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 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.
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)
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
Apple : Net Marketing Contribution & Company Profits 2011
In simple terms, the Marketing ROI formula is:
Gross Profit – Marketing Investment
= Net Marketing Contribution
In case of Apple in 2011 the Marketing ROI = 39.9 Billion/5.7 Billion = 701%
Apple:Marketing ROI 2011
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.
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