Linking Marketing Costs by Channel

Some marketers are now measuring and linking the cost of labor, technology, and service to individual promotional channels.

The concept is simple. Many companies only track the revenue from marketing channels without considering the cost 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 contacts from potential customers. However, Channel A converts at 2.5%, while Channel B converts at 4%.

If both channels have a $75 average order value and a 25% gross profit margin, Channel A will make $406 in profit, and Channel B will make $1,250. Channel B is the clear winner when compared this way.

	Channel A	Channel B
Promotional Costs	$1,000	$1,000
Interactions	3,000	3,000
conv. Rate	2.50%	4.00%
Orders	75	120
Avg. Order Amount	$75	$75
Developed by Sales	$5,625	$9,000
Margin	25%	25%
Total Revenue	$1,406	$2,250
Revenue	$406	$1,250

Almost every business will take $1,000 invested in Channel A and double that in Channel B. After all, Channel B makes about three times as much profit.

This is often the right choice, but not always.

Marketing Budgets

Marketing costs more than just advertising or access to a channel.

There are salaries for the marketing team, software subscriptions, creative design costs, and even influencer fees.

Let’s apply this idea to Channel A and Channel B. Assume that each channel is a demand-side platform (DSP), where marketers choose from a list of potential publishers.

DSP A allows marketers to select a few key demographics to target, but there is little a specialist can do to optimize performance. It’s a set-it-and-forget-it type of platform.

On the other hand, DSP B has 100 targeting options that can be compared, adjusted, and optimized.

DSP B’s platform provides real-time data with Slack notifications whenever a campaign’s conversion rate changes.

The marketing specialist spends about 30 minutes a month setting up simplistic DSP A but about an hour a day monitoring, learning, and adjusting DSP B.

If the marketing specialist makes $50 per hour, DSP A costs about $25 per month to produce. Given 20 work days a month and one hour per day spent on monitoring and optimization, DSP B takes $1,000 in labor to run.

When counting labor, DSP A generates $381 in revenue compared to DSP B’s $250. DSP A is the clear winner.

	DSP A	DSP B
Promotional Costs	$1,000	$1,000
Interactions	3,000	3,000
conv. Rate	2.50%	4.00%
Orders	75	120
Avg. Order Amount	$75	$75
Developed by Sales	$5,625	$9,000
Margin	25%	25%
Total Revenue	$1,406	$2,250
Manufacturing Cost	$25	$1,000
Revenue	$381	$250

Concept Application

Beyond labor, other costs — e.g., software, creative design, agency retainers — can also change a channel’s return on investment, although not all costs are ongoing. Some are one-time or upfront charges that will go away.

So, when attributing marketing costs by channel:

• Decide what to measure. Jobs, software, or simply the cost of an ad or promotion?

• Choose when to measure. Should the channel be measured per interaction? Or is monthly work better?

• Plan for upfront costs. Should initial costs be amortized? If so, at what time? How do channels with amortized costs compare to those with ongoing costs?

• Manage sensitive information. Some costs are sensitive or private. Will the salaries be shared, or will the labor side of the equation be strictly 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 is no need to track labor or software costs if they do not affect marketing decisions.

Finally, remember that sometimes the cure can be worse than the disease. Linking costs through the channel can drive performance at the cost of damaging staff morale. So attribute with caution.