It is no secret that marketing’s (and marketers’) influence on revenue is often underestimated and downplayed, especially by the sales team.

There’s actually a good reason behind this, marketing often focuses on long-term goals: develop a brand image, create a sustainable SEO strategy, develop long-term automated lead generation/sales funnel strategy, and so on. So, measuring the short-term influence can be difficult.

To tackle this issue, we will need to measure the effectiveness of our marketing campaigns against revenue. In this guide, we will learn how.

First, let us discuss the concept of marketing effectiveness itself.

What is Marketing Effectiveness?

Marketing effectiveness, in a nutshell, is how well a specific marketing campaign (or the overall marketing strategy) can optimize its spending and thus maximize ROI (Return on Investment).

So, marketing effectiveness is about measuring the right metrics, and there are three main issues to focus on here:

• Key Performance Indicators

Different marketing campaigns can (and should) have different goals, and so we will need to assign different KPIs.

For example, the ultimate goal of SEO is generating traffic, so the KPI is the number of traffic generated from organic search. On the other hand, if for example, the goal of your inbound marketing campaign is to encourage free-trial registration, then the KPI should cover that.

Assigning the proper KPI to your marketing campaigns is vital in measuring their effectiveness, and we will discuss it further below.

• Customer Acquisition Cost

Customer Acquisition Cost (CAC), as the name suggests, refers to the marketing cost required to acquire a single customer. Measuring CAC can help in allocating your marketing budget, and optimizing CAC will help increase ROI.

• Return on Investment

All marketing activities are, in the end, your investments. Here, we should ultimately measure how much money you will generate from a single dollar invested in your marketing activities.

Your ROI will be directly tied to your CAC: the lower your CAC, the higher your ROI will be.

Measuring Marketing Effectiveness

While there can be many different factors affecting how you can measure the effectiveness of each marketing campaign, here are some important steps to follow:

1.Define marketing goals

Your marketing activities can comprise of many different campaigns utilizing many different channels. It is very important to define clear goals for each campaign before you can properly measure their effectiveness.

Remember that your goals should also be realistic, not for the marketing effectiveness purpose but for productivity. If your goals aren’t realistic, they can hurt the morale of your team. If necessary, break down your goals into smaller, more realistic milestones.

There are two main considerations in defining these goals: the contribution of each campaign to revenue (direct and indirect), and the cost of each campaign (how the campaign will contribute to CAC).

Further below, we will discuss marketing attribution to figure out these contributions properly.

2. List your marketing channels

Your marketing strategy can (and should) involve many different marketing channels.

List out these channels and figure out their positions on the buyer’s journey or marketing funnel. For example, content marketing is usually positioned on lead generation and lead nurturing stages, email marketing in lead nurturing stage, and banner ads in lead nurturing and conversion stages.

3. Define KPIs

Based on the goals you’ve set up above, define the KPIs for each channel and campaign.

You can measure KPI weekly, monthly, quarterly, or even annually. For example, figure out the industry benchmark of your ad click-through-rate (CTR), and you can use this benchmark as your KPI.

You might want to check out this guide by Vital compiling the important marketing KPIs you should track. The more detailed your KPIs are, the better you can measure marketing effectiveness.

4. Calculate Customer Lifetime Value

One of the most common mistakes for many businesses is valuing customers solely on a short-term basis, which is often a single purchase from the customer. If you can properly measure the value of the customer in long-term, you can better allocate your marketing budget.

Depending on your business model, there are many different approaches to measuring customer Lifetime Value(LTV), but the simplest one is:

LTV= average annual profit per customer/ average years of customer retention-CAC

Customer retention here refers to how many years an average customer purchases from your business. For example, if the average profit for each customer in 5 years is $500 and your CAC is $20, your LTV is $100-$20 equals $80.

This way, you can decide whether it will be profitable to increase CAC (your marketing budget) or whether you should minimize it.

Implementing Marketing Attribution

Above, we have used SEO as an example, and we assumed the goal of the SEO campaign is to increase organic traffic. Yet, how can we measure the contribution of this organic traffic to revenue?

Also, imagine a situation where you have an active Instagram profile that brings in 1,000 new followers a month. How much revenue will these 1,000 followers bring each month?

Answering those questions can be difficult, and this is where marketing attribution comes in: allowing those abstract data to be more measurable.

In a nutshell, marketing attribution is about connecting marketing activities with revenue (sales) data. This way, we can measure the impact of each marketing campaign to revenue.

In essence, you don’t need any sophisticated marketing tools to implement marketing attribution: you simply need to define the touchpoints and assign values. However, the free and handy Google Analytics can assist you in implementing proper attributions.

How Marketing Attribution Works

Marketing attributions divided your marketing activities, channels, and campaigns into a series of user actions or touchpoints. What marketing attributions do is simply assigning values (or credits) to each of this touchpoint.

However, there’s a major issue here:

There are still, various different ways to assign these credits: is the last touchpoint leading right to sales deserves more credit than the previous ones? Or is the very first touchpoint that generates leads deserves more credit? This is why there are many different marketing models available, and below, we will discuss some of them.

The Different Marketing Attribution Models

Below, we will briefly discuss some of the popular marketing attribution models, their pros and cons, and how each model might benefit your business.

1. Last-Touch Model

This model assigns 100% of the credit to the very last touch point driving the actual sales. If sales conversion is your main business goal, this is the go-to model.

Pros: the main advantage of this model is the ease of implementation. In fact, it is the default attribution model in Google Analytics.

Cons: this model ignores the previous touchpoints leading to the actual conversion, while they can have their contributions to revenue.

Implementation: the last touch model is best implemented on conversion-focused activities like measuring conversion rates from different landing pages.

2. First-Touch Model

Pretty self-explanatory, when the previous model assigns 100% value to the last touch point, this model assigns the whole credit to the very first touch point.

The idea behind this model is that no sale will be made when your audiences don’t know about your business. So, this model puts its emphasis on the lead generation process.

Pros: again, very easy to implement.

Cons: similar to the last-touch model, it ignores other touch points that can contribute to sales.

Implementation: can be used to evaluate lead generation campaigns and activities.

3. Even-Weighted Model

Sometimes called linear attribution model, this model evenly distributes credit between all touch points. So, if there are 25 different touch points, each will receive 4% of the total credit.

Pros: more “realistic” than first-touch and last-touch models, where every touch point is credited. Can be used as a benchmark against other models due to its even distribution nature.

Cons: no all touch points contributed equally, and so can be inaccurate.

Implementation: as mentioned, can be a benchmark for other models and can fill the gaps not covered by first-touch and last-touch models.

4. Position-Based Model

In this model, 40% credit is given to the very first touch point, and another 40% is credited to the last touch point. The rest is distributed equally for all the “middle” touch points.

Pros: in most cases, the first touch point that introduces your business and the last touch point that encourages conversion are indeed the most important.

Cons: there are still cases where the first and last touch points can be not important.

Implementation: this model can be implemented for most business cases, except those with long sales cycles and long nurturing processes. In cases where lead nurturing is very important in a business, this model is not ideal since fewer credits are assigned to the middle stages.

5. Time-Decay Model

In this model, the closer the touch point is to where the sales happen, the more credit it will receive, hence the name “time-decay”: the longer a touch point happens before a sale, the less value it is perceived to have.

Pros: this model allows us to see the whole buyer’s journey, and it is also a common case where later touchpoints indeed have more impact to revenue

Cons: there are obviously business cases where early touch points contribute more, and this model won’t be able to measure that correctly

Implementation: can be a great starting point before you fine-tune the model according to your business process. Especially useful for businesses with long sales cycles

6. Custom Model

Sometimes called algorithmic attribution model, this model is uniquely made for the specific business, and so will be the most accurate in representing the business’s buyer’s journey.

If you understand your business process (and the buyer’s journey) thoroughly, you can implement this model yourself. However, if you have a complex business process, you might need the help of a marketing consultant.

Pros: the most accurate model to represent your business process

Cons: the hardest to implement, will require manual configuration for each of the marketing campaign

Implementation: you can implement custom algorithmic attribution with Google Analytics 360 (the premium version of Google Analytics) or other premium marketing tools.

Tips for Implementing Marketing Attribution

Ideally, a custom algorithmic model is the most ideal attribution model for any businesses. Yet, not all businesses have the resources, time, and/or expertise to implement a custom attribution model.

Also, there are cases where even a simple last-touch attribution will be enough for a business, and there’s simply no one-size-fits-all choice.

With that being said, here are some tips to help you choose the right marketing attribution model for your business:

1.Remember your attribution goal

Remember that your goal of implementing marketing attribution is to measure the effectiveness of your marketing campaign in relations to revenue. By properly assigning values to each touch point, you can measure the contribution to sales, as well as the CAC of each touchpoint.

With these numbers, we can properly allocate our marketing budget. The idea is to allocate more budget for those who contribute more, and minimize (or even eliminate) touch points with too high CPCs. Without understanding this purpose, implementing marketing attribution won’t bring any value.

2. Lead generation vs conversion

As you can see from the different attribution models we have discussed, there are two different polarities we can focus on: lead (or demand) generation, represented by the early touchpoints, and conversion, represented by the last touch points.

Your emphasis here will determine the attribution models you need.

3. The number of touch points

The more touch points, the more complex your attribution model will be. In cases with a lot of touch points involved, implementing last-touch and first-touch models won’t properly represent the real situation.

So, the longer your sales cycle is (the more touch points), the more you need to implement a custom attribution model.

4. Optimize and re-optimize

Your business model and the buyer’s journey of your customers can evolve over time, and so your attribution model should also evolve to accommodate these changes.

Don’t be afraid to test various different models, or even combine some attribution models together. The more you test and optimize your models, the closer you are to a “perfect” custom attribution model.

End Words

Properly measuring marketing effectiveness has many different benefits, but the main benefit for your business is how you can determine which marketing channels and campaigns that are effective.

This way, you can optimize budget allocation, ensuring you’ll make the most of your investments. Especially for small businesses where every single penny matters, properly setting up attribution and measuring effectiveness can dramatically increase your profit.