Understanding which digital marketing channels are powering your pipeline is crucial.
If you’re like most businesses, your digital marketing budget is a big black box. You know how much money you’re spending, but do you know where it’s going? And do you have any idea what those dollars are actually buying? If your answers to these questions are no, then yes, it’s time for some serious attribution action!
Attribution is figuring out which digital marketing channel — like social media or search engine ads — is driving traffic to your website and ultimately generating revenue.
This post will teach you how to use attribution research to decide better where to spend your marketing budget in 2023.
Attribution Begins by Creating a System for Tracking Revenue by Digital Marketing Channel
Attribution begins with creating a system for tracking revenue by digital marketing channel.
You need to know which channels are working and which aren’t, how much revenue each channel generates, how much it costs to acquire a new customer through each channel, and their lifetime value (LTV).
So now that we’ve got those basics down, let’s get into the nitty gritty of attribution.
Determine Which Digital Marketing Channels Are Attracting Visitors and Customers
To attribute revenue effectively to a specific channel, you’ll need to understand two things:
- How your customers find you: Use Google Analytics to track traffic sources. Open AdWords to track visits, leads, and sales through the analytics tool.
- How your customers are converting on your website or landing page: There are many different ways that users can convert into leads or sales. For example, they might fill out a form on a landing page or call a phone number listed in an ad. Each of these methods will have its unique conversion path within Google AdWords. By tracking conversions in GA and looking at the paths people take through those conversion funnels (see below), you can better understand where each user came from and whether any particular channel is driving more conversions than others.
Figure Out Customer Lifetime Value (CLV) for Each Digital Marketing Channel
CLV is a metric you should calculate for each digital marketing channel.
Customer Lifetime Value is the average amount a retained customer will spend with you. Calculate it by dividing the total revenue from a customer by the number of transactions they have made (e.g., if someone bought five products on your website and spent $100 in total, their CLV would be $20).
CLV can be used to compare marketing channels and determine which ones are most valuable to your business. If one channel has an exceptionally high or low CLV compared to others, it’s likely worth allocating more or less budget.
A higher than average CLV could mean that a channel attracts customers who spend more money overall. On the other hand, if a channel has a lower than average CLV, it could indicate that customers there are not as valuable as those from other sources.
Consider that when looking to allocate budget across your digital marketing channels.
Determine the Cost of Acquisition by Channel
Now that we’ve determined which channels you’re using for each type of advertising, it’s time to calculate their cost-per-acquisition (CPA).
Use CPA to measure the effectiveness of each digital marketing channel.
The most common CPA calculation is the total cost of all paid search and social media ads divided by the number of leads or new customers they deliver.
However, if your marketing mix includes organic search and email marketing, this figure will understate your actual cost per lead because those channels don’t incur any spending directly.
To correct this, I recommend excluding organic search and free social media from your CPA calculation so that you’re only counting paid sources.
Calculate the Contribution Margin for Each Channel
The Contribution Margin is the difference between revenue and cost of goods sold (COGS). It’s also known as gross profit, and it’s an excellent way to measure the effectiveness of your marketing channels since it focuses on sales that result directly from your marketing efforts rather than overall volume.
For example, if you sell $100 worth of goods through Amazon at a 50% margin during a given month (meaning you paid $50 for those same goods), then you’d make $50 in gross profit from that sale through Amazon using this method.
Decide What to do With the Attribution Data
Attributing revenue is your first step in understanding how marketing affects customer behavior.
Remember that attribution data will help you decide where to spend your budget, not whether or not the investment will pay off.
However, once you have decided on an optimized allocation of resources between channels, you’ll want to use attribution data as a critical marketing mix component.
You can use this information along with historical performance data from past campaigns (if available) and behavioral signals — like time spent on site or purchase intent — to inform your overall strategy for each channel:
- If one channel is underperforming relative to its competitors and has no clear positioning advantage, consider reallocating the budget away from it and into other digital marketing channels that perform better or have a more straightforward value proposition for customers.
- If one channel is outperforming others but doesn’t receive enough traffic compared with higher-ranking competitors (e.g., Amazon vs. Walmart), consider focusing on getting more traffic flowing through this channel before attempting broader market expansion efforts.
The second best way to start this process is to create a spreadsheet that tracks revenue by digital marketing channel. You will then need to:
- Determine which channels are attracting visitors and customers.
- Determine customer lifetime value (CLV) for each channel
- Determine the costs to acquire customers through each digital marketing channel.
- Calculate the contribution margin for each channel or group of channels (such as Instagram or Social Media).
Finally, decide what to do with your attribution data based on your goals and strategy!
The best way to ramp up efforts across your digital marketing channels is by booking some time with our Smarketing experts.
Check out how you can leverage your digital marketing channels better, reach your audience, convert more qualified leads, and win more deals.