Retail Media has become a ubiquitous term, but the industry is just getting started. With a growth rate of 25% year over year, US Retail Media ad spend is projected to surpass $100 billion dollars by 2027. Every business that has a direct relationship with consumers should explore how they can capture their share of the retail media market.
Your relationship with the consumer leads to a treasure trove of first-party data that brands are eager to leverage to deliver relevant, engaging content. This can lead to increased engagement, sales, and customer visits to your business and e-commerce properties. Additionally, building a retail media network can diversify your revenue with a new, high-margin business, keeping your board and shareholders excited about your growth. Easy enough, right?
Assess Your Retail Media Revenue Potential
To understand what this opportunity looks like for your business, you need to start with a revenue assessment. There are three revenue models to consider, each with its own unique insights.
Retail Media Revenue Models
The 1% of Total Revenue Model
This model suggests the retail media opportunity is 1% of your total revenue. For a business generating $10 billion in revenue, this equates to a $100 million annual revenue opportunity. However, this model overlooks the critical factor of your identified customer population.
The Average Revenue Per User (ARPU) Model
Focusing on the identified customer population, the ARPU model looks at the average ad revenue that is captured on a per user basis. If we look at the ARPU for the top retail media companies, we will see ranges from $3.00 per user at Etsy to $100+ per user at Amazon, calculated based on unique web traffic rates. However, e-commerce is only a portion of the picture (sometimes 10% or less) for many retailers. If we take into account total identified users from things like loyalty programs or identified credit card transactions, the ARPU ranges can change, but tend to settle around $5.00-$6.00 for many mature retail media networks. For a business with 10,000,000 identified customers and a $5.00 ARPU, the revenue opportunity is $50 million. While this model provides a topline revenue target, it doesn't take into account operating expenses and profitability.
The Operating Margin Model
The Operating Margin model provides the most comprehensive view, accounting for identified customer scale and the costs of building and operating a retail media network. This model considers factors like total impressions to identified users, media margin rates, and operating costs to determine the true profit potential.
For a $10 billion business with 10,000,000 identified customers, this model suggests a $55 million revenue opportunity, with operating margin ranging from 15-25% depending on strategic decisions around in-housing, out-sourcing, and partnering for scaled, profitable growth.
Operating Margin Model | Critical Inputs |
Number of Identified Users |
Match Rate(s) |
Impressions Frequency Caps |
Advertiser CPM (owned inventory vs. off-platform inventory) |
Owned vs. Off-platform Inventory % of Total |
Media Margin Rates |
Optimizing for Profitability
When evaluating all of these models, it is critical to focus on the impact on your overall operating margin. Decisions around in-housing media buying, outsourcing, and technology investments can significantly impact your profitability.
By analyzing your retail media opportunity using all three of these revenue models, you can come to an informed decision on the size of the revenue opportunity and the investment needed to capture it. You're prepared to operationalize your retail media network with key strategic decisions on in-housing, out-sourcing, and partnering. This allows you to set clear revenue and investment milestones with your board for year-over-year growth.
To learn more about these models and how to operationalize your retail media network, schedule a free consultation with Catalyst Media Consulting.
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