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

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.

Reflections After a Year in Raleigh-Durham

As you know, Red Rocket opened an office in the Raleigh-Durham area a year ago.  As I was reminiscing on my life changes over the last year, I thought it would make for a good blog post for any of you looking to break into a new market, or perhaps considering a move of your own.

RALEIGH-DURHAM VS. CHICAGO, AS CITIES

• Chicago is one of the most world-class cities, with around 9MM in the metro region, and the business community largely centralized in or near downtown Chicago.  The RDU area, in comparison has 2MM people in the metro market, geographically spread across very disparate cities (e.g., Raleigh, Durham, Chapel Hill, Cary, Morrisville).  The RDU area lacks the identity of being one central city, and the competition between the cities that comes with that.
• The Chicago economy has a lot of challenges with Cook County and the State of Illinois near bankruptcy, with rising taxes resulting in a leaky bucket of a slowly declining population.  The Raleigh-Durham area, on the otherhand, is exploding.  The population is forecasted to approximately double to 3.5MM over the next 20 years, creating new tax revenues.  Both Amazon and Apple are giving Raleigh a serious look for adding tens of thousands of jobs in the region, with new second headquarters locations.
• Chicago is a pretty diverse city in terms of industries served, including companies the technology, advertising, financial, retail, manufacturing, hospitality, consumer products, aerospace and other industries.  The Triangle area is very deep in technology and life sciences, as their primary industries served. And, the technology here is much more B2B facing, with a much smaller B2C community.
• The pace of business is a lot faster in Chicago, with a bigger sense of urgency to move at light speed.  People moving to the Triangle area, often do so to create a better lifestyle.  So, a lot less late nights and rush to get things done quickly in the area.  Which can be a good thing, or a bad thing, depending on your perspective.

RALEIGH-DURHAM VS. CHICAGO, AS STARTUP ECOSYSTEMS

• Chicago is a much more mature startup ecosystem, built over decades.  You have seen serial entrepreneurs build one successful startup after another, and reinvesting their "winnings" from their prior companies, back into the ecosystem with their next companies, spreading equity deep and creating hundreds of millionaires in the process.  Chicago has clear leadership propeling the ecosystem forward, in terms of what it wants to become in future years, and is flush with capital from investors across all stages of investment.
• The Triangle feels like Chicago about 10-15 years ago.  It has all the ingredients to make for a successful startup ecosystem, with a lot of key players in town trying to take the region to the next level.  But, the region is desperately short on capital, and needs more funds in town to support the local startups.  And, only a handful of entrepreneurs have built unicorn scale companies, with equity largely concentrated with the founders, many of which have not reinvested their "winnings" back into the startup community.  For this reason, many of the successful startups, typically sell much earlier in their growth curve, than their Chicago counterparts, and include a lot more "first timers".
• Both markets have world-class universities to lean on for talent and research innovation.  Chicago with greats like Northwestern and the University of Chicago. And, the Triangle with greats like Duke, North Carolina and North Carolina State.
• Both markets are equally conservative, not wanting to make mistakes with their venture capital investments.  Both markets equally unlike Silicon Valley with their "failure is a badge of honor" mindset, not afraid to swing for the fences on long shot game-changing ideas that may explode to success, or miserably flame out.
• Chicago invests about 2x the amount of venture capital into startups than the Triangle area does each year, most of which into the technology industry.  Raleigh-Durham splits its investments between the technology and life sciences industry.  So, that means there is about 25% of the capital going into tech startups in the Triangle area, as compared to Chicago.
• Both markets have equally warm and welcoming members of the startup ecosystem.  I had no trouble meeting about 200 key influencers in town over the last year, all willing to welcome me to the market and offer whatever assistance they could.  Just as easily as I could in Chicago.

MY PROFESSIONAL LIFE

• I typically like to work with growth stage B2C companies.  Those basically don't exist here in any material quantity.  Many of the B2C startups that have to gotten to that point, are sold beforehand.  So, it is like looking for needle in the haystack for B2C.  But, there is plenty of B2B here to keep me busy.
• I am loving running our newest acquisition, Restaurant Furniture Plus.  I am glad I was able to find a good business, that was not in the region, that could easily be managed virtually from here.  It is so much fun building another business of my own, in addition to my Red Rocket work.

MY PERSONAL LIFE

• I moved to a bigger, newer home for half the price of what I was paying in Chicago.  For example, my real estate taxes dropped from $20,000 to $5,000 a year.  So, I love the cost of living advantages, for largely the same nice suburban lifestyle I left behind.
• Our neighbors are all friendly and welcoming.  We live in the Cary area.  So, there are a lot of transplants from the north, like us.  Both regions lean liberal, politically (which is an outlier within the more broadly conservative state of North Carolina).  And, both regions are very diversified, ethnically and racially.  The people are down to earth here, and less concerned with competing for material things.
• Because the population is growing so quickly, the schools are having a hard time keeping up with the growth, which creates overcrowded classrooms and constant redistricting as they add new schools, in many areas.  But, overall, I think the education experience is actually equal or better to what we left behind, forcing the kids to compete on a bigger stage, sooner than they normally would have, with less hand holding in the process.  We also like how much more diverse the schools are, more representative of the real world.
• Chicago winters were so depressing--six months of grey, cold and snow.  I love the warmer climate here.  Winters rarely have high temperatures below 50 degrees and the sun is always out.  Which means I can workout outside year round.
• The Raleigh-Durham area is surrounded by a lot of great roadtrip opportunities with the kids--two hours from the ocean, three hours from the mountains, four hours from Charleston or Washington DC, etc.  So, we are loving the close proximity to a lot more great weekend trips.  Chicago was largely an island of itself, with not much to do within a few hours of the city.

CONCLUSION

• Both cities have so much to offer.  Chicago a world-class city, and the Triangle a world-class lifestyle.  I love both for very different reasons.  And, startups can succeed in both regions, with a supporting ecosystem.  I am very excited to see how Raleigh-Durham evolves in the coming decade as all the new people and companies move into the region.
• Both cities are ripe with terrificly skilled people to work with, across all needs of the community (e.g., entrepreneurs, lawyers, accountants, bankers, investors, accelerators, community leaders).  So, you can't go wrong professionally or personally.  I am glad we have a presence in both markets.

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

To Find the Holy Grail of Product-Market Fit

Every entrepreneur believes they have the product that is going to revolutionalize the world, worthy of venture capitalists bathing them in piles of cash to achieve their dream. But, venture capitalists don’t back products; they back winning business models. And, winning business models are anchored by companies that have the potential to generate lots of revenue with easily scalable, repeatable and profitable sales and marketing strategies. And none of that will be truly determined until you successfully test and optimize your product-market fit with potential customers. This post will help you learn exactly how to do that.

Read the rest of this post in Entrepreneur, which I guest authored this month.

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