Accounting Modes
Accounting Modes
When first logging into Northbeam, it's important to understand our accounting modes -- as each mode has a different way of allocating revenue and transactional credit.
Northbeam's accounting modes determines how much revenue and transactional credit is given a particular day. Specifically, our accounting modes determine if credit is given (1) when the touchpoints occur or (2) when the transaction occurs.
Here are our two accounting modes:
- Cash Snapshot - credit is given to the time of conversion
- Accrual Performance - credit is given to the time of touchpoint
They're named to roughly mirror cash basis vs. accrual accounting in corporate finance. Here are how the two modes are different:
What is Cash Snapshot?
In the Cash Snapshot, revenue and transactional credit are given to when the transaction occurs, or when the order was placed.
It's useful for understanding the amount of money coming in on any given day (cash flow).
What is Accrual Performance?
In the Accrual Performance, revenue and transactional credit are given to when the contributory marketing touchpoints occur.
Contributory marketing touchpoints include virtually any interaction that results in a website visit , which triggers our web tracking pixel.
Examples include:
- Click from an Ad
- Click from an Email or SMS
- Click from an Influencer link
- Click from an Affiliate link
- Click from Organic Search
- Click from Organic Social
- Direct visit
In general, Accrual Performance is mainly used to understand the direct return of your marketing dollars and designed to show the full impact of marketing channels on your business.
Example that illustrates the difference between Cash Snapshot and Accrual Performance
Let's say Dan visits the "Widgets Co" website on three different days:
- Jan 1 - site visit from clicking on a Facebook Ad
- Jan 2 - site visit from clicking on a Google Ad
- Jan 3 - site visit after clicking on an affiliate link and placed a $90 order
For simplicity, let's suppose we're using an equal-weight attribution model -- where all marketing channels receive equal credit (i.e. Linear attribution model) -- so the Facebook Ad, the Google Ad, and the affiliate link get 1/3 credit for the purchase.
In the Cash Snapshot...
All revenue and transactional credit is given to Jan 3 since the order was placed on Jan 3.
Here's a breakdown of the credit allocation:
| Jan 1 | Jan 2 | Jan 3 | |
|---|---|---|---|
| Facebook Ad | $0 revenue; 0 transactions | $0 revenue; 0 transactions | $30 revenue; 0.33 transactions |
| Google Ad | $0 revenue; 0 transactions | $0 revenue; 0 transactions | $30 revenue; 0.33 transactions |
| Affiliate Link | $0 revenue; 0 transactions | $0 revenue; 0 transactions | $30 revenue; 0.33 transactions |
Why is this important?
In the Cash Snapshot, all credit is attributed to Jan 3, despite the contributory touchpoints occurring on Jan 1 and Jan 2. As a result, Facebook and Google Ads does not receive any credit on Jan 1 or 2. But in reality, touchpoints on these days had an impact on the conversion.
To take it one step further, let's say $10 was spent on Facebook and Google on each day, your data would look like something like this.
Jan 1 Performance
| Spend | Revenue | MER | |
|---|---|---|---|
| Facebook Ad | $10 | $0 | 0.0 |
| Google Ad | $10 | $0 | 0.0 |
| Affiliate Link | $0 | $0 | 0.0 |
Jan 2 Performance
| Spend | Revenue | MER | |
|---|---|---|---|
| Facebook Ad | $10 | $0 | 0.0 |
| Google Ad | $10 | $0 | 0.0 |
| Affiliate Link | $0 | $0 | 0.0 |
Jan 3 Performance
| Spend | Revenue | MER | |
|---|---|---|---|
| Facebook Ad | $10 | $30 | 3.0 |
| Google Ad | $10 | $30 | 3.0 |
| Affiliate Link | $0 | $30 | - |
As you could see, this could be misleading when making media buying decisions because of the following:
- Jan 1 and 2 received no revenue credit, with 0.0 MER -- it's easy to assume these days had poor performance
- Jan 3 received all the credit, with 3.0 MER -- it's easy to assume this day had great performance
Additionally, this concept is magnified if your brand has a longer purchase conversion cycle.
For example, suppose you're selling a higher AOV product and it takes roughly 30 days for a customer to convert. Let's say you're looking at this week's ad performance on Cash Snapshot - this could be a result of marketing efforts from up to 30 days ago.
However, this all isn't to say Cash is not important. See specific use cases at the bottom of this article.
In the Accrual Performance...
Revenue and transactional credit is divided between Jan 1, 2, 3 and assigned to the touchpoints that resulted to the site visits.
Here's a breakdown of the credit allocation:
| Jan 1 | Jan 2 | Jan 3 | |
|---|---|---|---|
| Facebook Ad | $30 revenue; 0.33 transactions | $0 revenue; 0 transactions | $0 revenue; 0 transactions |
| Google Ad | $0 revenue; 0 transactions | $30 revenue; 0.33 transactions | $0 revenue; 0 transactions |
| Affiliate Link | $0 revenue; 0 transactions | $0 revenue; 0 transactions | $30 revenue; 0.33 transactions |
Keep In Mind
Accrual is our most popular accounting mode since credit is given to the marketing touchpoints -- which gives the most accurate view of ad performance for that given date range.
With this in mind, the Overview and Sales page in our dashboard are defaulted to Accrual accounting mode.
Cash Snapshot - Use Cases
Use Case 1: Goal Setting Based on Blended MER
Many brands nowadays track their company's performance using a target MER Goal -- as MER typically points to profitability.
For context, MER is calculated the same way as ROAS (Total Revenue / Total Spend), but the difference is this: MER is used in the Cash Snapshot, while ROAS is used in Accrual Performance.
Why is MER used in Cash accounting, while ROAS is used in Accrual accounting?
It boils down to the accounting modes. We know Cash Snapshot does not attribute the orders and transactions to the contributory touchpoints. While the same formula is used (Revenue/Spend), we merely see it as a ratio, also known as Media Efficiency Ratio (MER).
On the other hand, we attribute orders and transactions to the touchpoints in Accrual accounting. Therefore, we see (Revenue/Spend) in Accrual accounting as more of a true return on your ad spend (ROAS).
Now, we can use a Blended MER goal to track business-level performance.
To take it one step further, a Blended MER can waterfall down into lower-level ROAS or CAC goals at the platform levels. In this context, Blended MER refers to MER across all channels: total revenue / total spend.
Let's say your Blended MER goal was a 3.0 and looking at your historical data, we saw the following:
| Blended MER | Facebook ROAS (1DC) | Google ROAS (1DC) | TikTok ROAS (1DC) |
|---|---|---|---|
| 3.5 | 1.2 | 2.5 | 0.8 |
| 3.0 | 1.0 | 2.2 | 0.6 |
| 2.5 | 0.8 | 1.9 | 0.4 |
| 2.0 | 0.6 | 1.8 | 0.2 |
We can use the (benchmarks in bold) for Facebook, Google, and TikTok when tracking performance using the Accrual accounting mode. In fact, we have a Benchmarking Tool that helps you do this within the Sales page.
Accrual Performance - Use Cases
Use Case 1: General Media Buying
The Accrual accounting mode attributes all conversions to when the touchpoints occurred. As a result, it's a more true return on your dollars spent and you're able to understand ad efficacy more clearly.
Updated 6 days ago