The Value of Real-Time Fraud Detection
The Value of Real-Time Fraud Detection
Better Marketing ROI, Less TCPA Claims, Less Settlement Costs, Less Costs
In B2C growing your business using digital marketing comes with many challenges and pitfalls. In order to attract prospects you run digital advertising campaigns, at the landing page you nurture your prospects in order to close the deal, or get their contact details in case you’re generating leads. That’s nothing new and simply how the marketing funnel works.
Zooming in to those challenges and pitfalls, which can be placing your ads on MFA sites, your ads being loaded and “viewed” by bots, click fraud, and fraudulent generated leads. The former cause that your campaigns underperform, the latter opens litigation risk once the contact data appears to genuine and you start calling the prospect. But, how much is this risk? And how much money would be at stake? How does it affect your business’ performance? That’s what this article is about, and what you can do to mitigate those risks and losses.
First step is to visualize the costs of digital marketing. Figure 1 below shows a number of colored and labeled rectanges and a legend for a more elaborate explanation. The surface of each rectangle corresponds with the US dollar value. The largest expense in Figure 1 is the digital marketing budget, a 1000x1000 blue/red square and each pixel represents a visitor at the landing page, which on average costs $1.50. This can be buying clicks at an average of $1.50, or advertisements and based on the CTR each visitor arriving at your landing page costs on average: $1.50, etc.
At the left of Figure 1 the big 1000x1000 blue and red square represents $1,500,000 dollars, the digital marketing budget. This amount is considered the investment. All expenses have to be paid by the return on this investment. If web is your #1 revenue generator the profit made by this generated also needs to cover most of the other company expenses.
Both genuine and fraudulent traffic will convert to leads, or sales. This makes fraudulent traffic so hard to pinpoint, as it completely hides in aggregate numbers. The effects, however, are very noticable. Once you receive a dozen TCPA demand letters a day which you have to settle each at a hefty price. These settlements, legal hours and external counsel costs will increase your costs and thus lower your ROI. This explains why the lower your fraud% is the lower the unforseen overhead costs will eat away your profit.
How fraud losses, costs and legal side effects relate to each other can be seen in Figure 1. The model to calculate these ratios uses the following input values. Without fraud detection:
20% of the traffic is fraudulent.
8% of the visitors converts to a generated lead.
25% of the generated leads converts to a paying customer (2% of the generated leads).
2% of the generated leads are fraudulent.
Only 1% of the fraudulent generated leads converts to a TCPA demand letter. That’s 0.02% of the volume of generated leads.
On average each TCPA settlement will cost you $2000, as you might have made multiple calls.
If someone doesn’t settle and starts a legal fight your costs will increase (diagonal stripes)
Your legal department spends on average one hour per letter.
The gray rectangle on the right in Figure 1 represents the costs of Oxford Biochronometrics ’ real-time fraud detection at this volume, which can be used to 1) prevent contacting fraudulent leads and also 2) to claim back fraudulent traffic.
Figure 1 shows that the price of Oxford Biochronometrics real-time fraud detection is roughly an additional 2%, but the increase in the marketing efficiency is +20% and it prevents and mitigates litigation risk at again 20%. Talking about ROI; that’s a 20:1 return on the investment! But, of course you’re thinking: “How do different percentages of fraud influence my digital marketing ROI? And what are the effects of the additional 2% when the fraudlevels have decreased to 12%? or 10%?” That’s what will be discussed in the next section.
Based on the numbers above 1 in 50 generated leads is fraudulent ( 2% / 0.04% = 50 ). That small subset of generated leads accounts can be found in the ~20% fraudulent traffic. A second degree effect (settlements, legal costs and litigation risk) is based on a tiny subset (about 1%) of these these fraudulent leads and still this adds another ~20% to your costs. You can probably imagine what will happen at a 25% or 30% fraud!?
Make fraud detection actionable
The damaging effects of fraud is the reason why you need real-time fraud detection, and the real-time portion means a real-time feedback loop. This enables you to know the fraud status of a generated lead prior to making the call. It also enables you to know which sources and which campaigns contain fraud and allows you to get a refund or credit traffic. Ofcourse, your contract needs to contain a refund or credit traffic clause.
In order to see the first and second degree effects of different levels of fraud we’ll take a look at Figure 2. This is an animation showing how fraud affects the performance of your digital marketing campaign. The animation is based and created upon the following configuration settings:
Average fraud percentage (variable: 5%, 10%, 15%, 20%, 25%, 30%, 35%)
The customer lifetime value. The average $ of a new customer
The volume 1,000,000 visitors
The avg cost of a single visitor, at $1.50
Conversion from click to lead, at 8%
Conversion from lead to sale, at 25% which means 2% converts from click to sale
Percentage fraudulent leads, at 2% which means 2% of 8% which is 0.0016% of the volume
The percentage fraudulent leads that start litigation, at 1% which means 1% of 2% of 8% = 0.000016% (16 claims out of a million visitors)
On average each claim is settled at $2,000
Your legal department spends 1 hour at $250 per letter
These configuration settings have been put into a model that creates a sankey flow chart showing the breakdown of the revenue of the digital marketing campaigns into its profit and cost (and loss) components. This enables you to see how the performance of your digital marketing campaigns is affected by fraud, but also by a too high cost per click, or a too low conversion percentage, or a too low CLV (Customer Lifetime Value), etc.
Figure 2 shows how the ratio of the profit versus costs and losses changes when the fraud percentage increases. The harsh reality is that with less humans arriving at your landing page it becomes harder and harder to achieve your business goals. You just can’t perfect your content and multi-stage forms to compensate with these losses.
Table 1 below contains the same information and based on the same default values as used in the animation. The calculated ROI, profit% of revenue, and costs/ losses% of revenue can be seen in the table below by only changing the fraud%:
The data in Figure 1 shows that at a fraud rate of 30% your marketing investment doesn’t generate profit, ie. the costs are equal to the profit. This means when your landing page is your only stream of revenue your company as a total makes a loss. The two charts in Figure 3 below show how the ROI and profit% plummet when a smaller and smaller portion of the prospects generate business in combination with growing legal overhead costs.
The two charts above emphasize again that your digital marketing campaigns need to be healthy, where the definition of healthy is maximum of ~12% fraud. Having this level of fraud the impact of TCPA claims is still relatively low and thus manageable, and you’re able to get credit traffic or a refund on the portion of your digital marketing budget which was flagged as fraud.
Make your digital campaigns healthy again
So, how can you make your digital marketing campaigns healthy again? It’s not just adding a fraud detection tag. It’s an organizational change on how your business handles the ingestion of generated leads, follows up on the fraud numbers in your digital marketing campaigns, and monitoring and managing the output of your campaigns at a strategic level. This has been explained in detail in a previous post, see: [1].
Of course, fraud detection is only one reason why digital campaigns are performing sub-optimal. Though, you have to agree it is a large reason and if not dealt with it will flourish and thus seriously affect your business outcome, increase your CAC, murk your view on which campaigns work, which audiences did respond, and in worst case a class action is started which you have to settle or fight against.
That’s why you will have to safeguard and continuous monitor your largest revenue stream by adding a real-time fraud detection, and filter out fraudulent generated leads. The price you’ll be paying for real-time fraud detection is almost nothing compared to the value it provides. As mentioned before: You get 20 times the value compared to the price you pay.
Want more info? The link to the interactive sankey chart? Leave a comment, connect, or DM.
#digitalmarketing #b2c #fraud #leadgeneration #tcpa
Appendix A
This appendix contains a few extra examples how fraud percentages affect the performance of a digital marketing campaign. To keep things clear each example only changes one single variable compared to the example in the main article.
Table 2 below shows how different fraud percentages affects the ROI and profit/ costs percentages relative to the revenue. The only different value used to create Table 2 compared to table 1 in the article is: $2.00 per visitor instead of $1.50.
Table 3 below shows how different fraud percentages affects the ROI and profit/ costs percentages relative to the revenue. The only different value used to create Table 3 compared to table 1 in the article is: 20% of the leads convert to a sale instead of 25% used in the article. The average price per visitor is again $1.50.
Table 4 below shows how different fraud percentages affects the ROI and profit/ costs percentages relative to the revenue. The only different value used to create Table 4 compared to table 1 in the article is: The CLV is $250 instead of $300 using in the article. The average price per visitor is again $1.50, the conversion leads to sale is set at the default: 25%.
Glossary
B2C - Business to Consumer
CAC - Customer Acquisition Costs
CLV - Customer Lifetime Value
CTR - Click through rate
MFA - Made For Advertisement
ROI - Return on investment
TCPA - Telephone Consumer Protection Act