ROI AND ATTRIBUTION

What is the main goal of e-commerce marketing? Profit and growth demonstrated over time. The performance measure used to understand and analyze profit over time is called Return on Investment, or ROI. In e-commerce marketing, ROI analysis is usually alongside or preceded by Return on Advertising Spend (ROAS). The key to increasing ROI/ROAS, and consequently profit performance, is attribution. Attribution calculates the return on investment for advertising media channels, which have developed user traffic in e-commerce.

This is a good initial introduction to some definitions and concepts that encompass marketing strategies in e-commerce. Every entrepreneur or manager that seeks a successful future in e-commerce first must comprehend the concept of ROI and how to manage it.

 

Let's start by going into the details of what's been introduced and learn how to understand the differences between ROI and ROAS. ROI compares sales (turnover) results with investments (costs of sales development). The value obtained represents the profit indicator: Positive ROI = profit, negative ROI = loss. ROAS, on the other hand, considers only the results and costs of investments in digital media channels. It compares the costs of acquiring advertising traffic with the turnover generated by the users (these users were brought to the site by campaigns published in the media channels). 

 

When it comes to the notion of ATTRIBUTION, however, we must enter a world that is generally unknown to most e-commerce marketing managers. It is more complex in that it differs from the usual approaches to analysis. In fact, it runs counter to the rules used to date on e-commerce performance analysis with analytics tools. There are several models and different attribution methodologies. Let's start by defining what an attribution model is. It is the way in which we define the channels that led the user to buy online. Consider it takes a given user between 5 to 20 days on average to convince themselves to buy an online product. They will enter the e-commerce site several times within these days, often because they see advertisements on social media or web pages. How do we define the channel that finally convinced them to buy the product? In order to calculate the return on investment in individual media channels, how will we decide which channel is rewarded for the purchase?

The first and foremost method known by many is Last-Touch. This is the methodology used by Google Analytics and most behavioral analysis systems for users in e-commerce sites. Last-Touch attributes the individual sale to the last channel that brought a user to the site (attribution 1 to 1). Basically, it is users who had already decided to buy the product, but were looking for where exactly they wanted to conduct the purchase. 

Multi-Touch is a second well-known and innovative method. Unlike Last-Touch, this method considers the sale as a contribution of all the channels (attribution 1 to X). More precisely, the sale is considered at 100% value. The Multi-Touch method offers a percentage to all channels that have facilitated engagement and, over time, convinced the user to buy online. The Multi-Touch method rewards all channels that have intervened throughout an online user's behavioral funnel. It rewards the channels that interested and persuaded a user to buy online, channels that are not rewarded with the last-click and where only the excess of the budget is being invested today.

 

Let’s use an example to better explain the concept: 

Consider 100 potential users of a particular product. How many, in this instant, are looking to buy it online?  Maybe 5 out of the 100 potential candidates - this is an exaggerated estimate.With Last-Touch attribution, we only reward and invest in the channels which have enabled those 5 out of 100 users to find the product. Multi-touch rewards all channels, especially those that have enabled the 100 potential customers to understand the product’s offer and stimulated them to buy.

 

In conclusion, if you use Multi-Touch attribution, you invest in advertising the product and the store at the full potential of the market, not just to those who decide to buy. 

We at SLYMETRIX have implemented our company creed and are investing in a digital tool for e-commerce that will allow for the calculation and management of ROI through the use of multi-touch attribution. Additionally, with the help of our partners in digital agencies, we plan to expand overall knowledge of e-commerce by offering an online academy. In next week’s article, we will look deeper into the Multi-Touch assignment and discuss usage for Customer Journey and Budget in e-commerce.