Note: The examples on this post will focus on the digital marketing angle given the relative ease of tracking technologies
The million dollar questions: Which channel should I be focusing on? Which channel worked in the past? How do I give credit to a channel?
Understanding unit economics are crucial for forecasting the health of a business and this can be drilled down all the way to the department level.
- How efficient are the sell-through rates?
- How fast can we ship new products?
- How efficient is our marketing spend?
Today, we are going to focus solely on marketing spend and the different methods we can use to calculate attribution.
Spend attribution, in layman's term, measures the efficiency of various marketing (or advertising) channels by analyzing the associated cost involved in engaging that channel.
Spending $X dollars on Facebook Videos (that cost $Y to produce) got us Z% closer to our goal
Spending $A dollars on Google Ads (that cost $B to produce) got us % closer to our goal
Spending $Q dollars on Twitter (that cost $W to produce) got us E% closer to our goal
Start with the goals of the project and work backwards to the possible initiatives and marketing mediums and budget.
Before diving too deep into the subject, take some time to decide on the actual goals of this project. The more specific, the better. Some common metrics employed:
- Awareness: New visits, Post engagement, No. of shares, etc.
- Revenue: Purchases (overall basket or a specific item/ promotion)
- Engagement: Referrals, Repeat purchases, Higher return rate, etc.
Note: For the sake of simplicity, the rest of this post will use examples that assume that Revenue is the main goal.
Marketing & Ad Channels
Not every channel is created equal. Sophisticated marketers have come to realized that some channels cost a lot than initially anticipated. The usual culprit of these delays usually take the form of steep platform learning curves and the time taken to prepare the marketing collaterals.
- Learning about every audience permutation on the Facebook platform
- Doing a video shoot for a new fashion autumn collection
These initiatives take time to set-up and can be a huge drain on resources which makes this topic all the more relevant.
Which channel should I be focusing on?
It is immensely difficult to decide which channels should be dropped and which channels you should double-down on because we don't know the full story. Take this as an example...
A shoppers sees a Facebook post that was organically shared and lands on your website but does nothing except leave their email for your newsletter. You start a drip marketing campaign and they don't respond to the first three. They return ONLY on the 4th email and make a purchase.
For this example, let's assume they bought $100 worth.
How do you account for which had the greatest impact? If we simply attributed all the credit to the last email it wouldn't seem fair.
Basic Methods of Measurement
If you really don't have any measuring tools on hand, just go with last-click attribution.
Give all the credit to the last email that the shopper received. (All $100)
Medium: Equally Weighted
If you did have the tools to properly track shoppers across the whole journey, give equal weightage to everything. ($20 to Facebook, $20 for each email)
Hard: Time Decay + Position Based
This means weighing the first and last touch points the most highly with a time decay element in the model.
($37.5 to Facebook, $10 for the 1st email, $7.5 for the 2nd email, $5 for the 3rd email, $40 to the last email)
After a few months of observation you will come up with a calculation that looks something like this, albeit more complicated.
You're not done yet though. You should also include the time taken to prepare each one of these campaigns and their associated cost.
Once you have all these numbers in place, you will finally be able to answer the million dollar question: Which channel should I be focusing on?