When launching an ad, it is important to understand the ratio of budget and revenue. The share of advertising expenses will help with this. The main thing is to know the DRR formula and how it differs from other metrics.
What is DRR and why is it considered?
Calculation formula
Differences between DRR and other metrics
What is a good DRR?
How to improve the DRR indicator
Calculation examples
Expert advice
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What is DRR and why is it considered?
Table of Contents
The share of advertising expenses in marketing is the percentage of revenue that was spent on advertising, this metric helps to evaluate the effectiveness of advertising investments. Knowledge of the DDR is necessary for:
● Advertising settings
For example, by selecting the “Maximum conversions” strategy in Yandex Direct, you can set the permissible DRR size – then the advertising system will strive for the maximum number of conversions without exceeding the specified share of advertising costs.
● Identifying promising advertising channels
Calculating the share of advertising costs allows you to determine, for example, that advertising on social networks is more profitable than contextual ads. This means that it makes sense to optimize promotion costs in favor of social networks.
● Definition of the advertising budget
Understanding how to calculate the DRR in marketing allows you to correctly distribute the budget for the year: let’s say, the calculation by seasons showed that the DRR for retargeting is lower in the summer, and for placements in CPA networks (advertisement on partner sites) – in the winter. This means that from December to February it is better to focus on the CPA channel, and from June to August to optimize the budget in favor of retargeting.
● Optimization of online sales
It is easier to track how much money online advertising leading to an online store has brought in than, for example, to estimate revenue from TV advertising or placement on billboards. Therefore, the DRR metric is most often used in online trading.
You can learn in what situations and for what purposes you need to analyze DRR in the course “Internet Marketer”.
Calculation formula
To understand how to calculate the DRR, it is necessary to take into account all advertising costs and the revenue that this advertising brought in. The DRR is calculated using the formula.
Let’s look at an example of how the DRR is calculated. Let’s say a company selling pumping equipment invested 300,000 rubles in contextual advertising. Customers who ordered equipment by going to the site through ads brought in 1.5 million rubles in revenue. The DRR calculation will be as follows: (300,000 / 1,500,000) x 100% = 20%
Differences between DRR and other metrics
DRR focuses solely on what percentage of revenue is spent on advertising. Let’s look at how this DRR metric differs from ROMI, ROAS, and ROI:
1. ROMI (Return on Marketing Investment)
return on marketing investments. ROMI shows how much advertising has paid off, taking into account all promotion costs, including the work of marketers. ROMI is calculated using a formula.
2. ROAS (Return on Advertising Spend)
return on advertising expenses. Shows how much income was received from each ruble (or other currency) spent on advertising. ROAS is calculated using the formula.
An online store of children’s toys spent 10,000 rubles on advertising, paid another 5,000 rubles to a marketer and received revenue of 50,000 rubles. In this case, the calculation will be as follows:
That is, 20% of revenue was spent on advertising, and it paid off by 500%, and if you take into account all the costs of promotion, then by 230%.
3. ROI (Return On Investment)
return on investment. Shows the payback of all investments, including the purchase of goods, their promotion and storage. This indicator is calculated using the formula.
If an online store of children’s toys invested 30,000 rubles in a range of balls, including an advertising budget, and earned 50,000 rubles, the ROI calculation would be as follows:
It turns out that the investment in selling balls paid off by 66%.
The difference between DRR and other similar metrics is that DRR does not measure direct profit growth, but rather shows the relationship between advertising expenses and revenue.
What is a good DRR?
Let’s look at an example. A monthly subscription to an online cinema costs 100 rubles → the cost of attracting one user is also 100 rubles → DRR = 100%.
At first glance, it seems that the company has not earned anything. But it is important to pay attention to LTV (lifetime value) — the lifespan of a client in the company. Simply put, how much money he will bring to the business for the entire time of using its services. For example, a user of an online cinema, who was attracted for 100 rubles, can buy not a monthly subscription for 100 rubles, but an annual one for 1,000 rubles. In this case, the LTV is no longer 100%, but 10%, which is considered a good indicator.
Even if, taking into account LTV, the share of advertising expenses in a channel is still higher than 100%, it is not a fact that it should be turned off. It is useful to conduct a detailed sales analysis. For example, it may turn out that customers from this channel make orders with a high average check. That is, in fact, this channel is more profitable for the company than other placements with low DRR, but a low average check.
How to improve the DRR indicator
Knowing how to calculate DRR in advertising, it is important to learn how to manage it. If, based on the results of the analysis, the indicator remains unreasonably high, you need to optimize your advertising costs. This is done in three stages:
1. Analysis of the share of advertising expenses
It is important to evaluate not only all advertising as a whole, but also by individual channels, ideally by individual campaigns. Often the problem lies not in the source of traffic, but in specific placements.
2. Detailed analysis of a campaign with a high DRR
For example, if it is contextual advertising , it is worth assessing the correctness of the selection of keywords, the correspondence of product cards to the offer and their attractiveness.
3. Testing hypotheses
You shouldn’t immediately turn off a channel with a high DRR. First, you should experiment with the advertising settings. For example, in the same context, you can try to select other keywords or ad texts.
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Calculation examples
Let’s look at how to calculate DRR for different businesses and advertising channels:
● Flower shop
Advertising on social networks, on which 4,000 rubles were spent, attracted 18 orders for a total of 47,000 rubles. DRR = 8.5%, such an advertising campaign will be considered successful.
● Furniture manufacturer
Placing a banner ad for a new sofa model cost 150,000 rubles. As a result, the manufacturer sold sofas for 310,000 rubles. The DRR of this campaign = 48%, which is a good result.
● Hotel
The hotel marketer launched two advertising campaigns: in CPA networks and retargeting with a budget of 100,000 rubles for each channel. As a result of the promotion, CPA networks brought in bookings for 130,000 rubles, and retargeting – for 345,000 rubles. The first channel’s DRR was 76%, and the second – 28%. Perhaps in this case it is worth redistributing the budget for retargeting or at least looking for an opportunity to reduce the share of advertising costs in the CPA channel.
