Branching Out by Bonsai | The Gap Between Measurement & Growth | Ep. 19

Matt Butler: It's clear to me that marketers aren't informed how measurement could actually help them. You can see it in every type of marketing reporting and analytics tool that's being made available to marketers. Let me explain.

Recently—and I guess probably Google soon—platforms are starting to put incremental conversions in their ad platform reporting. In the past, you had your ad data, you had your conversion data, and now that people are starting to talk about incremental conversions, they are giving some advertisers the ability to track that and see that in their ads reports. This sounds great. The industry is telling marketers, "This is great."

When I talk to people about their opportunities to come and utilize Bonsai and we talk about the problems and issues that they're facing on their marketing teams, people only really talk about how they can get better attribution. They want more attribution, more insight into how their marketing is driving sales and customers, more tracking or modeling or data to show, "Hey, marketing is driving the business."

The problem is that we have somehow taught and trained marketers to think that if they had more data and more evidence of marketing's impact, that would be good for them. That it would help marketing teams in their organizations, give them more authority, bigger budgets, and so on. That if only they had more data on how their marketing was working. That's how incremental conversions have been framed. It's been framed as more data, better quality, premium insight.

This is really a shame because that's completely wrong on both fronts. As marketers, the value of marketing measurement and analytics and attribution isn't to give you insight into more of marketing's impact. And incremental conversions are not a fancy addition or a special feature of marketing measurement.

Let me explain both. What is an incremental conversion? To the outside normal world, that would just be what they would call a "conversion." An incremental conversion means your business had sales before you ran marketing. So, maybe you sold 10 pairs of shoes a day. Your company starts marketing and advertising, and then at some point, you don't just sell 10 pairs of shoes a day. You sell 15 pairs of shoes a day. The difference in how many sales you used to have to the new number of sales you have today—that's essentially the lift. That's the change. That's the increase in business. We've just come up with this term "incremental."

If we were not inundated with these terms and this best practice dialogue that exists across the industry, and you were just an outside observer—from your operator's perspective, the C-suite's perspective, maybe your finance person's perspective—really anybody who doesn't deal with marketing every day would have no problem understanding what happened after you guys started marketing. You had 10 sales a day. Okay, now you've got 15 sales a day. Instantly, they would understand that marketing has been driving five new sales a day.

To be clear, the business has to have new sales and new customers in order for there to be an impact from marketing at all. It's simply true that if the business had sold 10 shoes a day before marketing, they hire a director of marketing, they start running advertising online in every channel, and they spend a lot of money... if at the end of the day, they're still selling 10 pairs of shoes a day, then they were doing that before they had ads. So they have no new revenue coming in, and they have this additional expense which is marketing. There's just no other way to say it: that would be a net negative on the business.

Now, you could say people are not going to buy yet and years later down the road, the marketing will eventually drive sales. That's fine. Most sophisticated businesses and people outside of marketing have been thinking about these long-term effects for a while. I think marketers might be under the impression that they came up with this idea of long-term forecasting or lifetime value modeling, but the reality is they haven't. This is a way that people should and do think about their businesses.

You could extend this analogy to however far you want into the future. Let's say you give credit to any day in the future. At some point, if you got 12 sales a day as opposed to 10, there you go. You could argue and advocate that the marketing program had a long-term impact. It had an impact on growing the business. There were new sales at some point. But bottom line, whether short-term, mid-term, or long-term, if that's not changing, there is no impact of marketing.

A smaller business is what results when you have revenues that don't change or new growth that doesn't come in, and more expenses that go out the door. We often use marketing analytics and marketing attribution to convince or coerce or try to influence a finance team to increase the marketing budget that a team has for the next period. I don't think there's any doubt that marketers do better when they have a bigger budget. They can try more channels. They can hire more staff. They can run more ads. It's really all good news with respect to the amount of impact marketing can have. Marketers should be advocating for bigger budgets.

However, when you say today that marketing measurement's goal is not to show more credit for marketing, marketers think that you must be anti-marketing or trying to reduce the budgets. It couldn't be further from the case.

Take us back to that world where we've been doing marketing but we didn't get the additional sales—what marketers have been trained to think of as "incremental conversions." If your advertising dollars are going out the door and there are no incremental conversions, you had a certain amount of revenue before and you have the same amount of revenue after. You had no marketing expense before and you have marketing expense after.

The company funds the next year's budgets with the revenue they have to pay to run the company, including marketing. So you only get to run the budgets next year based on essentially the money that you have going into next year. It's the difference between those two numbers. Revenue staying the same and expenses going up means there's less available the next period.

If there's less available for the company the next period, you might have an organization where finance is only approving you to get 10% of the company's revenue to be allocated to that marketing budget line. You might argue that's not high enough and a bigger number would be in the best interest of the company. As a marketing analytics professional or a CMO, you might be right, but you have to hold the phone here. Right now, you've got a smaller amount of money to allocate to anything next year, including marketing.

Let's hypothetically say that you are taking credit for more of the sales at the company. You're able to track more conversions or ad platform reporting is able to put higher numbers in front of you. You hire a third party with a lot of smart people, PhDs, statisticians, beautiful UIs, incredible data science with P-values and confidence intervals—all the wonderful things that you see in real sciences. All of that data is presented in a way that shows, "Hey, look how much marketing is impacting these 10 sales a day."

If the 10 sales a day doesn't go to more than 10 sales a day, you might be able to create a world where marketing looks like it somehow had an effect on all the 10 sales even though that number didn't go up. Maybe that is a convincing argument. Maybe someone in finance says, "You're right. 10% of revenue for the marketing budget isn't enough. We think marketing is doing a great job because, my gosh, look how much data you've given me. Let's give you 20% of the revenue for next year."

So, say you've won the argument. Here's the problem. The marketing budget is probably not actually going up. Remember, what goes into the fund next year is the difference between that top number, the revenue, and whatever the company is investing to run the company. If we've added in all this marketing expense and that number at the top hasn't gone up, we have a smaller bar. Yes, you might move the percentage of what's left from 10% to 20%. But 10% of the original number might be bigger than 20% of this smaller baseline number.

Here's ultimately the takeaway: We're spending all our time training marketers to think that what they need is more evidence, regardless of whether the 10 sales goes to 20 sales or stays at 10. What happens at the top line is being treated as independent of what marketing is doing. Really, what marketing should be focused on is identifying ways to have value creation attributed to what they do.

Focusing on attribution without lift ultimately doesn't grow marketing budgets. It might grow them in the very short term—next quarter's budget, maybe next month's—but long term, there's no getting away from the math. The math says you're going to lose budget. You're going to have a smaller team. Everything is going to go the wrong direction.

Incremental conversions aren't "nice to have." The idea is that's all you have. Everything else that happens that's not incremental is a total loss.

Even if you have only decent data and some proof points of the lift—the ability to say, "Hey, we came into a company with 10 sales a day and we ran marketing and we were able to get that number up to 11 sales"—that might not sound like a lot. It may not sound as nice as "we're able to attribute eight of the 10 sales to marketing." But moving the needle from that 10 to 11 a day increased the revenue of the company 10%. There's that much more capital.

If you can feel good that you have that one sale attributed to the right place or identified the couple of channels that have really impacted it, you've made huge headway on growing your marketing budget in totality next year and frankly staying successful, getting promoted, and hiring bigger teams. You're getting less credit as a number, or as a size, but it's more precise.

When you invest into the things that actually improve something, that's what turns that 10 to 11, then 11 into 12, and onward. Because when the reality of what's working is married to what you're actually allocating more into, good stuff comes out the top.

For as many questions as I get on "how does your tool show more marketing attribution?", unfortunately, I have the equivalent amount of conversations with marketers who have been working in the space for a long time—digital ads, strategy, agencies, brands, CMOs—who have mastered the data points and platform reports, but sadly they've been in the cycle where they've not been a part of teams where the 10 sales a day turned into 12. They've been on teams where the 10 sales a day just keeps staying the 10 sales a day.

It's to the point where they've convinced themselves that what they're doing in marketing isn't even expected to have its insights show up in the business results. Business results are treated as immutable things that marketing can't affect. This might be uncomfortable to hear. It's a feeling that I get that lots of people in the industry have seen the cycle of "more tracking, no more business results" to the point where they've convinced themselves that marketing doesn't move the business even when it's "working great" according to the attribution data.

They think, "I'm following all the best practices, I'm using the tools successful tech companies tell me to use, and the data says it's affecting sales. So if the business isn't growing, it can't be marketing. It must be the sales team, or the operation team."

That's not true. The truth is that the pursuit of incremental ROI and incremental impact measurement is the only pursuit. Everything else that is not incremental is explicitly a waste. It's draining what's left of your company. It is not net neutral. You do not want to have conversions that you're investing towards that turn out to not be incremental because that means you are explicitly wasting money. It must move the business either today, tomorrow, or at some point in the future. If it does not make the number go up, it is not real. It is a loss. You need to divest from things that drive conversions that don't show up at the top line of the business.

Cheers. Thanks for listening to Branching Out. If you enjoy this content, like the video on YouTube or on your favorite podcast tool. Subscribe to Bonsai's YouTube channel. And if you're on YouTube, click the bell notification to get an update when we release the next episode. Thanks so much.