How much revenue can a retail media business realistically generate?

If you do the work in a market-competitive way and keep innovating, it is safe to assume you can generate about 1% of your total gross revenue from advertising in roughly four years. Those dollars can come in at a 50–70%+ margin and drive the mutual growth of your business and your suppliers'. Big consultancies often promise 2–5%, but 1% is the honest baseline.

How do you calculate the carrying capacity of a retail media business?

For digital, a simple model is: total website traffic × average ads per page × average pageviews per visit × 0.7 (a reasonable fill rate) ÷ 1,000 × $8 (revenue per 1,000 ads displayed). With 3,000,000 visitors viewing 3 pages each with 2 ads per page, the ceiling is about $100,800. Stores work similarly but at a lower revenue per ad and a higher setup cost.

Why do consultancies claim retail media is worth 2–5% of revenue?

High-powered consultancies often sell senior leadership on 2–5% of gross revenue from ad dollars. Teams quietly balk, but the target sticks because it came from a senior partner with industry purview. The reality, once you model your actual ad inventory and fill rates, is closer to 1% — and if someone tells you your ad business is worth far more, you should ask questions.

What are the baseline requirements to build a retail media business?

Internal buy-in across merchants, marketing, UX, and store operations; the right product mix (not all private brand); the right talent profiles; enough people (not a one- or two-person team); a systemized way to deliver ads; baseline measurement (impressions, clicks, delivery, ROAS); and the right partners — favoring consultative offerings over a pure technology solution.

How do you grow a retail media business beyond 1% of revenue?

Networks that have surpassed 1% invest in their business as real capital expenditure, not just as a percentage of sales. Growing beyond the baseline takes real investment, change management inside the organization, and a strong partner who has done the work in a real retailer. Starting early is a meaningful advantage.

The 1% Rule: How Much Can Your Retail Media Business Actually Make?

If you've engaged a big, high-powered consultancy to evaluate your retail media business potential, you've likely been sold the idea that you can generate somewhere in the realm of 2–5% of your gross revenue from ad dollars. When your teams see that report they'll quietly balk at the idea — but they know that, regardless of their opinions, a senior partner with 'experience and purview into the whole industry' has convinced your CEO it's possible. And there's no going back. They have their new target.

In this post in my Retail Leapfrog Series — articles that serve to help new and emerging retailers surpass the challenges that incumbents have faced in retail media — we look at how much your business can actually generate from retail media, based on multiple factors.

First, a BaselineTrade vs. shopper vs. retail media vs. brand.

This is a whole other topic that I'll cover in a future post, but it's worth a baseline thought here. They are different. A couple of things to note when you're starting out:

If you don't have a retail media or shopper marketing business today — a mechanism to collect dollars in exchange for promotion — some of the dollars likely captured in 'trade' today will be reallocated to shopper or retail media. These are the dollars that should never have been there in the first place: dollars secured in exchange for some type of promotional activity.
You will not be able to push all shopper, retail media, or brand dollars entirely into trade. If you don't have a separate mechanism to collect these — with a baseline offering like the one outlined below — those dollars are going to help your competitors grow. Full stop.

The CeilingHaving ads to sell is important.

This seems like an obvious statement, but one that's often overlooked. If you don't have ads to sell, you cannot make money. Similarly, ads have a ceiling in terms of what you can charge for them. In very simplistic terms: if your ad only reaches 1,000 people, and each ad is only worth $0.008, then your retail media business can generate $8 — a realistic ceiling on what you can charge.

From this it's pretty easy to determine a reasonable carrying capacity of your business today — at least in a digital sense:

Digital carrying capacity

Total website traffic × avg. ads per page × avg. pageviews × 0.7 ÷ 1,000 × $8 = revenue potential

0.7 = a reasonable fill capacity · 1,000 = how ads are calculated · $8 = revenue per 1,000 ads displayed

If you have 3,000,000 people visiting your website or app, and they look at 3 pages per visit, and you have 2 ads per page, your media business is worth a maximum of about $100,800.

Note: for those who know this space well — I recognize it's way more complicated than this. This is not for you.

A similar model works for stores, but the revenue per ad is lower and the initial cost of implementation — i.e. the cost of installing digital screens — can be more expensive to set up. If you have 30,000,000 people visiting your stores and you have 3 ads per store, a good range is about $189,000 in gross ad revenue.

$100.8K

Digital ceiling — 3M visitors, 3 pages, 2 ads per page, 70% fill

$189K

In-store ceiling — 30M visitors, 3 ads per store

$290K

Total gross revenue potential of the media business you just built

There you have it — you've built yourself a media business with a total gross revenue potential of $290,000. If someone tells you your ad business is worth $10M, you should ask questions.

The FoundationsThe baseline requirements of a decent retail media business.

In a previous post, I talked about some of the initial challenges that retailers face in retail media. But let's look at the baseline requirements to effectively play in this space:

Internal buy-in. Merchants, marketing, user experience, store operations, and more need to be bought into the premise and willing to support it outwardly — at all levels of the organization. One of the biggest challenges every retail media business faces is a merchant telling a supplier not to spend their money on retail media, believing the money should be theirs in the form of trade.
The right product mix. If the majority of your business is private brand, there's no one to invest in advertising besides yourself.
The right talent profiles. A challenging one, because the space is so new and talent is still being developed. The right profile for an early leader seems to be someone with a strong entrepreneurial spirit, 10+ years of working experience, a customer obsession, a good understanding of media and marketing, and a strong understanding of retail. It's likely not someone in your company today — treating retail media as a special project for a high performer has its risks.
People. You need them. This isn't a one-, two-, or four-person team.
How you deliver ads. A systemized way of delivering ads using an existing toolset is key. We're past the point where manual tools or approaches are acceptable.
How you measure ads. Baseline measurement requirements include impressions, clicks, delivery of ads, and return on ad spend. The market has become much more sophisticated, but this is what you need to start.
How you partner. You likely won't be able to do this yourself, and there are excellent partners out there who can help. Look for the consultative offerings first — diving into a technology solution only gets you so far. You need to set up the business properly before you can start selling ads.

The NumberThe 1% rule.

Now, here's your number. If you do all of the above in a market-competitive way, and you keep innovating, it's safe to assume you can generate about 1% of your total gross revenue from advertising in about four years. These monies can come in at a 50–70%+ margin, and serve to drive the mutual growth of your business and your suppliers' businesses. In that, it's worth the time.

The way to look at this business: say you have a $10M media business operating at a 65% margin — that's $6.5M in net income. If your overall business is operating at a 3% margin, you'd need to sell $216M in merchandise to generate the same net income.

~1%

of total gross revenue from advertising, achievable in about four years of market-competitive work

$216M

in merchandise sales needed to match the net income of a $10M media business at 65% margin (vs. a 3% retail margin)

The good news: short of a small initial investment to get the strategy right, this 1% can come almost entirely as a reduction in margin. You still need to invest as a percentage of sales, and those investments can serve to accelerate the business — but your risks are minimized.

The LeapAccelerating growth beyond 1%.

This is where real investment comes in. The RMNs that have surpassed the 1% threshold have chosen to invest in their business — not as a percentage of sales, but as real capital expenditure. And if you want to stand out in this business, it's best to start early.

This money doesn't just appear, as some would have you think. It takes a complex effort of change management within your organization — and an investment in a strong partner to get you there. A partner who has actually done the work in a real retailer.

If you want to pressure-test your own number, or talk through how to architect the business to actually reach it, follow me on LinkedIn and shoot me a note.

The 1% Rule.