May 11, 2021

Revenue Attribution: The Math Behind Making a Smart Decision

Revenue attribution is a complicated topic, but it's something that every business owner needs to understand. The revenue generated from your website is the lifeblood of your company. In this blog post, we'll talk about attribution and how you can use it to make smart decisions for your business!

Wouldn't you like to know how revenue is attributed across your various marketing channels? In this blog post, we will go in depth about attribution and why it's important for making a smart decision. 



What is Revenue Attribution?

It  is a method by which we can attribute to original sources of revenues and components such as ads, subscriptions, downloads, add-ons purchases etc. 

It allows marketers to determine the true value of leads and sales generated from different channels. It also provides marketers with the ability to properly evaluate online marketing initiatives based on metrics such as Total Conversions attributed to each channel/Medium etc. 

Along with profits attributed per source , marketers are now able to accurately track how much they really earn through their digital marketing efforts.

It can be difficult managing all of the tasks within a marketing department. This is especially true when it comes to tracking, analyzing, and attributing revenue back to its source. There are some common misconceptions about what it actually entails.

The process takes each stage in the funnel into account when trying to find where conversions originated from within your marketing efforts. 

For example, if you have an eCommerce site that sells apparel then you may not see many conversions occurring on your website’s product pages at first glance. 

It could be that people are entering the checkout process but are ultimately abandoning their carts due to one reason or another. The number for product page completion rate will take this type of information into account when determining how many revenue dollars originated from that source.

It is about finding the needle in a haystack. The possibilities for where your marketing messages are conveyed to potential customers are endless, but that doesn’t mean you should settle for any results that don’t accurately reflect your efforts.

Through careful planning and data mining, can help you reallocate your resources so that they have the maximum impact on your bottom line.

Picture from new breed 

What are the Methods of Revenue Attribution?

It is also known as revenue allocation or product versus channel accounting (PVCA), is the process of assigning revenue to all entities that contributed to the sale. 

It allows marketers to understand how the different components of their marketing mix contribute to sales and assists in determining what types of marketing strategies should be used in order to maximize profitability.

In general, there are three types of rules for revenue allocation: "all-or-nothing," "first touch," and "last touch." All three methods use a combination of data from several sources to determine which organization within a company contributes most directly towards a sale. 

Some may only consider the organization involved with a customer before purchase while others may consider several organizations throughout the entire customer life cycle.

  1. All-or-nothing revenue allocation

It is also commonly referred to as "conquesting," which is the acquisition of customers from a rival channel. In this scenario, one channel gets 100% of the revenue if they are able to steal customers away from an existing channel.

This can have some serious negative consequences for a company's sales and marketing efforts, especially if the two channels being compared offer vastly different products or services. It also doesn't tell marketers much about their return on investment between both channels.

It helps companies understand which customers were most successfully marketed to within a certain time period. 

It allows marketing teams to see where best results came from in regards to marketing campaigns and prioritize future campaigns based upon what has been successful in the results of attribution conducted.

  1. The first touch allocation 

It occurs when the first organization to interact with a customer is considered as having complete responsibility for that sale. 

This method can be problematic because it doesn't consider any marketing efforts after the initial contact with a customer; therefore, those channels may not get any credit or recognition. 

Also, it does not take into account any services provided by other companies and only focuses on the "last" touchpoint within a specific time period (such as 30 days).

  1. The last touch attribution 

This methodology considers all interactions throughout every step of the sales process and assigns 100% revenue to that particular channel if they were involved at some point before purchase. 

This approach gives more credit to each company involved in the sales process but is also more complicated and may require the use of more sophisticated data collection tools like databases or customer relationship management (CRM) systems. 

Attribution can be conducted on an individual company level, but it is most commonly done on a product level.

Another method for determining revenue sharing is to conduct business rules analysis with the entire marketing team in order to establish fair standards that everyone can abide by. 

Specific standards will vary between companies, but there are some common practices that are generally accepted throughout the industry. 

These include: "equal cost per lead," where all channels get equal credit if their respective acquisition costs are the same; "equal profit per lead," which assigns revenue based upon each channel's profitability; and "customer lifetime value," where channels get assigned revenue based upon their retention rates of customers.

What are the Important Aspects of Revenue Attribution?

The most important thing to remember when determining who should receive credit for a sale is that it is necessary to be aware of and consider all of the marketing efforts that took place before that particular sale occurred. 

A method which only takes into account one channel or piece of data will not give marketers a complete picture, and they will not know if they are optimizing their resources in the best possible way. 

Companies need to take responsibility for every channel in which they participate in order to accurately assess performance between different departments and plan future campaigns correctly. 

This is what makes attribution so valuable from a business standpoint; it allows organizations to make effective decisions when planning their overall marketing strategy with respect to not just one but all of their channels.

What is the Revenue Attribution Process?

The process for a traditional brick and mortar business may be substantially different from that of a digital company in today's online environment, where many customers start their purchase research on search engines or social media sites. 

Thus, when conducting, it is necessary to have an understanding of how each channel contributes to the overall performance of a marketer's efforts. 

In general, there are two primary places where B2B companies conduct marketing initiatives: online and off-line (such as print ads or television commercials). Each will therefore have unique metrics by which revenue can be attributed based upon what type of results were produced. 

If an email campaign was conducted over a certain period with a very high open and click-through rate, it would be safe to assume that those customers probably initiated their purchase through the email they received. 

Since this is a very common practice amongst marketers, there are many tools readily available on the internet for organizations of all sizes such as Mailchimp or Constant Contact which allow them to track specific interactions with each of their marketing emails. 

These systems create more reliable methods for companies to conduct attribution because they can follow individualized customers throughout their entire journey rather than just one touchpoint in time.

The attribution process is ultimately about understanding and tracking where each link in the sales cycle occurs and then assigning responsibility for that lead's ultimate conversion based upon the different factors involved. 

This requires marketers not only look at certain analytics relating to their different marketing initiatives, but also analyze the specific paths that customers took when searching for a product or service necessary to complete a purchase. 

It is important to note that in order to conduct it correctly it is essential to have all of the appropriate data available in order for marketers and analysts to proceed with an informed opinion about where leads originated from. 

Since there are so many touch points throughout the sales cycle that could potentially influence consumers' decisions, it is necessary to track every interaction they had along the way. 

By doing this, companies can gain a better understanding of which channel is most effective at driving conversion and how to effectively allocate their marketing resources moving forward.The process can be extremely labor-intensive and require a substantial amount of time in order to conduct. 

It is, however, one of the most valuable tools available to companies looking to gain a competitive edge through their marketing efforts even if it means having to dedicate additional resources towards its completion.

So What is the Big deal?

There are many benefits of performing revenue attribution:

1). Improving ROI and maximizing profits: understanding how much revenue each channel brings in and which channels cost the most helps you optimize your marketing spend for greater bottom line impact. 

You can focus on getting more from your biggest revenue generators instead of investing in areas that generate less return. 

2). Quantifying the value of channels: Services such as Google Analytics Premium offer integration with Adwords so you can get a dashboard view showing your conversions segmented by traffic source (organic search, paid search, email) and social media activity. 

This has been a feature offered by online analytics platforms for years but many businesses don't understand the potential this offers for quantifying the value of other channels such as email or social media. 

3). Benchmarking performance over time: By comparing your attribution performance with industry benchmarks, you can monitor if things are getting better or worse and adjust accordingly. 

In addition to that, there's a lot to be learned from studying how others have achieved success in areas similar to yours. 

4). Tracking customer acquisition costs: Knowing how much a new customer is worth allows you undertake CAC-based bidding for PPC campaigns to control your acquisition costs. 

5). Understanding macro trends: Analytics platforms often provide an analysis of emerging trends allowing you to identify which markets show promise and which may not be worth investing further resources in until they prove their viability.

Assigning Value

When we talk of revenue attribution, we really mean assigning a value for each channel and comparing it to the cost of running that channel.

The way this is usually done is by taking your average CPA (cost per acquisition) across all campaigns and then applying a percentage based on how much revenue that channel brings in. 

For example, if you get 150k visitors from paid search at an average CPC (cost per click) of $2 and your total sales come to $300k then 3% of these sales will be attributed to paid search. 

A similar analysis would be performed against other channels such as social media or organic search traffic to give us an accurate picture of where our return comes from.

What Are The Things To Avoid?

There are some common areas of misapplication where it can't be relied on to provide meaningful insight.

1). It isn't designed for attribution of downstream sales: it's an impossible task to value touch points that occur after the sale. 

For example, if you see that email brings in more than 50% of your revenue then it likely means that this channel is very powerful at converting prospects into buyers but it doesn't necessarily mean that they are responsible for generating most of their own revenue directly from email (e.g., through repeat purchases). 

2). It shouldn't be used for full view attribution: It tells you which channels make money and how much but not why or the extent to which the conversion was influenced by each channel (e.g., a customer could have been exposed to your brand through multiple touch points before finally converting). 

3). It isn't designed for attribution of indirect sales: Some channels are used not just to directly generate revenue but also as a means to attract traffic which can in turn lead to downstream sales. 

Organic search is the best example here - it's not uncommon for companies with well optimized search engine pages or websites often ranked high in search results, to see 80%+ of their revenue coming from organic traffic.

Value vs Volume

Even when you're using attribution for its ideal purpose (to price each channel), it's important to use the right comparison point when benchmarking performance. 

So it's tempting for marketers who are struggling with low volume or conversions to jump on paid advertising platforms that promise high volumes of traffic. 

But this is not the right approach - if an activity isn't profitable then it doesn't matter how much volume you can get because all that traffic will essentially be worthless to you.

This means marketers should use different metrics when evaluating paid marketing channels against organic search or social media. 

For example, conversion rate and average order value (AOV) are much better indicators for paid marketing campaigns while bounce rate and time on site make more sense in the context of organic search results or social media profiles.

Conclusion

However, there are some drawbacks to using position-based models: the data required is not usually available at the level of granularity needed; 

These types of models take into account paid search results but do not take into account organic search volume; and, these models are more time consuming to implement so they're not usually feasible for real-time reporting.

At the end of the day, each business is different and if you feel like you need attribution models that take into account multiple touch points over time then it might be worth testing out a position-based model. Otherwise, it can be much easier to use last click or linear models to get started (when in doubt, lean towards simplicity).


Share Post:

Comments System WIDGET PACK
Written by

Himangi Lohar

Start engaging with your users and clients today