‘Making the Math Work: Calculating the ROI of Attribution Solutions’, by Adit Abhyankar, Executive Director, Visual IQ
There is much to consider when planning to invest brand or agency dollars in a marketing attribution solution, not least the potential returns that can be expected. It is critical that marketers can demonstrate to decision-makers how the solution will work to cover the initial outlay, as well as how it will continue to serve the business through effective, ongoing optimisation that generates meaningful media efficiencies.
Beyond the financial gains, however, there are numerous supplementary gains to the implementation of attribution that are difficult to attach a price tag to, such as the permanent introduction of a fully data-driven marketing practice built on the foundation of attribution, or a galvanised belief in the overall accuracy of existing measurement methodologies; and let’s not underestimate the value of a neutral tier of accountability, from which a business can evaluate all active media partners.
So, how to begin calculating the likely return on investment of an attribution solution, whether pre- or post-implementation? At Visual IQ, we have calculated a formula to help bring clarity to what is undoubtedly a complex equation.
First, collect the key values
There are three essential values required to calculate the ROI of attribution, including the business’s historical annual figures for:
– Advertising spend for channels on which attribution will be performed (AS)
– Quantity of conversions currently attributed to those channels (C)
– The total value of sales currently attributed to those channels (TR)
– The average gross margin contribution of your sales (GM)
Next, calculate the key values
With these values in place, it is possible to calculate two other vital annual values that are required:
– The gain on your marketing spend (TG), calculated as (TR*GM)-AS
– The average gross margin of a conversion (AM), calculated as (TG)/C (alternatively there may already be a working value in practice for each conversion, which can be used instead)
As a simplified example, let’s say that advertising spend is £10 million (AS), which produced 50,000 conversions (C) that went on to generate £50 million in total sales value (TR) and a gross margin contribution (GM) of 50%. This would deliver a gain on marketing spend (TG) of £15 million and an average gross margin per conversion (AM) of £300. This illustrates an accurate picture of the marketing environment without the implementation of attribution.
The bigger picture post-implementation
A further value is now required before predictions can be made about how a marketing environment will change post-implementation of an attribution solution. The key is to estimate the potential gains in conversions achieved by exploiting the benefits of attribution, while keeping media costs flat. Generally, you can expect to achieve these gains by improving people’s propensity to convert before they arrive on your website, thereby increasing conversion rates, and by reducing waste on media spent to expose your advertising to people who would have converted anyway.
Let’s step further through the example scenario above and assume that following the introduction of attribution, conversions have risen by a modest 10% for the same media budget. Projected figures for this lift value typically fall within the 15-35% bracket, but will vary by company and sector and depending on which attribution provider is in the frame.
In the example above, the number of conversions (C) was 50,000, meaning post-implementation it will be 55,000 (C*) at the same £10 million media cost (AS). Apply the same historical average conversion value of £300 (AM), and these 55,000 conversions will go on to produce a £16.5 million gain on marketing spend after the implementation of attribution (TG*).
By subtracting the £16.5 million (TG*) in new gain from the original £15 million (TG) gain, the net gain you can expect from your attribution efforts in a year is £1.5 million (excluding the cost of the attribution solution itself and any related implementation fees.) This gain should only increase over time as your digital marketing programmes grow.
The final step in the formula is to factor in the total cost of your attribution solution, including implementation and data costs, if any. Returning to our simplified example, it is easy to see that even a £250k investment per year would produce truly impressive returns on investment. In fact, by seeing the scale of the opportunity in black and white, even attribution skeptics can begin to understand why moving towards a more sophisticated approach to measuring their marketing performance may be worth the effort.
Finally, to realise the ROI potential from an attribution solution, it’s critical that marketers understand the importance of having the political will and the organisational buy-in to make the changes necessary to capitalise on the opportunity. Often, this is where advertisers trip up, and it is important to engage with knowledgeable advisors who can guide you through the journey.
There is little doubt that the math behind attribution solutions really stacks up. Armed with robust technology and a willingness to make changes, marketers have a powerful new approach to empower their future marketing decisions.
