IN THIS CHAPTER

Understanding what to measure to get the real results of your marketing campaigns

Measuring the true impact on your bottom line

Discovering key insights for future endeavors

Marketing and measurement are a science and an art, and it takes a commitment to figuring out how to do both things right to grow sustainable results and profits. Chuck McLeester (www.measuredmarketingllc.com) is a pioneer in marketing metrics. He was a frequent speaker for the Direct Marketing Association and contributor to Target Marketing magazine. Now he teaches marketing at Rutgers University.

In this chapter, Chuck McLeester shares the steps to measuring what matters most for long-term success. This chapter presents ten methods to help you measure the real impact of your marketing campaigns and programs, and gain insights on how to best execute future campaigns for boosting results and efficiencies.

Establish Clear Objectives

Like any investment or initiative, you need to define what you want to accomplish and what you want to measure. Too often, marketers don’t end up with the correct data points at the end of a campaign to effectively measure the outcomes. This is most often the result of not defining up front what you want or need to measure.

What are the most important results to measure at each stage of your business to help you determine if you are growing at the desired rate, slowing down, or not growing at all? Some key objectives to measure include your cost to generate each lead and your costs to nurture each lead into a profitable customer.

Tie Your Metrics to Your Objectives

Keep things simple so you can identify measurements without confusion. One way to do this is to track only metrics that are directly related to your objectives. It’s easy to think that you need to measure everything but the kitchen sink just in case you need more insights later, or so you don’t have to do another campaign to learn something — or, better yet, because senior management will want all the data.

Set Learning Priorities

Be selective about the data points you need to gather and how often you need them, especially with online metrics. You don’t need to track every possible navigation path and page view. Doing this will just cause confusion and chaos, which is hard to decipher and sort into meaningful actions.

Try to sort your priorities by (1) the things you need to know right away, (2) the information that’s good to know but can wait for later, and (3) the data that you don’t need anytime soon, if ever.

Establish a Target ROI

Two primary ways for marketers to measure return on investment, or ROI, are

• Calculating simple ROI, which is simply dividing revenue that you can measure and link directly to marketing programs by your marketing costs
• Determining your incremental ROI, which you find by deducting your marketing costs from your revenue

Either of these definitions and calculations is consistent with the classic marketing principles of customer lifetime value (the “R”) and allowable acquisition cost (the “I”), which we cover in the next two sections. (You can find out more about customer lifetime value calculations in Chapter 16.)

Know Your Customer Lifetime Value

Every marketer needs to answer the question What is a customer worth to us over time? Some companies limit customer lifetime value to the first-year revenue, which defeats the whole concept if customers’ purchasing behavior lasts more than one year of their life. Others base lifetime value on the possibility that a customer will stay with them and continue to purchase for three, five, or even ten years.

Delve into your customer history (if you have the data) and see how long your customers, on average, tend to remain loyal to you, how much they spend per transaction and over time, and how much they refer others to you. To do this, you need to be able to track referrals to customers, which should be part of your learning and measurement plan.

Know Your Allowable Customer Acquisition Cost

Knowing how much it costs you to acquire a customer is important for any marketer of any size business, because it directly impacts your target ROI and your customer lifetime value. For example, if your customer value is $100 for the period you’re measuring or the ratio of your customer’s lifetime of purchases and your target ROI is 2:1, then you can afford to spend $50 to get a customer. That’s your allowable customer acquisition cost.

Establish Benchmarks

Chances are, you’re familiar with the concept of a marketing funnel that illustrates how an impression progresses to a sale and how you can use this progression to forecast marketing results. For example, you estimate the number of impressions your campaign will generate and how many of those impressions will funnel down to responses, qualified leads, sales conversions, and revenue.

You can use the final number of impressions that make it to revenue status to calculate your cost per sale by dividing that number into your marketing costs for a given campaign or annual budget.

Turn the Funnel Upside Down

Most often, marketers start at the top, or the mouth, of the funnel with the number of prospects and work their way down by applying historic or projected response rates at different points in the sales cycle. Another way to determine how much you can afford to spend for a qualified lead is to work backward by starting at the bottom of the funnel with your actual or estimated cost to acquire a customer. Then use your conversion to sales percentage (actual or estimated) to determine how much you can afford to spend for a qualified lead, response, and impression.

These benchmarks will become goals for your campaign. As with anything, test and test again to determine what your actuals are.

Adjust Your Funnel Benchmark Assumptions When You Have Real Data

After you get real data from actual campaign results rather than just your projections based on estimates, rerun your scenarios from the earlier exercises. Make the appropriate adjustments to your funnel assumptions so you can launch new campaigns with realistic goals in place.

To reach the ROI goals you define as a result of actual campaign data, you may need to adjust your media purchasing costs to lower your promotion costs, or you may have to accept higher customer acquisition costs and adjust your target ROI downward.

Avoid the Dashboard Trap

Just because your dashboard, or central location for reviewing all your data points simultaneously, can measure everything doesn’t mean it should. Don’t become obsessed with what you can count. Focus on what you need to count to identify profits, losses, and opportunities.

A well-thought-out measurement plan that’s tied directly to your sales and profitability goals should provide only actionable information to drive decisions. Otherwise, it’s just busywork that keeps you going but leads nowhere.