Calculating Marketing's Contribution to Revenue

There are two disparate approaches when it comes to this very polarizing discussion.

Warning: all decisions regarding the topic of attribution are fraught with significant political risk.

Marketing attribution is an area of study which aims to answer the following question.

 Perhaps you're more interested in how marketing expenditure contributes to revenue or other metrics.

Maybe you've used ROI, ROMI, or dabbled with MMM (marketing mix modeling) in an effort to provide clarity to the board when asked the above probing question.

In reality, the answer is extremely complex and dependent on your industry, product/service and internal structure.

With that said, you're going to fall into two main schools of thought pretty quickly. Whichever camp you fall into will determine how you approach the subject and the answers you'll receive.

If you need a specific, detailed answer, tailored to your situation you should reach out to our firm. Otherwise, read on and we wish you luck.

Group 1 - The Traditional Approach

Firstly, there are the traditionalists.

These marketing departments are typically led by an investment-fund-style manager who will outsource the majority of the department's function to a selection of agencies who are all instructed to work together toward a vague common goal.

Defining what this specific goal is, will vary considerably between businesses. Some teams will focus on 'conversions', while others will prefer a focus on vague vanity metrics or even the favourite perennial 'brand [insert second word here]'.

Media choices will heavily favour paid media advertising, perhaps accompanied by a few topical buzzword digital initiatives for good measure (to keep the 'millennials' happy). Each 12 month cycle will be precipitated by a creative 'big idea' that will form the core theme for the year.

If core financial results are poor, expect knee-jerk agency firings and 're-brands'. Also expect to frequently hear the default rebuttal statement that, "there was increased brand awareness and brand positioning" if the marketing department comes under direct fire without any evidence to support their claims.

When probed, the relationship between the goals of any marketing campaigns and sales revenue is rarely proven nor tested to any great degree.

The team culture will be either gut-led or opinion-driven where personal veto powers will rein supreme during a highly political decision-making process. There will be a focus on output and perceived impact as opposed to outcomes. There will be a focus on a high impact 15-30 second piece of video content that aims to win Gold Lions above all else.

The CMO will likely originate from an advertising agency background and then proceed to award most of the 'tendered' contracts to businesses within the same agency group.

Phrases uttered during internal discussions will typically include: reach, brand awareness, engagement, customer experience, touch-points, downloads, impressions, clicks, share of voice and many other iterations of the word 'brand'.

This 'traditionalists' group, I'd estimate will cover the vast majority of marketing departments around the world.

Group 2 - The Datarati

In the second group lies a much smaller, but growing collection of professionals who are taking advantage of new technology and more-often than not, more consistent in their growth trajectory. 

With that said, they also have major shortcomings with regards to the myopic nature of their approach.

They will prefer to control critical and resource-intensive tasks in-house, not just to conserve resources but also to improve market agility and responsiveness. Select functions will be outsourced to agencies only when necessary - not by default. Some organizations will in fact, control all tasks in-house and senior staff will share a collective disdain for agencies of any type.

It's not unusual for creative production, digital media buying and measurement to be completely the domain of internal teams. The general work approach will favour scientific data-led testing over any one person's opinion, and a continuous improvement cycle culture will dominate.

The media approach will be agnostic, mixing both organic and paid media, partnerships, affiliate/referral programs, sales promotions and more, into a holistic growth strategy that will change quickly if necessary. When probed, the team will be able to scientifically prove some contribution to sales revenue and the correlation between different performance metrics.

Phrases commonly uttered during internal discussions will include: northstar, customer database, audiences, conversions, sales-funnel, lead-scoring, split testing variables, SQLs, MQLs, CAC, LTV, CLTV etc.

However, as mentioned before, the Datarati have a major weaknesse. They often lack an understanding of brand assets, and exhibit a prejudice toward the user of digital mediums ahead of a balanced view of the different marketing channels. The traditionalists often have a similar bias towards use of traditional paid mass media options over digital (which they don't understand enough to make sound strategic decisions).

But who is right?

From experience, the main forces preventing Group 1 from becoming Group 2 are fourfold:

• Nous
• Politics
• Ingrained cultures
• A shortage of skilled professionals

I would suggest the best place to be is toward the Datarati side of the middle between the two.

There Are Complicating Factors

Measuring the contribution of marketing to sales revenue is not always easy - especially when there is a mix of offline and online influence. If your offering has a service component it's even more complex.

On one hand it's too easy for The Datarati to be dismissive of traditional media and frequently exhibit a strong prejudice toward digital mediums. While digital is inherently easier to measure, the value of offline touch-points should not be ignored. Trust and brand credibility are traditional media's strength. Too often I find the Datarati view rife in the SaaS tech and Direct to Consumer (DTC) industries, but their views are less valid in other industries.

Contrary to popular perception, offline media, including 'archaic' mediums such as the radio, can have a powerful effect on the overall purchase decision - especially with higher consideration offerings.

Recent personal experience selling million dollar artworks and expensive health treatments, has only further validated the limits to which digital mediums can affect the purchase decision process.

Many don't realise that with the rapid inflation that has affected digital marketing, it can be cheaper and more effective to use direct mail brochures when targeting younger demographic segments. Research shows this audience rarely receive physical mail so any mail they do receive receives high attention rates.

Longitudinal Views are Paramount

Marketers should realize that the yield of different channels is fluid and not fixed. Attribution should also reflect the length of the purchase decision process.

In the digital 'growth hacking' world, it can be shortsighted to treat leanings from books such as 'hacking growth', 'the lean startup' or 'traction' as marketing gospel without first performing your own tests in a modern context. What's old, frequently becomes new again. A lot can change in the digital space within the space of months, let alone years.

On the other hand, it's all too convenient for The Traditionalists to rest on their laurels and continue with:

• what is familiar
• what used to work,
• what they believe to still work, and
• trusting a distorted commission-led media-buying market

Just because something is difficult to measure, doesn't mean it shouldn't be measured.

After all, "what can't be measured can't be managed".

Outsourcing work to external vendor agencies is an all-too convenient way to limit blame, but the negative effects can also severely hamper team morale and skill transfer.

Who wants to be a glorified 'agency coordinator' when their peers are uncovering valuable marketing insights which will future-proof their careers.

Which one are you?

This burgeoning field of 'marketing attribution' or 'attribution modeling' is the holy grail of any marketing department and a field which I receive frequent requests for my expertise.

However, the answer to your attribution woes is often complex and varies significantly between organizations.

Custom attribution models are frequently the preference of the larger organizations. They are validated over time as the model constantly tested and validated by live feedback data. However, this approach is expensive to initiate and maintain over time.

Smaller firms will preference a mix-mash of digital dashboards, base much of their decisions via analysis courtesy of various click attribution models and they will often struggle to combine their online-online contributions. Attribution software tools are often poorly implemented, misinterpreted (last-click-centric) or myopic in their scope.

Choose your metrics and data approach wisely

Even if you have your attribution model correct, recent experience shows that there's much variation between the core focus metrics. Are you really after conversions, or leads, or sales qualified leads, or opportunities, or revenue, or high CLV customers, or high profit margin customer acquisition? Which metrics are you optimizing for?

IMO - attribution experts must be highly skilled in three areas.

They must have...

1. A deep knowledge of the performance metrics related to each medium which extends beyond mere top of funnel 'vanity' metrics.
2. A discerning ability to critique the accuracy of performance data, and...
3. A deep understanding of customer purchase behaviour psychology - including the entire customer experience/journey

Without these three critical areas, any conclusions will be very easily misguided and any subsequent attribution models flawed.

A common misstep by both of the groups mentioned above is an over-reliance on descriptive data.

Which of the two groups above best describes your department and how do you attack attribution questions from the 'powers to be'?

I'm interested so tell me your thoughts below.

If you need example of multi-channel media mix modeling and examples of the models we've created for clients - message John now.

Reach out for assistance specific to your particular situation.