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In this issue: why marketers should steal "cash vs accrual" accounting methodology from finance bros. 🏦

The conflict in marketing measurement

As marketers, we know marketing works. People see ads, people remember products, people buy products. This is how it’s always worked. Even neolithic bakers stamped their logos on bread.

So how do you tell if marketing is working?

We use attribution solutions, statistics, brand lift studies, and more to track how well people remember our products, and why they buy. 

We know that our favorite metrics - ROAS, CAC, MER - are lagging indicators of the success of our ad campaigns. 

This means that for each ad channel we’re on, the reported revenue we see is driven by our prior efforts. This month’s results were driven by last month’s campaigns. Our future revenue is driven by what actions we take on the channel today. 

Marketing is cumulative. People see lots of your ads over time. 

This leads to a common point of friction when measuring the impact of your marketing. 

When you attribute a conversion to a single ad, that result is not in a vacuum.

Even if you attribute conversions to ads on a one-day clicks-only basis, those customers were influenced by some number of marketing touchpoints that happened well before they clicked the ad. 

This means there’s actually two conflicting ways of thinking about your media attribution. 

The ultimate question

Do you give credit to ads on the day that a transaction occurs?

Or do you give credit to ads when a touchpoint happens?

The answer? Both. Stay with me on this educational newsletter and I promise it’ll change the way you think about your measurement. 

Thinking like a financier 

Let’s borrow a concept from accounting: cash versus accrual accounting. 

Cash vs accrual accounting in finance is just two different ways of measuring revenue. “Cash basis” tells you when revenue lands in your bank account, like cash flow. “Accrual basis” lets you track revenue even if the client hasn’t paid yet. 

Imagine a simple jewelry business run by Alice, a passionate artisan. She mainly deals in handmade jewelry, selling her creations at local markets and online. 

When customers buy her necklaces with cash or a quick electronic transfer, Alice immediately records that as revenue. If she buys materials for her creations, she records it as an expense the moment the money leaves her bank account.

This is the essence of “Cash accounting.” It’s like a simple cash register for your business: you only count the money when it actually comes in or goes out.

However, this simplicity can also be a drawback. Let’s say Alice sells a custom piece on credit to a customer who won't pay for a month. That revenue won't be reflected on her books until the payment is received. 

This can distort her true financial picture, making it seem like she has less revenue than she's actually earned, or conversely, more cash than she truly has after accounting for unpaid bills.

If she uses "accrual accounting” to measure these sales, she can focus her books on when revenue is earned and expenses are incurred, regardless of when the actual cash changes hands. 

This can be a crucial advantage for Alice, who can use accrual accounting to better understand the true financial health of her business, plan budgets for the future, and even explain her business position to potential investors with higher accuracy. 

The smart business owner uses both models depending on the situation. 

So why should we apply these accounting philosophies to our marketing? 

Cash basis, in marketing 

Another hypothetical example, this time a modern marketing journey. 

Let’s say Sally visits Alice’s jewelry website on three different occasions, making a purchase on the final visit. 

1. January 1 - site visit, from clicking on a Meta Ad.
2. January 2 - site visit from clicking on a Google Ad.
3. January 3 - site visit after clicking on an Outbrain link and placed a $90 order.

For simplicity’s sake, let’s say Alice is using an equal-weight linear attribution model where all marketing channels receive equal credit. Therefore the Meta Ad, the Google Ad, and the Outbrain link each get one-third credit for the purchase.

Alice wants to increase spend on the ads that drove this purchase. If she’s using most attribution solutions, they will tell her that all transactional and revenue credit happened on January 3. 

All credit is given to January 3, making January 1 and 2 look inefficient by comparison - even though important marketing touchpoints happened on those days. 

While ad credit is equally divided across all the touchpoints in this model, what’s missing is the concept of time as an influence on the transaction. Alice has no clue that the touchpoints actually happened on those first two days. 

If Alice spent $10 on ads per day on each channel on all three days, it looks like January 1 and January 2 have a 0.0 marketing efficiency ratio. 

January 3rd’s purchase was a result of efforts and touchpoints that happened on January 1 and 2, but that’s not reflected in this reporting. As a result, Alice slashes her Meta and Google spend to focus on Outbrain, but after a few months, Outbrain begins to underperform, since it’s no longer supported by the other channels. 

This is basically like “cash accounting” in marketing. While it’s useful for measuring revenue coming in the door, the shortcomings make it difficult for planning or daily optimizations. 

Yet this is the model favored by most marketers, simply because they’ve never used anything else. 

Understanding accrual in marketing 

Because Alice wants to scale the ads that drove Sally’s conversion, we need a better way to measure the “impact” of all those ads rather than focusing on the last touchpoint. 

Let’s perceive this ad performance through an “accrual” lens instead. 

In marketing, that means dividing transactional credit for Sally’s purchase across every single day she had a touchpoint. So credit allocation would look like this: 

This model helps Alice understand which touchpoints influence sales, giving her a stronger sense of which ads need to be scaled up, and which ones cut back. This is the key for daily ad optimizations. 

For marketers, perceiving ad performance on an accrual basis is critical for setting real performance targets across the funnel. You can actually see what’s happening on any given day. 

How the smartest marketers approach cash versus accrual 

You should steal this cash vs accrual concept from finance and apply it to your interpretation of ad performance.

“Cash” is still useful as a model for marketers. It’s great for setting topline business targets, and targets for each specific advertising channel. But when you start thinking about daily optimizations, it just doesn’t have enough detail. 

“Accrual” is best for factoring in the historical impact of your ads and measuring their ability to drive conversion over a period of time. This makes them ideal for daily optimizations, but the complex nature of the measurement makes it challenging to use for projecting business performance. 

Also it won’t line up perfectly with your ecommerce platform (like Shopify) because those point-of-sales systems only measure in cash accounting. This means accrual accounting of your ads will probably confuse your finance guy. 

The smartest marketers use both - cash for projecting business results, accrual for daily optimizations. 

When you’re using both, you’re thinking both forwards and backwards: measuring the nebulous lagging marketing impact of the past, while optimizing today’s efforts to drive marketing impact tomorrow. 

It’s an ideal balance, but most marketing attribution tools don’t offer the ability to switch between accounting modes. 

Northbeam does. All dashboards in Northbeam are adjustable to either cash or accrual accounting modes of attribution. 

This feature is one of our most misunderstood, yet it’s transformative for marketers who understand it. That’s why we built it, and why I’m here talking about it.

If you’re using both modes, you can measure the actual incremental impact of your ad campaigns. You don’t need to do holdout tests to guess if a campaign is working - accrual touchpoints will show you how those campaigns affected your results over time. 

Come see it in action. Book a demo with us today. 

🕒 TikTok now requires AI content to be labeled or risk removal. This is a good thing. 

✊ Meta is finally permitting the reporting of scam ads at scale. No more impersonating, I hope.

🕶️ Why Warby Parker and Amazon killed home try-on. Profit!

🤖 Companies are blowing billions on AI... but it has yet to pay off. The speculation economy is driving a coin flip in the workplace. How will it land?

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