Here's How to Calculate What's Working When You're Marketing on Lots of Channels
Determining which channel moved the customer to purchase is tricky when your marketing runs the gamut from Facebook ads to direct mail.
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?
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 straightforward thing to calculate. It could be if the customer only visited one channel, but what happens when they concurrently visit multiple channels? The calculation becomes much harder.
Let’s say a customer receives a catalog in the mail, goes to the website to learn more, then purchases the product in the store. Which gets the credit? The answer: They all should get partial credit, and that is where marketing attribution tools come in to help you calculate that.
Which 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, since the transaction most likely started there? 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). I tend to bias toward the first touch point (e.g., the catalog that arrived in the mail), to help me assess if I should keep spending on that specific tactic. 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.
You can calculate it own your own.
Let’s say you spend $10,000 on a direct mail piece, and you get 100 of those people -- 1 percent -- to buy a $200 product from you. Fifty purchase 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.
I would attribute 50 percent of the 50 web orders to the catalog and 50 percent 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 percent of the mailer costs ($7,500) to the catalog division and 25 percent ($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 $5,875 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, which gets credit for a repeat sale, the channel that began the customer relationship or the channel that got the repeat order? I bias the most recent channel, but give credit for the lifetime value calculations of the first channel.
What happens when the tracking data is incomplete and you are not sure who should get credit for the sale? In that case, allocate the untracked orders pro rata in the same percentages as the tracked orders. For example, if your website accounted for 50 percent of your clearly tracked orders, there is a good chance it represented 50 percent 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.
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.
Entrepreneur Leadership Network Writer