Here’s a common marketing analytics question that rarely receives a thorough answer: how do we calculate the digital marketing ROI for a B2B2C company?
For those unfamiliar, B2B2C companies are any kind of company that sells a product to an end user through a reseller or distribution channel. For example, Energizer batteries are marketed by the Energizer company, but we buy them through retail stores like Walmart and Target. In cases like this, how do we calculate digital marketing ROI for B2B2C companies?
Gather the Data
First, we analyze what mechanisms, digital marketing channels, and methods we control and measure. Let’s continue using Energizer as our example.
- We control our digital advertising and have data from the performance of those ads.
- We control the website(s) and campaign landing pages, and have access to our web analytics data.
- We control our corporate and brand social media channels.
- We control our email marketing and have access to performance data.
- We have access to our aggregated sales data, and depending on the distributor or retailer, may receive granular data about unit sales. Walmart in particular has a reputation for outstanding retail data quality provided to manufacturers and distributors.
- We have access to coupon and offer redemption data.
We obtain as much data as possible from all our data sources.
Transform and Clean the Data
Next, we clean up our data, normalizing it at a day-level, fixing errors in the data, and preparing it for analysis. If some vendors report at less frequent intervals, we normalize that and average it across days as well. When done, we should have a massive single table with every data series as a column, beginning with the date.
Perform Regression Analysis
Using software like IBM Watson Analytics, R, Sofa Statistics, or the statistics package of our choice, we choose the target data series that matters to us – typically sales – and perform either multiple regression subset analysis or linear analysis of variance on our table. We want to identify the drivers of sales and the predictors of sales from our marketing activity data.
Above, we see a weak relationship between email opens and total sales.
Test for Causality
The maxim that causality is not correlation applies here; just because various data series suggest a relationship between email opens and total sales. Our next step is to test the causality of this relationship. If we increase the activities which generate email opens (such as more robust A/B testing, etc.), do we see sales increase proportionally? If we do, then we establish the causal relationship between email opens and battery sales. If we don’t see a statistically significant change, then we go back to the drawing board and look for additional data that our first attempts did not find.
If we find this causal relationship, we can infer the value of the relationship based on the changes in the data. For example, suppose we had 50,000 email opens, which led to 5,000 battery sales. During our testing phase, we increased the opens to 75,000, which led to 7,500 battery sales. For example’s sake, let’s say a battery earns us $1 in revenue. Thus, in the model above, 10 email opens equals 1 battery sale, and $1 in revenue. Each email open is worth 10 cents.
With this, we now begin to reverse engineer the rest of the customer journey for our digital marketing, using email opens as a target. What else can we do to engineer email opens? If our email marketing system is tightly integrated into Google Analytics, we might even be able to make an email open a goal in Google Analytics and assign it a goal value of 10 cents.
Obviously, a real world model will be significantly more complex than the simple example above, but the example gives us a starting point to create a model where we don’t have control over or access to the retail/point of sale. Once we establish a statistically valid link from any digital marketing activity to real revenue, we build from that point. It’s akin to a jigsaw puzzle; once we’ve got a starting point, we build from there, rather than try to solve the entire puzzle at once.
Applying this method to our B2B2C business model is how we start to calculate digital marketing ROI for B2B2C companies. After building our model, we continuously test, refine, and observe our model to improve its accuracy, account for anomalies, and forecast future growth.
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Also published on Medium.