Success through measuring Marketing
This series of articles discusses the various metrics relevant to marketing as a whole. To do so we are going way beyond the traditional idea of dedicating our focus entirely on marketing and brand relevant measures and its conventional well known KPIs only, but instead, we consider our marketing efforts as an embedded function within a greater whole, that is the company itself, with all its functions, product, and services. Moreover, throughout this article, it is important to remember that digital marketing is not a stand-alone function but a subset of the entire marketing function, and that includes all traditional marketing efforts.This series of articles discusses the various metrics relevant to marketing as a whole. To do so we are going way beyond the traditional idea of dedicating our focus entirely on marketing and brand relevant measures and its conventional well known KPIs only, but instead, we consider our marketing efforts as an embedded function within a greater whole, that is the company itself, with all its functions, product, and services. Moreover, throughout this article, it is important to remember that digital marketing is not a stand-alone function but a subset of the entire marketing function, and that includes all traditional marketing efforts.
Yup, I get it. Metrics are of substantial and perhaps advanced nature. It invites any newcomer to the field of digital and online marketing to stay away from the subject as well as my blog as far as possible and never come back. There are two responses to this question; one is that metrics and performance measurement, that is knowing where you want to go, and where you are currently at is the backbone of any good marketing campaign. This is especially true for digital marketing, where we have a whole array of big data available that allows us to closely monitor all our efforts and make informed decisions to ensure we maneuver our campaign towards success. The other response is somewhat selfish, but also offers a lesson learned. I am about to follow some basic rules of blogging, and one of them is being consistent concerning publishing, following a strict publishing calendar that prevents my blog from becoming a graveyard.
Measuring marketing and the introduction of central metrics allows me to blog about something that I am well familiar with and comfortable to talk about on days when I have less time to draft and publish an article. I am after all actively working on digital marketing campaigns over the coming months. So, yeah, I am throwing this beast out there for you to digest and remember, don't shy back from numbers, formulas, and metrics - they are after all not as complicated as they may seem. Once you thought about them and got the hang of it, it's pretty fun, pure if not addictive. In a way, I am doing you a solid. Marketing is a numbers game, and we all do love numbers, don't we? Jeez, what have I turned into?
I will be issuing details of metrics that I had been dealing on a daily basis over the past years. Well, some metrics are indeed more universal to every organization and must be kept a close eye on, while others are less in use on a daily basis. I will attempt to introduce each metrics with as little jargon and complexity as possible, given the aim of this blog is that anyone who wants to understand online markeing (and marketing as a whole), and that inevitably requires a particular understanding of performance measurement and metrics. I promise you do not need a Ph.D. in math or stats, nor are you expected to be a rocket scientist. It's not that complex, and there is no need to memorize each metric there is. Like in any other profession, as long as you know where to look things up, it's all good. At least that's what my professors preached in High School and to be fair, I've done well for myself sticking to that strategy. Over time you will get familiar with the metrics that matter most to you, and others, well, you know they exist and if the situation ever requires or allows, make use of them. The bottom line is, measure what matters.
As mentioned in the rather short ledge that accompanies this article, we view digital marketing as a function within the company. It is a service which efforts must support a greater overall goal - the business objectives. At this point, it is worth to emphasize that there is a clear distinction between business goal and objective. Goals are the broad primary outcomes towards which effort and actions are directed in a business. They are whats, not hows and a company might have multiple targets to achieve. For example, "we must be a leading player and increase our share in the road cycling industry." Normally there is no measurement in the definition of a goal and only gives you the general direction of the company. Business objective differs from a business goal in the sense that they are measurable and specific. It quantifies the thoughts and sets a target so that the strategy can be planned around it. In other words, objectives are measurable steps an organization takes to achieve its goals. For example, “increase the share in road bike segment to 11% by the end of Q4". Although business goals and objectives are loosely interchangeable, business objectives are a subset of business goals.
To make it easier for you I divided and allocated metrics to their respective corporate function. Details of each metric will be published in a separate glossary section over the coming weeks (Metrics & KPI):
So why would a marketer ever be concerned with financial metrics you may ask? Well, we marketers take, believe it or not, and exceptional strategic role within an organization to guide the ship (aka. company) towards achieving its long-term strategic objectives. Any company who does not consider its marketing function as a vital entity robs itself of a decisive competitive advantage and will not ever be as successful as it could have been. I could not think of a single undertaking or operation that gets away with poorly engineered marketing strategies.
We are all about the big picture. We, marketers, have an array of challenges, responsibilities as well as expectations to perform our duty successfully. It is us who process volumes of data to predict trends, allow our organization to respond to an ever-changing and often volatile environment while building complex business and customer relationships and doing all this profitably. Each plan we formulate must align with corporate strategy, providing detailed insight about customer needs, and how we plan to address them, and what the impact to the company will be if we succeed, as well as what happens if we fail.
Metrics in this category provide marketers with the overall performance of an organization. You as marketeer you have a responsibility to pay close attention to corporate level metrics and how marketing specific and other related metrics correlate. To visualize the idea, as a marketer you are well aware of the various pricing strategies, and without a doubt, these strategies have a clear and visible impact on a companies overall revenue. I see corporate-level metrics as umbrella metrics that can be influenced with all other metrics from various departments, all connected in one way or the other. Thus understanding these correlations is a must if you are responsible for the marketing function within an organization.
If you are assigned a leading role within a corporation, be that Head of Marketing or similar it is advisable to familiarise yourself with the following financial metrics:
- Gross Profit
- Value-to-Volume Ratio
- Net Profit
- Earnings-Based Value
- Return on Sales
- Return on Assets
- Return on Equity
Marketing Planning Measures
It all starts with a specific need that needs to be satisfied, the demand so to speak. Your company is offering a solution, that may be a product or service, that meets that demand. Pretty basic, right? In a monopoly, you don't have to worry about anything at this point. However, you will most likely find yourself in an economic structure that resembles a highly competitive environment, if lucky perhaps in an oligopoly. That means your companies product or service needs to distinguish itself from the competitor's solutions. This is where we marketers shine. To support your companies effort in getting your "solution" to the "man" you take advantage of a wide range of communication channels (digital as well as traditional marketing channels) to create a unique and compelling experience for your potential customers. You guide them towards buying your product and service. Another equally important task is to anticipate how changes to product and service may impact demand and subsequently on market share. This requires close collaboration between marketer and other departments such as R&D, production and support. The following metrics assist in assessing a companies market position relative to competitors and guide us to anticipate any opportunities and threats along the way.
- Market Share
- Relative Market Share
- Market Growth
- Market Demand
- Market Penetration
- Program/Nonprogram Ratio
- Program/Payroll Ratio
- Causal Forcast
- Time Series Analysis
The category of brand metrics is perhaps the most complex one to capture. What is a brand? It is how stakeholders perceive an organization. Mind you that stakeholders can be anyone, ranging from investors, employees, local customers to the broader society — basically, anyone who is affected by the company in one way or another. Brands are a mixture of tangible and intangible inputs. Now you don't have to be a genius to realize attaching a number to a brand and measure it may not be the most straight forward task. This category is, by all means, the most abstract of all and to make matters worse, there is no universal standard for brand valuation, and yet I consider the metrics below important and any marketer who takes themselves seriously should be familiar with those.
- Brand Equity
- Brand Scorecards
- Brand Premium
- Brand Contribution and Review Analysis
These metrics are at the heart of every marketer work. Even you came to this site to learn more about Digital Marketing, and are already well fed up with all other metrics I have been introducing so far, these metrics matter to you, whether you are pursuing a career in traditional or digital marketing. To me, digital marketing is a specialization, someone who dedicates a larger share of their time to keep up with all the trends and developments in the digital world, however, at heart she or he is still just a marketer, and must have a profound understanding of the fundamental principles as well as key metrics in marketing. Irrespective of the strategies or the channels you maintain or are responsible for, you want to have a clear understanding of the market you are targeting, and the individuals and groups within that market (the demographics). Management and the board will bombard you with an array of justified questions that you must have reliable information to back up your statements. At this point, rest assured you put your reputation on the line, so you better do your research.
The usual and certainly anticipated questions when considering moving into unknown territory are whether or not the market is large enough. If it is an emerging market or existing market that grows at a steady rate, and whether there is space for us to gain a share, and whether or not the growth rate is in any way attractive and if the cut is large enough to justify all the investments. As a marketer, you will be identifying and analyzing the needs, segments, targets, and positioning.
- Net Sales Contribution
- Time-Driven Activity-Based Costing
- Segment Profitability
- Customer Profitability
- Share of Customer
- Return on Customer SM
- New Customer Gains
- Customer Acquisition Cost
- Cost Per Lead
- Retention Rate
- Churn Rate
- Consumer Franchise
- Customer Equity and Customer Lifetime Value
- Customer Brand Value
- Customer Losses
Product & Service Metrics
The product or service you are sell is not just the physical good or the procedures that make up your service; you are selling a whole package. Remember the customer journey, a unique and compelling experience with the hope the before potential customer ends up buying from you? Well, once the purchase is made or the contract is in place, the relationship doesn't end, no, the actual relationship starts here. With the product comes a whole bundle, which added to the decision to go with you, that besides the quality and features of the product the fact that you probably offer warranties, customer service, if required tech support and all the other things that raise the perception of your company, product, and services.
What many people forget, including newbie marketers, is that you have a direct obligation to not only promote but also develop great products (not just the physical item itself), as well as creating healthy and prosperous relationships with clients and advance a companies reputation and perceived value. You, Sir or Madam, have a hell lot to do, whether you conduct marketing for your product sold locally, preparing and leading all marketing efforts in a restricted budget StartUp, or fight off the pressure in a multinational who relies on you. The task is the same for everyone, before launching a product you will have to evaluate first the potential for success, and once confirmed understand the competitive conditions and deal with it. The metrics that assist in measuring a product's potential in a new market are:
- New Product Purchase Rate
- Marketing Cost per Unit
It doesn't come to a surprise that pricing strategy is central to any undertaking that sells products and service for a profit, or well, to somehow survive and break even. At its core pricing is an excellent way of signaling to customers and therefore rigors discussed the topic when it comes to bringing a new product to the market. Naturally, the price must cover the production costs, as well as all marketing related and administrative expenses associated with the product. I won't get into the detail of the various pricing strategies that are out there, but generally speaking, the chosen pricing strategy must be aligned with the corporate objectives and is often also victim to the economic and competitive environment, which can change in an instance. You as marketing expert must keep an eye on this.
You've done a lot of research at this point as a marketer, and you know your segment by now. So probably when you prepared for it, you weren't necessarily planning for a survival strategy to break even and recover the initial investment. You probably wish for a profit-maximizing strategy and plan for your product to be perceived as premium. Well, all that's left to say is - you better deliver, and remember the physical product alone is not the product the customer purchases. Once you have decided upon a strategy market forces will take over, and all that is left to do is fine-tuning. There are great promotional vehicles that you can take advantage of such as coupons, discounts or my all time favorite when it comes to quality items that are perceived as such - payment terms. Lower the upfront cost and get them on monthly payments and end up making even some extra money on the side. Great examples in this respect are car dealers, and companies like Apple is running big on it as well as resellers themselves.
The following pricing related metrics will help you in making decisions and finding an appropriate strategy that works for you. It is a reasonably sensitive topic, and it is less a matter of your experience and abilities that make it less nerve-wracking if the bulk of the responsibility to get it right resides with you or your team.
- Mark-Up Pricing
- Target Return Pricing
- Sales Price Variance
- Markdown Goods Percentage
- Profit Impact
Advertising & Integrated Marketing Communications (IMC) Metrics
So let's clarify the right of the bat the meaning of Integrated Marketing Communications for anyone new to Marketing. You may have heard of the Marketing Mix also known as 4 Ps. And IMC is more or less the Promotion slice of it. It may sound complicated, but the concept is pretty simple. All communications and messages must be carefully linked together and must always be consistent. So integrate your tools work together in harmony rather than isolation. On a related note - why people stick to the term "promotion" is beyond me as it may lead to confusion and is so much more difficult for someone new to contemplate what it is all about.
Anywho, you as marketer make your media choices based on the ability to reach a defined target market and turn a good chunk of that into paying customers. I would be highly surprised if a company manages to achieve its objectives via a single medium, and that is where they start relying on experienced marketing experts who are overly skilled and creative and develop a multilayered campaign that captures customers with similar messages in various media. There is often some trial and error involved, as some media work better than others for any given market. What makes matters worse is the fast pace of digital marketing. New trends, developments, and changes on a daily basis making it challenging to deliver a campaign that reaches their target audience most effectively. Irrespective how long you've been in the game, the day you stop learning and researching and following trends - that's the moment you are out. Anyway to keep this all in check some great metrics help you in succeeding.
- Share of Voice
- Gross Rating Points
- Cost per Gross Rating Point
- Response Rate
- Conversion Rate
- Advertising-To-Sales Ratio
- Promotion Profit
To all the eager digital marketers who ended up on this page, finally, there is a little talk of digital and social metrics on this blog that labels itself digital marketing blog. I don't think there is a need to promote the power of new and evolving digital marketing channel in this article. So without further ado, here are what I consider essential metrics in digital marketing. Bear in mind, this is common metrics shared across companies and industry, but be aware you will have to get creative with the data at your disposal to make the most of your digital marketing campaign. So eventually you will need to get above and beyond what is given to you and find the needle in the haystack that may give you the competitive advantage.
- Gross Page Impressions
- Word of Mouth
- Total Clicks
- Click Through Rate
- Cost Per Click
- Cost Per Action
- Pay Per Lead
- Activity Ratio for Social Media
- Deductive Social Media Return on Investment
- Resolution Time
- Social Media Profitability
- Bounce Rate
- Return On Advertising Spend
Direct Marketing Metrics
This is another beauty and used extensively by traditional and digital marketers alike. Direct Marketing requires you to reach out to your potential or existing customers, well, directly. This form of marketing is a beautiful example of where traditional marketing meets digital marketing. There are various ways of getting in touch with your demographic, it may be via means of paper mail, or the digitalized and less cost-intensive form of email, or perhaps even social media and anything else that may come to your mind that is personalized and addressed to an individual. Personalized doesn't necessarily imply that it is manual labor. Email campaigns may be fully automated, but that goes beyond the scope of this article. What is important is that you must have a list of customers handy and to be reminded that you must have consent by the customer to be contacted in most countries and region - mainly Europe and the US. I am not so familiar with the law in other countries but would imagine it is similar. It is best practices as a marketer not to annoy people or in any way make it appear as if you were to intrude their privacy. That usually backfires - "bigly" - in the wise words of Donald Trump.
The nature of these messages is usually a promotion or limited time offer. You call someone to do a particular action. That can range from asking someone to click on a link, view a video, give feedback, or if you are feeling bold, you ask them to buy something. By tailoring the message to an individual and their needs chances are higher than they convert. Remember to be ethical in whatever you do - referring to data you use, data you store, and how you approach people in direct marketing. Knowing a lot about a customer is a blessing and in many cases reserved to digital marketers. Sometimes you have to take a segment where you believe you do something about them, and there is a likelihood that they respond to your request. This approach is a bit fuzzier, and yet it is direct marketing. Here are the metrics that will assist you in utilizing this form of marketing.
- Direct Marketing Revenue Goals
- Direct Marketing Profit Goals
- Direct Marketing Gross Profit
- Direct Marketing Net Profit
- Direct Marketing Return On Investment
Placement & Distribution Metrics
The "Placement," otherwise known as "Place" is another P in the Marketing Mix, also known as the 4Ps. It is the process of moving products from the producer to the intended customer. In other words, it is how your product is bought and where it is bought. This movement could be through a combination of intermediaries such as distributors, wholesalers, and retailers. Also, and no news to Digital Marketeers, a newer method is the internet which itself is a marketplace now. So you can see this is a big one. Through the use of the right place, a company can increase sales and maintain these over a more extended period. In turn, this would mean a greater share of the market and increased revenues and profits. Correct placement is a vital activity that is focused on reaching the right target audience at the right time. It focuses on where the business is located, where the target market is placed, how best to connect these two, how to store goods in the interim and how to eventually transport them. Here are the metrics that may help you get it right.
- Cost Per Sales Dollar
- Transactions Per Customer
- Transactions Per Hour
- Average Transaction Size
- Average Items Per Transaction
- Hourly Customer Traffic
- Returns to Net Sales
- Inventory Turnover
- Percent Inventory Carrying Costs
- Gross Margin Return on Inventory Investment
- Sales Per Square Foot
- Sales/Profits Per Employee
- Retail Close Ratio
- Retail Margin Percentage
- Percent Utilization of Discounts
- Shrinkage to Net Sales
Last but not least, I present to you the sales metrics you may wish to get familiar with. I understand it. You are here to learn about marketing, so why should you care about Sales at all? I admit the metrics in this section are mainly used by Sales managers to set the size of their salesforce perhaps, calculate turnovers, establish quotas, evaluate performance, and determine compensation. The link between sales and marketing is that salesperson conducting person-to-person selling remains without doubt one of the most effective way to market products.
Sure the costs of a single salesperson are higher considering the limited reach when compared to the scope of integrated marketing communications, but their versatility and eagerness to uncover and backchanneling customer needs are priceless. As a marketer, you have a responsibility to at least be familiar with the metrics in this section.
- Net sales contribution
- Absolute Index
- Relative Index
- Percent of sales
- Independent sales representative analysis
- Turnover rate
- Breakdown approach
- Workload approach
- Sales performance quotas
- Average sales per call
- Close process and close ratio
- Cost per call
- Break-even sales volume
- Sales productivity
- Four-factor model
- Sales variance analysis
- Sales volume variance
- Sales Enablement
- Net promoter score
From art to science
The above metrics allows us to turn marketing, which long has been considered to be more an art than science, into actual science. The thing to remember is that "modern marketing" allows us a degree of insight traditional marketing cannot match - or could not match. There are also significant technological advances in more traditional marketing channels, but this is clearly outside the scope of this article.
Over the coming weeks, I will be adding one metric after the other, starting with the most important metrics and then work through the rest in descending order sorted by a mixture of a frequency of use and overall importance. If you feel that I got certain things wrong, or you are having trouble grasping the concept of specific metrics feel free to get in touch. Send an email or call me, I am more than happy to assist. If you run your own business, or the person responsible for measuring the effectiveness of your digital marketing campaign I am just a call away, and more than happy to assist.