Wednesday, June 20, 2018

Lesson #294: Marketing Attribution: What Is It and Why It Matters

Posted By: George Deeb - 6/20/2018

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Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving a return on your marketing investment (your “ROMI”).  This previously linked post demonstrates how to track your ROMI at the 30,000 foot view, based on your overall business revenues vs. costs, or at the unit level of an average transaction.  But, if you want to really fine tune your efforts to maximize your ROMI, the best marketers turn to marketing attribution tools to help optimize marketing within every sub-channel of their business.  Let me explain.

WHAT IS MARKETING ATTRIBUTION?

According to Wikipedia, “marketing, attribution is the identification of a set of user actions (‘events’ or ‘touchpoints’) that contribute in some manner to a desired outcome, and then the assignment of a value to each of these events.”  Boy that was a mouthful.  Let me translate that into “simple talk”.  Your customers are interacting with your business in many ways.  Let’s say you are a retailer, and one customer may be visiting your store, your website, your mobile app, your direct mail catalog, etc.   Marketing attribution helps assign value to which of those channels (if not all) should get credit for the sale.  So, when you go to calculate your ROMI for that business unit, you are fairly matching revenues with marketing costs.

CALCULATING ATTRIBUTION IS HARD

The above makes it sound like marketing attribution is a relatively straight forward thing to calculate, which it can be if the customer clearly only visited one channel.  But, what happens when they concurrently visit multiple channels; that is when the calculation becomes much harder.  Let’s continue our example from above.  Let’s say a customer receives a catalog in the mail, decides to go to the website to learn more, and decides to purchase the product in the store?  Now, who should get the credit?  The answer:  they all should get partial credit, and that is where marketing attribution tools come in to help you calculate that.

WHO SHOULD GET THE MOST CREDIT

Determining who gets the most credit for a sale is the big debate.  Should the first touch point get the most credit, as the transaction most likely started from them?  Or, should the last touch point get the most credit, as that is where the customer actually pulled out their credit card and purchased the product?  The arguments can clearly be made both ways, especially by the marketing managers in each of those respective departments!!  To help me with determining my ROMI, I tend to bias the first touch point (e.g., the catalog that arrived in the mail), to help me assess if I should keep spending monies on that specific tactic, or not.  But, oftentimes, I simply split the credit evenly between each channel that touched the customer during that sale cycle.

MARKETING ATTRIBUTION TOOLS

Many companies turn to sophisticated software packages to help them.  Some of the more sophisticated tools are found in expensive enterprise grade solutions from Adobe and others.  But, there are others that serve the SMB market, as well, including Bizable, Bright Funnel, LeadsRx, Looker, Track Maven, Active Demand, Tealium, ABM Analytics and Attribution, to name a few.  You can learn more about those products from their websites, or the marketing attribution sections of software user review sites, like G2 Crowd or Capterra.

HOW TO CALCULATE IT ON YOUR OWN

Are you too early in your growth curve to able to afford software here?  That is okay, here is how you could calculate marketing attribution on your own.  Let’s say you spend $10,000 on a direct mail piece, and you get 1% (100) of those people to buy a $200 product from you—50 through your call center and 50 through your website.  You know the website orders were tied to the direct mail piece, because the user needed to enter a unique promotion code to redeem the offer in the mailer.

In this example, to me, I would attribute 50% of the 50 web orders to the catalog and 50% of those web orders to the website, as they both equally played a role in the sale.  So, the catalog gets credit for 75 orders ($15,000 in revenues) and the website gets credit for 25 orders ($5,000 in revenues) from this one campaign.

Then, you need to carry that logic through to expenses.  You need to allocate 75% of the mailer costs ($7,500) to the catalog division and 25% ($2,500) to the website division.  And, in reverse, if the website has costs to operate, let’s say $10 per transaction (or $250 in total web orders from the mailer), you need to add those costs to the catalog division’s total campaign costs.  The call center costs of $25 per order (or $1,875 in total catalog orders) will be incurred entirely by the catalog division, as the call center was not used by the website orders.

So, totaling it all up from this campaign, the catalog had:  $15,000 in revenue less $7,500 in mailer costs, less $1,875 in call center costs, less $250 in website costs.  For a total profit of $5875 and a total ROMI of 2x (ignoring product costs).  And, the website had:  $5,000 in revenue less $2,500 in mailer costs, less $750 in website costs.  For a total profit of $1,750 and ROMI of 1.54x.  Voila, both divisions that participated in the sale, sharing in the sale credit in a fair and equitable way.

POTENTIAL PITFALLS IN YOUR CALCULATIONS

There are many instances that create calculation challenges.  For example, who gets credit for the REPEAT sale—the channel that began the customer relationship, or the channel that got the repeat order?  Here, I would bias the most recent channel, but don’t lose credit for the lifetime value calculations of the first channel.  Or, what happens when the tracking data is incomplete, and you are not sure who should get credit for the sale?  Then take the untracked orders, and allocate them pro rata in the same percentages of the tracked orders.  So, an an example, if your website accounted for 50% of your clearly tracked orders, there is a good chance it represented 50% of your untracked orders, as well.  So, add those untracked orders to each respective tracked channel.  This is as much an art as it is a science, so it will take time to set your rules and optimize them over time.

CONCLUDING THOUGHTS

Hopefully, you now better understand what marketing attribution is, and why it is so important to track:  it helps you to fine tune your ROMI calculations by marketing channel to make sure you are optimizing your marketing spend by channel.  The better you understand your customer behaviors (e.g., touchpoints) with a customer-centric omni-channel mindset, the better you will be able to truly take your marketing efforts to the next level.

For future posts, please follow me on Twitter at: @georgedeeb.



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