Retail Media Margins - Myth or Reality

Retail Media (RM), which involves brands advertising their products within online retail environments, is one of the best investments a retailer can make.  True or False?

Large retailers can generate more than 5% of their revenue from Retail Media.

• Amazon (2022)

  • Retail Media Revenue - $37.7B

  • eCommerce Revenue - $220B

  • RM % - 17.1%

• Walmart (2022)

  • Retail Media Revenue - $2.7B

  • eCommerce Revenue - $47.8B

  • RM % - 5.6%

Both companies have done RM for quite some time. Our non-public insights tell us that 1% is realistic and achievable within 12 months of the program’s start.  The question remains how much of it is profit. Let’s examine options for a hypothetical $500M retailer.

Option 1 - Build

To build an RM Platform, you need an engineering team. A dedicated team will run at least $2.5M in labor costs. 

CapEx, hiring challenges, and time-to-build aside, $5M in revenue costs you $2.5M, a 50% margin. As your RM business grows, the margin will improve.

Option 2 - Buy

Several vendors offer RM as a service.  They charge 15-20% in revenue share.  You will need to integrate the solution, but let’s assume that you can absorb this work using your existing resources.  

At 15%, $5M in revenue costs you $750K, an 85% margin. However, as the business grows and crosses $17M in RM revenue, the Build option becomes more attractive. 

Option 3 - Fiteo

With Fiteo, you pay 10% rev share, without any upfront costs, a 90% margin from the start.

The 10% rate applies to the first $25M in RM revenue. For anything above $25M, Fiteo charges on a regressive scale to cover our costs. This approach makes Fiteo preferred to the Build option at any volume.

Conclusion

RM delivers at least a 50% margin. The Build option works well for large retailers, with the economics improving as the business grows.  The Buy option, with a higher margin, is attractive for smaller retailers.  With Fiteo, the retailer of any size gets the best of both worlds - a consistent 90% margin with a cost cap.

Intrigued? Let’s put 30 minutes on the calendar: https://calendly.com/sergeypodlazov/30min