HOW TO MEASURE YOUR MARKETING Metrics, Analytics and ROI INTRODUCTION Do you know how a change in your marketing budget can impact your marketing results? According to the 2010 “B2B Lead Generation Marketing ROI Study” by Lenskold Group, more than 44% of marketers have no idea what an increase in budget could have on their ROI. Knowing the ROI of your marketing will help you quantify your budget over every marketing cycle. The aim of this guide is to help you measure the ROI of your marketing and identify important aspects such as: o The most important marketing metrics for your business. o How to measure the various marketing efforts and their impact on your organization’s bottom line. o How to best communicate the marketing results with the executive team or management. o What procedural or personnel changes may be necessary in your organization for the proper implementation of marketing measurement. The main focus of any business is improving revenues and growing faster. These are the main metrics you should be measuring. MEASUREMENT INSIGHT: 5 QUESTIONS TO ASK To find out the impact of your marketing programs, you need to know what to measure. The questions below will guide you in your measurement insight: a) What are your marketing objectives and how will you connect your investment to revenue and profit? b) What impact will a percentage change of marketing budget have on your bottom line over a specific period (months, years, sales cycle)? c) How effective are you at converting marketing investment into revenue and profits when compared to relevant marketplace benchmarks, your competition and historical revenue performance? d) Which targets should you focus on to improve revenues over the next few months/years? What initiatives should be implemented to make this happen? e) What other questions must be answered on the ROI and how are you going to address them? Let’s get started with the steps that you need to follow to measure your marketing. 1. Measuring Marketing Metrics Most businesses have one major problem with online marketing: measuring ROI. In most cases, executives outside the marketing department think that marketing is necessary only for supporting sales. It is no wonder that most companies do not take marketing measurement seriously. What can you do to convince the top executives that marketing is a crucial part of business operations and significantly contributes to revenues and profits? How can you build the respect among your organizational peers and even earn a place at the revenue table? Use Metrics that are important to CEOs and CFOs In the current competitive business environment, metrics like bounce rate and email open rate do not matter to the top level executives. Instead, CEOs and CFOs are more concerned about how the revenues and profits are generated by the company. When discussing marketing with your CEO, focus on the impact of marketing on the overall revenue of the company. For example, you can discuss: o o o o How much faster the company is growing now versus a comparable time in the past. How revenue has improved in the current quarter versus the last quarter. Profit and revenue forecast for the next quarter or sales cycle. What metrics support the above assertions. In general, you should focus on two things: revenue and growth. These are the metrics that CEOs care about. While other metrics like search engine rankings, social media engagement and others are important to the marketing department, they will not earn you respect with the CEO if you cannot tie them to the revenue or growth performance of the company. 2. Planning for Marketing ROI Marketing ROI reporting is not just a matter of delivering forms every month on the marketing strategies implemented. Reports are only as good as the information they provide that can help the organization improve its profits. You should plan your marketing programs with ROI in mind from the onset. If you define goals from the onset, you can measure the marketing efforts against these goals and take steps to achieve them. Your main focus should be not just proving ROI but also improving ROI. Planning for marketing ROI involves three main activities: o o o Defining your targets and ROI estimates upfront. Designing your marketing programs to be measurable. Focusing on the decisions that will improve marketing. Improving your marketing ROI requires planning and discipline. Marketing ROI Management Process Step One: Establish Goals and ROI Estimates Upfront When planning any marketing investment, you should first quantify your expected outcomes. Each marketing program should be assigned up-‐front goals, KPIs and benchmarks before the investment. The first step of planning any program is to define your objectives and then choose measurable metrics to support the goals. By setting ROI goals, the CFO will see the expected outcome of the marketing investment. Therefore, approving your marketing budget will be easier. Other benefits of modeling your ROI goals include: o o o Identify the principal profit drivers that significantly affect the model and your profits. Create alternative scenarios to determine when changing parameters can impact your organization’s revenues. Identify the targets you will use to compare the actual results. Step Two: Design Programs to be Measurable You should have measurement strategies for every marketing program. As you plan, know what you will measure, how you will measure and when you will measure. In nearly every case, you will need to take specific steps to make the marketing programs measurable. This usually includes varying your spending levels across markets or setting up test and control groups to measure relative impact. When planning for measurement, you need to track the appropriate attributes for all your marketing programs and their variants. These can include investment level, offer, channel, messages, target audience and other relevant demographics. Failing to start the measurement process early in the lifecycle can lead to expensive mistakes down the line. Gathering data from the onset is important even if it will not be used at that time. This data history will be crucial when you are ready to implement more sophisticated approaches towards measuring the effectiveness of your marketing programs. Step Three: Focus on the Decisions that Improve Marketing You’ll reap the highest reward if you move past historical measurement to forward-‐looking decisions. Most of the data you will have will be on past outcomes. The biggest benefit you will derive from the data is using it to determine the business steps to take for future goals based on the data intelligence. An example of intelligence you can derive from the data is what you need to implement to drive organizational profits. Therefore, as you plan on what to measure, you should do so with the aim of using the data to guide you towards the decisions you will need to make to improve the revenues of the company. Other intelligence you can gather from the measurement can help you identify the marketing programs that are resulting in the best ROI, the effect of budget increase on different programs, better understanding of customer behavior when approached through different marketing techniques, the best mix of marketing tactics that help in achieving company objectives and so on. Each measurement should help you understand how to improve the marketing programs and align them with the objectives of your business. If you do not meet all the goals of the program, you can still know what needs to be done to improve the program. Where Metrics Go Wrong There are literally hundreds of marketing metrics to choose from. However, not all of them are important for your business and especially the board. If you are approaching the CEO or CFO to justify your marketing budget, you will need to present different metrics than you would to your SEO or content marketing team. You can track different metrics as long as they are helping you better understand your market position, customers or other aspects of the business. However, not all metrics should be shared with other executives unless the metrics really matter. Below are some ways in which metrics can go wrong: a) Vanity Metrics Many times, marketers present metrics that make them “feel good” about the outcome of their programs to justify their marketing budgets. The problem is that often, these metrics are not clearly related to the core objectives of the business, i.e., generating revenues and fast growth. Examples of common vanity metrics include Facebook “likes,” brand mentions on social media, and engagement on social media platforms like blogs and social networks. While these metrics are important in understanding the overall impact of a marketing program, CEOs and CFOs just don’t care about them since they are not tied to revenues. b) Measuring what is Easy When measuring the impact of marketing on revenues becomes tough, marketers may resort to measuring what is easy. While this can be fine in certain situations, it usually raises questions among CEOs and other executives on how accurately the metrics reflect the financial metrics they are interested in. The result is usually a strain on the marketer’s credibility. c) Focusing on Quantity instead of Quality When measuring lead metrics, most marketers concentrate on lead quantity rather than lead quality. Focusing on quantity while ignoring quality usually results in programs that look good but do not deliver the desired profits. The number of leads that enter your sales funnel is not important if they are not converting. In case your program produces a larger number of leads that are not converting well, you need to evaluate your offering as well as the target leads to ascertain the reasons for poor conversions. d) Focusing on Activity Instead of Results Marketing activity is easy to see and measure but results, which are even more important, are difficult to measure. On the converse, sales activities are difficult to measure while sales results are easy to measure. This may be the reason why CEOs and CFOs are more concerned with sales activity than marketing results. You should focus on the impact of your marketing programs on the revenues of the company. Revenue results from marketing programs make it easier for top executives to appreciate the role of marketing in the growth and profitability of the company. e) Measuring Efficiency Instead of Effectiveness Another way in which metrics measurement goes wrong is when marketers measure efficiency instead of effectiveness. Effectiveness refers to doing the right things while efficiency means doing anything, even wrong things, really well. For example, having your webinar full of people who are not interested in your product or offer is efficient but not effective. Effectiveness enables the executive to see the results from marketing programs that impact growth and revenues of the company. Efficiency metrics are likely to produce questions from the executives that are more financially oriented, and will be poor justification for marketing budgets in difficult times. 3. Measurement Framework Measuring the Right Metrics While different metrics are important, those that have a direct impact on the organization’s shareholders’ value, ROI, cash flow, profit and margin are the most important. Since companies are looking to grow faster and generate more profits than their competitors, it makes sense to measure the metrics relating to profits and growth. Not all metrics are important in marketing. CEOs and CFOs don’t care much about the majority of metrics that marketers take to be important. The main metrics that they care about are those related to revenues and profits. Financial Metrics There are two main categories of metrics that directly affect revenues and profits: o o Revenue Metrics: These are marketing aggregates that directly impact a company’s revenues. Marketing Program Performance Metrics: These relate to the contribution of individual marketing programs to the company’s growth and bottom line. These two metrics can indicate the past and present performance of the company, as well as be used to determine estimated future performance. Each category can also have different metrics based on time. These metrics are the Leading Indicators, Diagnostic Metrics, and Business Performance Metrics & KPIs. Let’s look at each of them. Leading Indicators. These metrics help organizations to forecast future results. They answer the question “How is the company likely to do in future?” Diagnostic Metrics. These metrics provide insight on the company’s current performance often by comparing results against marketplace benchmarks, competitors and historical data trends. They answer the questions, “What is working?” and “What can be done better?” Business Performance Metrics & KPIs. These metrics relate to the performance of past marketing programs. They answer the question, “How did the company do in the past?” The metrics are easy to extrapolate on a marketing software dashboard and indicate the performance of different programs in the past. Secrets for Measurement Success o o o o Choose a maximum of 5 metrics to focus on. It is difficult to focus on more than that, so choose wisely. Measure the outcome of your marketing program versus the goals for those metrics for every campaign, product, region, sales, channel, etc. Show the trends for the metrics over time. This way, you can easily see what is working and what needs to be improved. Have a dashboard for your employees to see so that everyone knows what your marketing is trying to achieve and where you currently stand. Have goals and recognize those who achieve them. Offer them badges they can put on their cubicle or desk. Repeat the process. Track your results weekly, monthly or quarterly to know what needs to be improved. o o 4. Revenue Analytics One of the most important metrics to track is that which shows marketing’s aggregate impact on revenue. In today’s online and social world, marketing is responsible for up to 70% of the entire buying process. This means marketing and sales need to work together to generate revenues. And this new way of working requires new metrics and analytics. Define the Revenue Cycle The first step towards revenue analytics is to define the revenue cycle. This involves tracking the action of potential buyers from the time they become aware of your product or service, moving through marketing and sales to closed business and beyond. When marketing and sales work together, they each define a prospect’s movement from one stage to the other and create a foundation for comprehensive revenue metrics. The stages that your prospects follow down the sales funnel can be different depending on your company. Below is a typical example of the stages that customers of an online marketing company go through. Stage 1: Everyone This is the point where users have come across the company or one of its properties. Here, users have not taken any action that will qualify them as leads. Stage 2: Engaged At this stage, visitors have shown real engagement with the company such as commenting on the blog, attending a webinar, downloading content for the website, or clicking on an email that was sent. Stage 3: Prospect This refers to users who show interest in the company’s product or services and may buy in future. However, they are not ready for engagement with sales. A “qualified” prospect refers to the right person at the right company that fits your organization’s score rules. Stage 4: Lead This is a marketing qualified user who shows enough behavioral engagement or buying intent. The lead is ripe for a sales call. Stage 5: Sales Lead These are users who have been qualified to be ready to buy by a sales qualification rep. Stage 6: Opportunity These are leads who have been added to the pipeline as they prepare to buy. Stage 7: Customer This is a person who has bought the product or services. The customers may then be passed to a new revenues cycle for upsell and retention. 5. Program Measurement Why Measuring Marketing Programs is Difficult Some of the major challenges of program marketing measurement include: Knowing when to measure. The marketing investment you make today may not have an impact immediately. The impact may occur a few days, weeks or months down the line. However, as a marketer, you need to decide where to increase your budget today. Multiple touches. Conventional marketing rules indicate that sellers need to engage with a prospect at least seven times before they can generate a sale. The truth of the matter is that it takes multiple interactions with a prospect to make a sale. This makes it difficult to allocate revenue to any specific touch. Multiple influencers. The average buying committee for a five-‐figure purchase at a mid-‐sized company comprises six people. For larger companies, a committee can involve 21 or more people. Different marketing programs can affect each individual differently. Therefore, it is crucial to know which program has the most impact. Extraneous variables. Some factors outside the marketing control can significantly impact the results of your program. Therefore, it can be difficult to know whether the ROI is as a result of your marketing programs or external factors. How to Measure Marketing Program ROI While measuring ROI is difficult, it is not impossible. Different methods can provide insight into your various marketing programs and their effectiveness. Each sequential method gives a more accurate view into your customer data value. Most companies begin measuring their marketing programs with the first and second methods, and then begin to experiment with other more robust approaches. The methods are: a) Single Attribution (First Touch/Last Touch) This is the most common method of tracking the results of a marketing campaign. The method involves assigning all the value to the first or last program that touches on the deal. Advantages This method is relatively easy to implement and costs little to implement. It provides good insight into the early stages of the revenue cycle and works well when the majority of investments are made in lead generation instead of lead nurturing. With the First Touch/Last Touch method, marketers get straightforward insights into investment per lead metrics. Disadvantages The method does not account for the influence of subsequent touches. Therefore, the insights are directional at best. With the method, it is difficult to account for quality until the deal is closed. Moreover, too much credit is attributed to lead generation programs and not enough to lead nurturing or contribution from sales. b) Single Attribution with Revenue Cycle Projection Today’s marketing investments may not pay off for quite some time. As a result, the ROI of your current marketing programs is in limbo. This is a disadvantage that the First and Last Touch attribution approach has in today’s marketing. Measuring marketing ROI without properly accounting for the time it will take for the investment to pay off can lead to making biased decisions that may negate potential long term gains. To avoid this shortcoming, organizations can use revenue cycle projections. Adding revenue cycle projection to a first touch single attribution can help you gain deeper insight into the long term impact of your marketing programs. For example, you can focus on the impact that a trade show can have on your revenue cycle instead of waiting to see the actual results of a trade show. Advantages Revenue cycle projection focuses on the impact of the marketing programs on the revenue and not just the top of the funnel. The approach uses estimates to quantify the future value of today’s marketing spend. Apart from this, it also uses lead quality, not lead quantity, to evaluate the marketing programs. Disadvantages Revenue cycle projection attributes value to lead sources without taking into account the influence of other marketing methods. The measurement method uses past performance to estimate future results. Therefore, it cannot incorporate underlying changes. The approach also requires that estimates must eventually be backed up with actual results. c) Attribute across Multiple Programs and People This approach recognizes that it takes multiple communications from different people in the organization to close a deal. The method attempts to measure the contribution of the efforts of each individual. Tracking and Analyzing Allocations The first thing to do is start with the action that you are analyzing and work backward to identify the significant actions that affected the contacts associated with the particular deal. However, make sure you account for only the contacts that accounted for the touches that occurred before the action was taken. After compiling a comprehensive list, you can allocate portions of the resulting deal to each one. The allocation process is where things can get tricky. How to Allocate Before allocating revenues to multiple people and programs, you need to decide how to weight each touch point. You can weight by time, role or program type. By Time: You might want to weight some actions based on when they occurred in relation to the action that delivered value. This is especially true for programs that happen immediately before the key behaviors. For example, a prospect may have become a lead because of the fact they attended a webinar you held recently, rather than they attended a trade show or downloaded a white paper a few months ago. By Role: You may place more weight on programs that touched on key decision makers than those that affected other influencers. If you choose this route, make sure the weighting matches the realities of the business. For example, a CEO should not be given more weight than a manager if he or she played a minor role in closing the deal. By Program Type: Sometimes, you may want to weight some programs more heavily than others based on the level of activity they produce. For example, attending a one hour webinar may have more impact that simply visiting the website. However, make sure you weigh realistically based on results and not on the cost of creating the program. Otherwise, top level executives can question your assumptions. Advantages The multiple programs approach incorporates nurturing touches as well as lead generation. The approach is especially useful for long revenue cycles with many touches. Moreover, it also focuses on all contacts associated with a deal, and not just the first contact. Disadvantages The approach requires assumptions that can make the analysis biased. It also lacks insight into synergy of tactics since there are no correlations of connections. If you weight all touches equally, there is the risk of over-‐crediting touch points that have a low impact. d) Test and Control Groups One of the best ways to measure the true impact of a particular marketing program is to test its effectiveness against a well-‐formed control group. Here, you compare the results of the two groups. The method is expensive but can be used to measure almost anything. Using the Approach With this approach, you need to apply the treatment of the program you want to measure to one component of your target buyer group, and not to another homogenous part of that group. When all factors are equal, it is possible to attribute any difference in buyers’ behavior between the two groups being tested. For example, if you want to measure the impact that online advertising has on a particular product, you can create two separate campaigns and target them to two equal groups. For the first group, you can spend twice as much as on the second group and gauge the resulting impact in terms of sales from the two groups. You can compare the behavior of the two groups to analyze the effectiveness of your marketing campaign. Advantages This approach is more sophisticated and analytical. It reveals the true impact of a marketing program and can be used to measure the impact on almost anything within the right test. The measurement is relatively low cost if you can design a decent control group. Disadvantages The approach focuses on specific tactics and therefore cannot report on the effectiveness of all the programs. Moreover, while it is possible to test almost everything, the cost of the method increases with the number of things that need to be tested. The test and control approach only works when you have incorporated variance to support measurement of a program. e) Full Marketing Mix Model Marketing Mix Modeling (MMM) shows the outcome of sales volume on the various independent marketing touches and other non-‐marketing touches. The approach uses statistical techniques such as regression to determine the impact of marketing programs. Advantages This method is very accurate in measuring the impact of marketing programs. Marketers can use the method to measure the impact of all programs as well as external factors. The method also gives insight into the effectiveness and efficiency of a program. Disadvantages The approach needs a lot of data. It can be costly to collect the required data as well as the historical data. Marketers also need sophisticated analytical skills to know the independent variables to use with the model. Finally, the focus on short-‐term sales changes can undervalue longer term, brand building activities. 6. Marketing Forecasting Most board meetings concentrate on sales forecasts. Rarely will you hear of a meeting of upcoming marketing strategies. However, as the marketing head in your organization, it is important to have a marketing forecast for the various programs you intend to implement. Long-‐term Visibility In a sales cycle forecast, the sales team focuses on the revenues that specific accounts will achieve over time. As the sales cycle increases, the forecast becomes more inaccurate. On the other hand, marketing forecast takes responsibility of the early stages of the revenue cycle, providing better visibility on future revenues. Marketing heads can forecast how many customers, opportunities and new leads the company can get in future periods because they know the prospects in each revenue cycle and how likely they are to move to the next stage over time. How to Carry Out Marketing Forecasting The methodology of making marketing forecasts is a simple concept: o o Determine the stages of the revenue cycle and then determine how each lead moves through the various stages. Get input on the number of new leads each marketing program will contribute to the system over a defined future period. Model how current and new leads are flowing through the various stages of the sales cycle over time. Review the results and use historical and management judgment to finalize the forecast. o o 7. Dashboards Dashboards create a visual display of the relevant information you need to measure and refine the effectiveness of your current marketing programs in delivering against your goals. You can use either internal or external dashboards to assist your team and the executive management to make better educated decisions to improve revenues. Designing a Great Dashboard Your marketing programs and campaigns generate a huge amount of data. Most of the data is not relevant to generating revenues in the organization. As you design your dashboard, determine the data that will be most relevant to the decision makers. The main thing to keep in mind is using the right information graphic for the data you have and the insight you need. Typically, your dashboard should have: o o o o Few numbers. Focus on the select key financial metrics. Speedometers. These should show progress versus goals. Line charts that show trends. You can see your data over time using line charts. KPI alerts. Use simple arrows to indicate upward, downward or flat progress against key performance indicators. Make your dashboard look attractive; it can build your credibility. Your dashboard should guide the team to think and act as catalysts for effective decision making. When presenting the dashboard, start by reminding other members what you intend to accomplish with your presentation. 8. Implementation The success of your marketing measurement depends on how well you implement it. This means you need the right people in place, follow the right process and use the right technology. People Even with the most efficient technology, you will not be able to effectively measure your marketing if you do not have the right people. You need to identify high performers from within and outside your company to help you with implementing your marketing measurement. The people should have the necessary skills such as analytical proficiency, technical savvy, bias for experimentation, and excellent communication skills to implement your measurement. Apart from this, it may be prudent to create a culture of analytics in the organization to drive your current business workflows. Process You need to find a way to manage the implementation process in your organization to ensure the marketing measurement system becomes a success. It is necessary to develop a methodological approach to measurement for the best results. Start with a grand vision and then take small steps to win the ROI race. Implement smaller strategies as you progress to more robust strategies. The small victories you win will help you remain focused and increase your chances of short term and long term ROI measurement success. Technology There are many types of technology options available for measuring marketing ROI. While Excel spreadsheets can work fine, they are not ideal as solutions for organizations that want to implement robust analytics. Using automated software will save you time on collection and presentation of data, allowing you to focus on gaining valuable insight into that data and refine your programs for better results. A good automation system should have four components: Central Marketing Database, Time Series Analytics, Powerful and Easy Analyzers, and Ad Hoc Reporting and Dashboards. Most automation programs come with free trials, enabling you to test the feature and performance of the application before you purchase. The software you opt for should make your marketing ROI measurement easier. Automation helps organizations to be more effective in revenue generation processes. CONCLUSION Marketers need to plan for future success by implementing various marketing strategies, measuring their effectiveness and refining them for the best results. To justify marketing budgets, the executive should be approached with financial focused metrics. The metrics presented to the CEO or CFO should be tied to revenue generation or company growth. Calculating a culture of measuring analytics is crucial to continuous improvement of different marketing programs. As the head marketer of your organization, you should establish a roadmap for increasing marketing ROI and measurement capabilities over time. Your measuring process should be aligned with the organization’s goals and objectives. About Education Services Group While today’s business leaders strive to sustain growth and optimize ROI, ngage works to help these professionals achieve their objectives through integrated lead generation and lead qualification. Our digital marketing services are designed to help your brand attract, nurture and convert higher quality leads. This comprehensive approach boosts profitability by pumping more lucrative opportunities into your sales pipeline. Want to know what ngage Marketing Services can do for you? Contact us at 513-‐338-‐8810 or visit us on the web at ngagemarketingservices.com. Disclaimer: The information contained in this document is the proprietary and exclusive property of ngage marketing Services, a division of Education Services Group except as otherwise indicated. 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