Allocation of marketing costs by channel

Currently, some marketers measure and allocate labor, technology and service costs to individual promotional channels.

The concept is simple: many businesses only track the revenue that comes from their marketing channels without considering the costs involved in managing those channels. This often results in a misleading bottom line.

Channel Comparison

Imagine a business that has two marketing channels, A and B, that cost $1,000 each and each generate 3,000 interactions from potential customers, but channel A has a 2.5% conversion rate while channel B has a 4% conversion rate.

If both channels have an average order value of $75 and a gross profit margin of 25%, Channel A will generate $406 in profit and Channel B will generate $1,250 in profit. In this comparison, Channel B is the clear winner.

Nearly every business will double the $1,000 they invest in channel A into channel B. After all, channel B produces roughly three times the profit.

While this is often the right choice, it isn’t always the case.

Marketing Budget

Marketing costs include much more than just advertising and access to channels.

Marketing team salaries, software subscriptions, Creative Design Expenses, and more Influencer Fees.

Let’s apply this concept to Channel A and Channel B. Demand Side Platform In a DSP, marketers choose from a list of potential publishers.

DSP A allows marketers to select a basic target audience, but there is little that experts can do to optimize performance. It is a set-it-and-forget-it platform.

Meanwhile, DSP B has 100 targeting options that you can compare, tweak, and optimize.

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

A marketing specialist spends about 30 minutes a month setting up simple DSP A, but about an hour a day monitoring, researching, and tweaking DSP B.

If a marketing specialist’s hourly rate is $50, then DSP A’s labor costs would be approximately $25 per month. Assuming a 20-day month and one hour per day of monitoring and optimization, DSP B would incur labor costs of $1,000 to operate.

After factoring in labor costs, DSP A’s profit is $381 compared to $250 for DSP B. DSP A is the clear winner.

Application of the concept

Beyond labor costs, other expenses like software, creative design, and agency retention can change the channel’s ROI. However, not all expenses are recurring. Some are one-time or upfront costs that disappear quickly.

So, if you were to allocate your marketing spend by channel, it would look like this:

• Decide what to measure. Is it labor costs, software, or simply advertising and promotional costs?

• Select the timing to measure. Should channels be measured per interaction, or would it be better to measure them on a monthly basis?

• Plan for upfront costs. Do upfront costs need to be amortized? If so, over what period? How do channels with amortized costs compare to channels with ongoing costs?

• Manage confidential information. Some costs are confidential or private. Will salaries be shared or will the labour cost portion be kept private?

• Decide how you want to measure. Should marketers use time tracking software?

• Document the process. Record what, when and how the results were measured.

• Collect only the data you need. If labor or software costs don’t impact your marketing decisions, there’s no need to track them.

Finally, remember that sometimes the cure is worse than the disease. While allocating spend by channel can improve performance, Staff moraleSo be careful with your attribution.