically, those verticals with high DTC penetration, high average order value, and high product profit margin will allow for a much higher spend threshold while still maintaining a healthy, profitable acquisition program.
Marketing allocation decisions at both established legacy brands and new entrants in the direct-to-consumer space can use this study to help dictate where marketing investment should flow into channels. Facebook continues to remain a growth channel for brands looking to find new consumers. As this study shows, Facebook is the leading channel to increase demand for a brand and impacts all other channel revenue while other channels fail to show this same halo effect. As Chief Marketing Officers and Boards review marketing portfolio allocations for brand(s), understanding the impact each channel has on all other channels instead of simply reviewing last-click metrics will have a large impact on the revenue growth from each dollar invested into demand creation channels.
Adam Doolittle is the Director of Paid Media at a NYC startup. Adam was the former Senior Program Manager at SocialCode and worked with the AIP SaaS platform team. He has held performance marketing and growth positions at GEICO, Framebridge, and helps direct-to-consumer brands grow.
Sam Isaac is the Director of Strategy at SocialCode. He has worked with disruptor brands and Fortune 500 brands across a number of different industries.
SocialCode is a marketing and insights partner that manages digital advertising for leading brands. SocialCode Audience Intelligence Platform is a customer data and analytics platform that helps partners improve business outcomes by maximizing the value of customer data. For more information, visit socialcode.com
A special thanks to Mike Geschke, Andrew Gluck, and Alex Realmuto who all helped to edit, clarify, and be a sounding board for the research. Thank you to Web Smith for building and maintaining the list of direct-to-consumer brands at 2pml.com