How to Optimize Digital Marketing Spend

In digital marketing, larger portions of the budget are often allocated to marketing channels that produce the most revenue.

There are a couple of concepts to keep in mind while optimizing marketing spend to obtain greater revenue.

  1. There is a difference between attributed revenue and incremental revenue
  2. Revenue is a non-linear function of spend

Attributed Revenue vs. True Revenue

Most digital marketing organizations use an attribution algorithm or simple rules (last touch, even distribution, etc.) to allocate revenue to marketing touch points. However, it is unlikely that the business would truly lose equivalent bottomline revenue if that marketing touch point did not exist.

For example, using a number of attribution methodologies, retargeting often emerges as the best performing marketing investment [10:1, 20:1 attributed returns on investment are common]. However, if the business stopped retargeting its customers, its bottomline revenue impact will very likely be a fraction of the attributed revenue.

This is because correlation does not mean causation. Retargeting is in the path of most customers headed to conversion and most attribution models, including multitouch attribution algorithms, cannot distinguish between correlation and causation. Further, retargeting touches customers who are further down the engagement journey with the brand. These customers may have been exposed to other material/channels [offline or online] which influenced them to visit the brand’s webpages. Often, the materials that do influence customer’s decisions are not tracked digitally [such as billboards].

Revenue is a Non-linear Function of Spend

Significant investment is usually needed before marketing breakthrough is achieved and the law of diminishing returns applies after a certain spend level, much like in the graph below. Revenue is a non-linear function of spend.

Therefore, when budget becomes available mid-quarter, instead of allocating that budget the marketing channel with the best attributed ROI (based on attributed revenue), it maybe more fruitful to go back to the fundamentals (first principles) and strategize from a customer, content, product, promotion, price, placement perspective. The first principles path will give most marketers a better chance at beating the revenue goals.

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