Revenue attribution is the process of attributing sales to the marketing efforts that generated them. Without appropriate revenue attribution, you mistakenly attribute too much or too little revenue to marketing channels and efforts; consequently, you don’t accurately allocate your marketing resources.
For example, if you send out a catalog but fail to account for the fact that the contact also drives internet revenues that can’t be directly tied to the catalog, you are underestimating the value of the catalog and will mistakenly believe that you can derive the same internet revenue with less catalog circulation. Similarly, if your paid search internet traffic is not properly attributed, you may believe that your organic web site revenues are greater than they really are. The same issue applies to every channel and marketing effort.
Underlying revenue attribution is the idea of sales incrementality – what portion of a channel’s sales are organic and what portion are due to promotions via other channels. Once you get past revenue that can be directly attributed via key codes, etc., you have to make some assumptions about how much one marketing channel impacts another. The assumptions are typically based on longer term hold out tests where all contacts are withheld in one channel for a test population. By comparing the test and control revenues generated in other impacted channels, you can gain a better understanding of sales incrementality. The results of such a test may show for example that customers receiving catalogs generate 15% more unattributed online sales; therefore, 15% of the unattributed internet sales for catalog customers should be attributed back to the catalog channel.
Incrementality needs to be read over a relatively long time – typically 6 months to a year. Since most businesses over promote, you can’t get an accurate picture by looking at individual contact holdouts. You can typically remove some contacts without any long term sales impact. Incrementality at an individual customer level is also unpredictable over a short time frame. If you think about yourself as a consumer, you can’t even predict your own incrementality for a specific marketing event. You may or may not respond to the offer and don’t know until you see it. The impact of incrementality becomes clearer the longer contacts are withheld; the tradeoff is the cost of lost revenues from running very long tests.
Another factor to consider is the impact of hold out channel demand among test customers. Even if you hold out all contacts for a time period, you will likely see some demand from customers who shouldn’t have received the corresponding marketing contacts. This is typically due to pass alongs or other situations where customers may still get contacts. As part of the analysis, you can account for this factor; otherwise, you will tend to underestimate the incrementality of the hold out channel.