Some marketers now measure and attribute the cost of labor, technology, and services to individual promotional channels.
The concept is simple. Many companies track only revenue from marketing channels without considering the expense of managing them. The result is often misleading bottom-line performance.
Channel Comparison
Imagine a business with two marketing channels, A and B, each costing $1,000. Both generate 3,000 interactions from potential customers. However, Channel A converts at 2.5%, while Channel B converts at 4%.
If both channels had a $75 average order value and a 25% gross profit margin, Channel A would produce $406 in profit, and Channel B would earn $1,250. Channel B is the clear winner when compared in this way.
| Channel A | Channel B | |
|---|---|---|
| Promotional Cost | $1,000 | $1,000 |
| Interactions | 3,000 | 3,000 |
| Conv. Rate | 2.50% | 4.00% |
| Orders | 75 | 120 |
| Avg. Order Value | $75 | $75 |
| Sales Generated | $5,625 | $9,000 |
| Margin | 25% | 25% |
| Gross Revenue | $1,406 | $2,250 |
| Profit | $406 | $1,250 |
Just about every business would take the $1,000 invested in Channel A and double down on Channel B. After all, Channel B produces about three times as much profit.
This is often the proper choice, but not always.
Marketing Budgets
There’s more to marketing expenses than advertising or accessing a channel.
There are salaries for the marketing team, software subscriptions, creative design expenses, and even influencer fees.
Let’s apply this idea to Channel A and Channel B. Suppose each channel is a demand-side platform (DSP), wherein marketers choose from a list of potential publishers.
DSP A allows marketers to pick some basic targeting demographics, but there’s little a specialist could do to optimize performance. It is a set-it-and-forget-it sort of platform.
On the other hand, DSP B has 100 targeting options that can be compared, fine-tuned, and optimized.
DSP B’s platform provides real-time data with Slack notifications every time a campaign’s conversion rate changes.
The marketing specialist spends about 30 minutes a month setting up the simplistic DSP A but about an hour a day monitoring, studying, and tweaking DSP B.
If the marketing specialist earns $50 an hour, DSP A costs about $25 per month in labor. Given 20 working days a month and an hour per day spent monitoring and optimizing, DSP B takes $1,000 in labor to run.
When counting labor, DSP A generates $381 in profit compared to DSP B’s $250. DSP A is the clear winner.
| DSP A | DSP B | |
|---|---|---|
| Promotional Cost | $1,000 | $1,000 |
| Interactions | 3,000 | 3,000 |
| Conv. Rate | 2.50% | 4.00% |
| Orders | 75 | 120 |
| Avg. Order Value | $75 | $75 |
| Sales Generated | $5,625 | $9,000 |
| Margin | 25% | 25% |
| Gross Revenue | $1,406 | $2,250 |
| Labor Cost | $25 | $1,000 |
| Profit | $381 | $250 |
Applying the Concept
Beyond labor, other expenses — e.g., software, creative design, agency retainers — could also change a channel’s return on investment, although not every expense is ongoing. Some are one-time or upfront charges that go away.
Thus, when attributing marketing expenses by channel:
- Decide what to measure. Labor, software, or simply the cost of an ad or promotion?
- Choose when to measure. Should the channel be measured per interaction? Or would monthly work better?
- Plan for upfront expenses. Should upfront expenses be amortized? If so, over what period? How will channels with amortized costs compare with those having ongoing expenses?
- Manage sensitive information. Some costs are sensitive or private. Will salaries be shared, or will the labor portion of the equation be closely held?
- Decide how you will measure. Should marketers use time-tracking software?
- Document the process. Record what, when, and how results are measured.
- Collect only essential data. There’s no need to track labor or software costs if they don’t impact marketing decisions.
Lastly, remember that sometimes the cure can be worse than the illness. Attributing expenses by channel can drive performance at the cost of damaging staff morale. So attribute with prudence.
