What is Time Lag? – Data Science for CMOs episode 2

Great thing comes in due time, it takes time for an investment to pay off. Knowing is critical. Is it the same for marketing? Christopher Engman guides you through the jungle of data science terms and explains the meaning of time lag. See the effect that the passage of time has on impact and ROI.

Time lag is one of the most critical terms in regression modeling or mathematical statistics applied on marketing. Many marketing activities have either a short time to impact or a longer period to show the results. If we put in $1 in retargeting for example. How long time does it take for it to materialize entirely? That could take a day, it could take two years.

The way they look at time lag is primarily two ways. First you look at when does the half-life appear, much like when you’re drinking coffee or alcohol for example. There’s a half-life, so when has the effect of that coffee gone down to half? And in this case when has half of the effect of that marketing dollar been materialized? If you have a multiplier or a slope that is 17, so 17 dollars back per dollar spend. Then you see okay when is 8 and a half of those 17 dollars come back to you in terms of sales. That is the middle of the whole shower effect. That’s one way to describe it. The other way to describe is to look at how does the effect actually spread out over these time periods. It could be weeks or months, so you quantify how much of the effect lands in each time box. That’s another way to describe time lag and I think you should look at both.

Time lag is also important when things occur. Let’s say that the CEO and the CFO come into the room and say “ok we’re a middle of the year we need to reach these targets and the forecast doesn’t look very positive.” Then you can look at time lag and see that this year looks great, this year looks fabulous. But I’m really worried about next year. Then you can increase the spend on activities that have a longer time lag. So you can plant seeds in advance by taking marketing activities with longer time lag and start running them during your second half of the year to plant seeds for the next year.