Getting started on Marketing Metrics

 

Peter Drucker once said, “What gets measured gets managed.” Despite the feeling that Marketing was important in driving sales, the function was always considered as an expense due to lack of linkage between the spend and outcomes. Hence the development of marketing performance management, through identification of marketing metrics. Schreuer  et al  in a study described Marketing Performance Management as  the practice of measuring, learning from, and improving upon marketing strategies and tactics over time. The study based on a survey of 400 companies to understand their state of marketing performance revealed that while 75% of the companies are interested in having an evaluation system in place, only 50% have a limited marketing measurement in place. This blog is an attempt to identify the barriers towards implementing Marketing performance evaluation and first steps to be taken by a business towards its implementation

A study by Booze Allen and Association of National Advertisers showed that a typical  CEO’s top concern about marketing was their lack of performance metrics. A metric is a measuring system that quantifies a trend, dynamic, or characteristic. Marketing managers needs to zero in on the relevant metrics to demonstrate their performance. Marketing analytics are tools and numbers that go into creating the metrics. Understanding both is the first step in getting started on the journey in marketing evaluation.

                                                primary-reason

Primary reasons for slow adaption of marketing performance metrics

There are so many Metrics    Metrics are numerous and come with various degrees of complexity. There are the soft metrics like  brand awareness, GRP, impressions, organic search rankings and hard metrics like pipeline, revenue, and profit. The starting point however should be hard financial metrics that will find immediate resonance with the CEOs and CFOs. Too much focus on soft marketing KPIs instead of hard revenue ones will reinforce the perception that marketing is a cost centre, not a revenue producing asset. Once the marketing profitability metrics are in place then other metrics important for business and strategy can be explored

Metrics can be very complex. They fall under Financial, Behavioural, Memory, Physical availability, Activities, Customer profiles categories, each having multiple options. Choice of the right metric can get very confusing and time consuming. It is suggested that the start should be with basic intuitive metrics in the dashboard and then scaled up. A chemical company started with the metrics. (1) Net Marketing Contribution, (2) Marketing ROI  and (3) Percent of Sales that were due to new products introduced over the past 3 years.

Lack of data In case of many metrics there may not be relevant data available within the organisation and obtaining it may be costly. In such cases the insights of the manager or the marketing team can be a good starting point. Data can be subsequently honed based on discovery.

                       need-for-accuracy

Where to start

As management demands accountability of expenditures incurred, quite often marketing measures everything that can be easily measured — from website page views to press release downloads to search engine rankings. However, important as these metrics may be, they lack an explicit connection to hard metrics like pipeline, revenue, and profit. The result is a focus on soft marketing KPIs instead of hard revenue growth, on short-term ROI over long-term marketing accountability. Paul Farris in the study, marketing metrics – the definitive guide to measuring Marketing performance, surveyed 194 senior management functionaries across industries to understand the most important and useful measures. Financial metrics were rated very high in usefulness compared to any true marketing metrics.

Since companies have a history of monitoring financial data  the best starting point would be three commonly used financially grounded metrics which are

  • Net Marketing Contribution
  • Marketing Return On Investment(ROI)
  • Marketing Return On Sales (ROS)

marginmarketing-sales

Apple : Margin, Marketing & Sales Expenses, Marketing Profitability 2011

Net Marketing Contribution  This is a measure of contribution to company profits after marketing and sales expenses are accounted for. It is computed as sales multiplied by percent margin minus all marketing & sales expenses

NetMarketing     =        Sales          x     Percent            ‐          Marketing  &  Sales Contribution               Revenues           Gross Margin                     Expense

Apple’s net marketing contribution in 2011 was $39.9 billion, as shown below.

Net Marketing    =   $108.3 billion   x 42.2%   ‐ $5.7 billion =   $39.9 billion

net-marketing-contribution

Apple : Net Marketing Contribution & Company Profits 2011

 

Marketing ROI

In simple terms, the Marketing ROI formula is:

Gross Profit – Marketing Investment
Marketing Investment

=  Net Marketing Contribution 
Marketing Investment

In case of Apple in 2011 the Marketing ROI   =             39.9 Billion/5.7 Billion = 701%

marketing-roi-2011

Apple:Marketing ROI 2011

Marketing ROS

Marketing ROS is a simple marketing profitability metric that allows a business to compare performance across their organization as well as other publicly traded companies.

Marketing ROS   =   Net Marketing Cont. /  Sales

In case of Apple in the yearr 2011 the numbers are

Marketing ROS of Apple = $39.9 Billion/$108.3 Billion = 36.8%

While most companies and managers recognize the need to use marketing metrics and the potential benefit they can provide, many have found it difficult to get started. We have addressed three common barriers to getting started and recommend starting with the three marketing profitability metrics.  Once these basic marketing metrics are fully mastered, a business should seek to add only the marketing metrics that will help solve real business challenges. It is important to remember that it is not the number of marketing metrics that we use, but the effectiveness with which those that we select are applied across your business.

Aswathy Krishnan

Student Id :215413305

Username : krishnanaswathy

References

Schreuer, R 2009,’Preview of Findings from Survey of 400 Companies Show Barriers and Keys to Success’, The marketing performance advantage, weblog post,8 October, retrieved 24 September 2016, < http://blog.cmbinfo.com/the-marketing-performance-advantage&gt;

Hyde, P, Landry, E & Tipping, A 2004, Making the Perfect Marketer, retrieved 24 September 2016< http://www.strategy-business.com/article/04405?gko=4cadc&gt;

Pfeffer, J & Sutton, R 2006, Why managing by facts works, retrieved 25 September 2016< http://www.strategy-business.com/article/06114?gko=fbd4e >

Marketing metrics & analytics,2011, Marketo, retrieved 24 September 2016 <http://www.surrey.ac.uk/Training/documents/definitive-guide-to-marketing-metrics-marketing-analytics.pdf&gt;

Farris, P, Bendle, N, Pfeifer, P & Reibstein, D 2010, Marketing Metrics: Definitive Guide to Measuring Marketing Performance, retrieved 24 September 2016, <http://ptgmedia.pearsoncmg.com/images/9780137058297/samplepages/9780137058297.pdf&gt;

Brady, S 2014, What percent of revenue do publicly traded Companies spend on marketing and sales?, retrieved on 24 September 2016, < https://vtldesign.com/inbound-marketing/content-marketing-strategy/percent-of-revenue-spent-on-marketing-sales/&gt;

Best, R, getting started using marketing metrics, retrieved 24 September 2016,

< http://www.marketingmetricssolutions.com/pdf/MMH%20-%20WP%20Final%20RB.pdf&gt;

Best, R 2012, Apples Incredible 5-year performance, apples metrics: retrieved 24 September 2016 <http://www.rogerjbest.com/mbm6/blog/tag/marketing-ros/&gt;

Shore,J 2014,These 10 Peter Drucker Quotes May Change your World ,retrieved 24 September 2016, <https://www.entrepreneur.com/article/237484&gt;

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