A rate is simply a calculated metric. We use rates to measure all kinds of things such as the bounce rate of a landing page or conversion rate of a checkout process. In order to get value from rates we need both context and comparisons. On its own, a rate doesn’t tell us anything useful.

For example, if my site’s conversion rate is 10%, you’d think that would be great. In the back of your mind, you may remember reading somewhere that the average conversion rate for most sites between 2-3% so 10% sounds fantastic. However, when we start to add context and perform comparisons this number may end up sounding less appealing. What if my site’s conversion rate last year was 15% compared to today’s 10%? What if similar country sites in my organization have 20% conversion rates? What if my closest industry peers recently shared in a media article that they have average conversion rates of 30%? Now the 10% conversion rate doesn’t sound as good.

A rate simply provides us with a number, and what we do with the measure is what adds value. When we analyze what’s happening with the conversion rate, we can determine how to create more value or stop value leakages. Through testing we can confirm what we found in our analysis (correlation vs. causation) before making wholesale changes. It’s important to use the right rates or metrics, but the numbers without any context or comparisons are meaningless. Value only comes from understanding the rates and making changes to improve them over time.

Here is one that spawns from my latest fantasy football win.

You have two QB’s to play. One has a higher completion rate than the other. This rate indicates that he should have a high predicted score when it comes to game time. When you decide to play him, he falls flat on his face. This rate did not give you the value of what his performance is, it just showed what he has done in the past in regards to completed passes to attempted passes. The value of what he actually did is seen when put in comparison to the QB on the bench that had the 10 additional points needed to win the game for the week. Without the comparison to the other QB and the current matchup, we would have no value.

To me, revenue allocation has always been a method for ranking performance in much the same way page views or visits are. It gives you something to sort by, and that’s about it. Not to mention that depending on the type of allocation you are using you may be inflating your total revenue anyway, so it inherently is not a reliable method of determining revenue generating sources.

When trying to determine revenue generating sources, I have always relied on a less granular outlook. Rather than saying “this email message generated $X,” stepping back and saying “email campaigns drove $X, while SEO drove $X”. To get much more granular than that and you begin speculating too much about human nature, which is anything but reliable.

To me that is when you get into the psychology of it, and it gets too nit-picky. I think broadly if you are trying to determine whether to put ad dollars in email or SEO it can help…but when you start saying “well, if we put out an email with this call to action, it will generate $X in return” you have a problem.

To me it is a gross misuse of the scientific method…you almost need to look at the control group and see what they are doing before you can determine anything. No one looks at the visitors not associated with a campaign…maybe people on the site just buy stuff on their own.

Here is my short answer:

• Revenue allocation – similar to attribution or correlation. Assigning credit to an activity. The amount of credit could depend on the business rules or attribution model you want to do.

• Revenue generation – total revenue acquired from a singular action. There could be other actions that influenced it, but we aren’t counting that here.

I think what the person was saying something like this, “I looked at a specific channel and it said it generated $4.50 worth of revenue.” And then you would say “Who cares what the rate is, we need to find what impacts true value and actually changes revenue since that number is just a rate.”

I think the best thing that helps explain these types of situations is explaining causation and correlation.

This made me think of the jobs report on the economy – unemployment rate is 8%, which there is not really anything we can do with that, it is just a number/rate. Lots of people like to look at different sectors and pretend we know what is going on when they can say that growth increased in the technology sector—this is similar to the page participation example above. Again, there isn’t anything you can do with that, it is just a rate. The real question is how do we move the needle, how do we create jobs or what actions make jobs decline.

I’d describe the two as follows:

• Revenue allocation is a method/means to assign success based on certain behavior
• Revenue generation references an action that you are taking in order to invoke a positive change in driving revenue

I would define revenue generation as the action you take and the revenue allocation the means by which you measure the success.