On the last episode, I talked with Steffen Hedebrandt about marketing attribution. And I'm a bit of a cynic when it comes to marketing attribution. In general, I think most small companies will struggle to justify the time required to build a capable and coherent model. But Steffen did make a compelling case.
“The funny way of saying is that how do you not justify it? Because you can only spend a dollar once in your company. So you want to be able to put that dollar where it looks like you get the most impact out of it.”
It’s hard to argue with that, but let's put that to one side for now. I think a more pressing issue for many business owners is not so much the ins and outs of marketing attribution. It's more about how do you connect a marketing activity to a revenue generating event. In other words, how do we know which things we're investing in that actually result in making money. And you might say, well hang on, isn't that the definition of marketing attribution?
The distinction I'm making here is that we need to understand how marketing impacts the buying process before you can spend time tracking each individual part of the revenue cycle.
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I'm going to assume that caught your attention, because you've stayed long enough to hear the music. So let's take a closer look.
Understanding how marketing impacts the buying process probably doesn't sound like a big deal. If you primarily sell your products via e commerce on your own site, someone clicks on a social media ad, it brings them to the website, you cookie them, (at least for as long as cookies are still a thing), and then when they put an item in the basket and check out, you've tracked the whole process and you can continue to track them every time they come back to you and assign it to that original marketing touchpoint.
But the reality is most B2B businesses sell to their customers indirectly, could be through distributors, channel partners, third party websites.
And so the ability to track the journey of a customer from them first seeing your brand to them buying your product can be pretty limited. In these cases, I think it's very tempting for marketers to focus on the results that are easy to measure, but the danger is these can easily become vanity metrics, where they show something happened because of the marketing activity, but they don't show how that something actually impacts the buying decision.
If you're not careful, the marketing team may feel very pleased with themselves for driving more people to the website, or doubling the numbers of followers on Instagram, but the sales team or the CFO will be scratching their heads and saying, ‘So what? That doesn't bring me business’ and then that leads to frustration and then ultimately a lack of confidence in in the marketing strategy.
So how do we do better than that? There’s a few approaches to this, depending on your business model and the resources available that can move you in the right direction without building a detailed and complicated attribution model.
We'll start with the easiest one. If you sell a percentage of your product or service through your own website, you may be able to use that chunk of revenue as a predictor of how your marketing is impacting revenue.
So let's say 30 percent of your revenue comes from your website and you have the metrics in place to track which orders come from a specific digital ad. Theoretically, you could take that revenue number, multiply it by three, and that gives you a rough revenue resulting from your Google ad.
Obviously there's a lot of holes in this. One potential downside is that it's a self-selecting segment. You can't be sure that the people who buy on your website have the same behaviors as your other customers. In fact, there's a good chance they will not. They may not be your ideal customer. Maybe you prefer to sell through the type of people that buy through a channel partner.
It could be that an online customer has a much smaller purchase amount than a third party customer. But it is at least a first step into looking at where your revenue is coming from.
For more complex sales models where you don't have anything coming in online, the trick is to identify the points in your buyer's journey that you can measure and that you believe have a direct correlation with purchase activity.
That could be something like an app download, a request for a physical sample, any kind of action that a potential customer will take that can be captured in your CRM. And most importantly, it's sufficiently advanced in the process that you know they are serious. And so that last bit pretty much knocks out things like e books and webinars, because they tend to be much earlier in the buyer's journey.
I'll give you an example. One company I worked with, that conversion point was a live demo request. And I'll admit, the initial data was anecdotal. When I interviewed the sales team, I kept getting the same feedback that they closed around 60 percent of the prospects who sat through a live demo, either a virtual demo or an in person demo.
And then the second piece of data, we knew the average dollar amount of a typical customer purchase. So we could roughly calculate the value to us of a successful live demo.
Let me walk you through the idea with just with some simplified numbers. So let's say an average new customer spends $10,000 in the first year, which generates a profit of $2,000.And maybe you're willing to spend $500 to bring in that new customer. So effectively you invest $500 to produce a profit of $2,000. Now if half of your demos result in a new customer sale, then you're basically saying you can afford to spend $250 to win a demo with a new prospect.
Obviously this is quite trivial compared to the textbook approach of doing this. Larger companies will have a data team that will calculate a customer lifetime value (LTV) for you. They're probably looking at Cost per customer acquisition or CAC, and as you grow, you may get the tools and the resources to be able to do that. It's a beautiful thing when you have dashboards that deliver this information to you.
It's obviously much better if you know how much a customer will be worth to you over their entire lifetime as your customer versus just from that first purchase or the first year. But we're talking about taking initial steps before you have all of that data. For most companies trying to build up a marketing capability, that first step is setting some type of benchmark that lets you know if a lead is worthwhile so then you can look more intelligently at your marketing investments, decide where to cut, and where to double down.
Let's talk about trade shows. There's an area that is ripe with vanity metrics. Most people will talk about the number of leads they scanned. At a trade show, you might hear something like, ‘we scanned 100 people. That's 20 percent more than last year. So it must've been a good show’. But what if all of those scans were rubbish?
The real metric, if you understand your conversion points and the value of a customer, should be something like ‘Hey, we need to book 10 new demos as a result of this trade show to pay for our investment’. That's putting the focus on quality, not quantity of leads. And so then it changes how you set up and manage that event.
We all know it's easy to get caught up in this push to get as many scans as possible at a trade show. But what you really need to be doing is maximizing the number of meaningful conversations and then capturing that activity. That is a deep enough topic for a whole other podcast episode. And maybe I'll dig into that another time.
Now the activities that are more typically tracked or more easily tracked in marketing attribution is your online ad campaigns, your digital campaigns, Google ads, social media ads, that kind of thing. When you run an ad campaign, a lot of people, a lot of agencies even, will talk to you about click through rates, cost per thousand impressions.
And they look nice, and they're easy to track, and they're easy to manipulate, to move them up. But, what you really want to be doing is measuring clicks that resulted in your conversion point. A click through that resulted in an app download, or a sample request, or a demo. So, you're not measuring general activity.
You're measuring something that's actually linked to that event that you know is likely to result. And once you do that, it's going to push you to dig deeper into the details. It becomes less about keywords and volumes and more about the quality of the offer you're making, the user experience, when they click through and so on and so on.
It also brings the focus onto the enablement part, or the operations part, of marketing. Making sure that you're bridging that gap between sales and marketing and operations. If your primary conversion point is ordering a physical sample, then it's in your interest as a marketer to make sure that process is smooth.
You don't want people leaking out of the pipeline at this point. So you want to make sure it's easy for the prospect to place the order, that you're collecting all the information you need, and then also that the sample kit that's sent out is well designed. It looks good, it contains the right things, not only do you want to delight the customer when they receive it, but it should also make their buying process easier.
I'll give you an example, moo. com does a - if you've ever printed business cards or, or brochures through an online company, you'll probably understand this. You can request a sample pack for their marketing materials. They ship it out. It's very nicely packaged. Showcases the quality of their products.
But the second thing it does, it makes it easier for a buyer to choose which paper quality and finish they want. For their brochures or their business cards. I've certainly been guilty of going on to order something online. And then when I get to the screen where it says, well, do you want matte or gloss or super gloss? Then I stop and think about it. And, I'll come back and order it later. Moo.com is removing or reducing that barrier by giving you samples of each. So you can quickly look at it and say, okay, this is the one I want.
And of course, the importance of something like this is if you're willing to give your company a physical mailing address, which these days is often your home address, that's a pretty strong signal that you're ready to buy, or at least very far along in the consideration phase.
Now let's go back to my original concern that marketing attribution may not be the best use of resources for a small company. Steffen's comment is absolutely right. If you're spending money on marketing, you better have some way of knowing if it's paying off. When I sound cynical about marketing attribution, what I'm really talking about is the use of complicated attribution tools.
I've seen marketing teams get so tied up in tracking every step of every customer journey, that they don't have time to optimize their message, work on new campaigns, do all the other day to day things that are actually going to move the needle. Personally, I'm much more interested in understanding the broad brushstrokes of marketing effectiveness to help drive that growth curve for a smaller company with limited resources.
It's not so much about improving our pay per click efficiency by 2%. It's about understanding whether a LinkedIn ad is more likely to find new customers than a Facebook campaign. It's knowing which of the trade shows you attended last year uncovered enough conversions to justify attending again. It's understanding where to most effectively invest that extra budget that comes your way at the end of the quarter, because you already know what's going to pay off and what's not.
And that's where knowing your meaningful conversion metric really pays off. If you know the steps someone will take that most likely leads to a purchase, and if you can track that step, then that's the biggest part of the puzzle to knowing whether your marketing is working or not.
Now, if you're at a large company with million dollar ad budget and a dedicated performance marketing team, it's a whole different kettle of fish.
That's who those complicated, expensive attribution tools are really built for, where you have the resources to actively manage them. For the rest of us, we're trying to get the best bang for the buck out of our limited budget and making sure that we're bringing in enough new customers, the right type of customers to keep our growth moving up and to the right.
The last few episodes of the marketing mix have given us some insight into how to improve SEO, how to make our Google ads more effective and what is important in marketing attribution. They all really come down to the same basic concepts.
You need to know what it is you're trying to achieve, meaning what do you want to influence customers and potential customers to do.
You want to know how to measure that impact, and the flip side of that, avoid following those vanity metrics.
And you want to do it in such a way that you can keep moving forward and keep building momentum.
Two things that I think are guaranteed to kill a marketing strategy, particularly in the early growth stages, is getting too bogged down in the details instead of actually getting stuff done; and alienating the sales team and the leadership team by failing to show how your activity is linked to revenue generation.
Now I made it through this whole conversation without mentioning Marketing Qualified Leads, MQLs, or the Marketing Funnel. But of course all of this is intertwined. These conversion points we're talking about are significant signposts in those processes. And if you haven't listened to my discussion of MQLs yet, it might be worthwhile since these concepts are very closely connected. I'll put a link in the show notes to that earlier episode.
If you're a regular listener, you'll know that I ask my guests what their cocktail or drink of choice is at the end of each episode. Since it's just me today, I'm going to mention that this week is Negroni Week, which is a global fundraising event. It's run at a lot of bars and restaurants. So a classic Negroni is equal parts gin, Campari, and sweet vermouth. Unfortunately, I'm not really a fan of gin. So if I were to do a Negroni for Negroni Week, I'd go with something that's called a Lodge Negroni, which uses scotch and coffee liqueur in place of the gin. And I'll put a recipe in the show notes if you want to give that a try.
As always, I hope you found this discussion useful, whether you're interested in my marketing thoughts or just cocktail ideas. Thanks for listening to The Marketing Mix.
