This post is by Anton Buchner, a senior consultant with TrinityP3. Anton is one of Australia’s leaders in data-driven marketing. Helping navigate through the bells, whistles and hype to identify genuine marketing value when it comes to technology, digital activity, and the resulting data footprint.
Are you an up-and-comer in the world of marketing?
Are you a couple of jobs into your career, and starting to find your place within marketing teams?
However, whilst you admire the great mentors around you, you feel like there’s a world of marketing knowledge that you want to get experience with.
Sound like you?
If so, then this series of six ‘Become an Instant Expert’ posts is for you.
The posts are aimed at helping demystify marketing in a tech-driven world – from marketers who have been learning the trade and executing campaigns since the early 90s.
Yes, we’d like to share some wisdom with the ‘influencers’ in the industry so that you can be armed with a solid base of knowledge. And help springboard your career by becoming an instant expert.
We’ll publish them weekly and focus on these key areas:
- Marketing performance measurement
- Agency performance management
- Media performance
- Digital and technology alignment
- Agile marketing delivery
- Environmentally sustainable marketing
So for the first in the series, we’ll focus on Marketing Performance Measurement.
Is your marketing activity actually working?
One of the greatest challenges for marketers is to prove that the activity is actually making a financial impact.
So as a key influencer, you are in a great position to challenge your leaders with questions such as:
- What are the real objectives of this activity?
- And, is it driving brand value, or aiming to deliver business and financial growth?
There’s one important lesson that we’ve learned over the years. Financial performance is the key to future success.
In your career, you’ll realize that you’re only as good as your last campaign or activity.
And in a world where virtually everything is measurable, it is important to learn the fundamentals of how to measure the impact of marketing.
Yes, we’re sorry to say it, but it’s a ‘Mathsmen’ era now.
OK groan, groan, “I hate maths”, we hear you say.
Well, you needn’t fear. The good news is that there are only a few relatively simple calculations that you need to be proficient at. And they have nothing to do with calculus, trigonometry, or algebra.
We’ve never used calculus, trigonometry, or algebra in marketing!
However, we have used these simple calculations:
Cost per lead (CPL):
It’s easy to calculate. Take your total marketing spend, and divide it by the number of leads that you achieved from your activity (or use a projected number of leads that you aim to get). This will give you a dollar figure for the cost per lead. For example if you spent $100,000 and aim to get 1,000 leads, then the CPL is $100.
Cost per acquisition (CPA)
This is also a simple calculation. You divide your total marketing spend by the actual total number of sales achieved (or projected to achieve). Hence for the same $100,000 spend, if you made 100 sales, then the CPA is $1,000.
You can calculate conversion rates based on two numbers. For example, if you want to know the conversion rate of sales from your leads, then you just divide your sales by the number of leads. Hence if you had 1000 leads, and made 100 sales, then your conversion rate is 10%. Or in layman’s terms, you converted 10% of your leads. Or if you want to look at your website conversion points, then you can look at goal conversion (ie: registrations to an event or downloads of a white paper, as an example, as a % of the unique people on that page or as a % of the overall unique sessions within a time period on your website).
OK, hopefully you knew the above, however, have you ever calculated a Return on Investment (ROI) figure, or projected a ROI?
Return on investment
This is one of the most powerful calculations. It looks at how profitable your activity is, with the aim of wanting to prove that you are delivering a greater financial return to your business than the marketing budget that you are spending. We like to use profit, or marginal contribution, rather than sales revenue. Why? Quite simply, you can sell a truckload of low margin product and not actually deliver profit growth to your business if you’re only looking at sales revenue. However, sometimes it isn’t possible to get a profit figure and revenue will have to do. In short, a ROI figure looks ta the return for every dollar spent on marketing and is often expressed as a ratio (eg: 8:1. For every dollar spent you achieved 8 dollars in return revenue or profit).
So to continue the example, for your $100,000 marketing spend, imagine the profit on each sale is worth $2000 (and yes, we are assuming that the product is also fairly high cost). Then based on achieving 100 sales, you have delivered $200,000 in profit to the business (100 x $2,000). Hence a 2:1 ROI.
Now this is where it can get a little more complicated. You can determine the one-off ROI for your activity (ie: the immediate profit per product or service sold). Or you can calculate an annual ROI (factoring in repeat purchases over a year), or lifetime value (the lifetime could be 3 years, 5 years, 7 years etc). Hence you are multiplying the campaign figure for one-off sales value to get an annual number, and then multiplying it again by the number years you want to project it to.
So assuming the above $200,000 profit was an annual figure, then the 3-year ROI would 3 x $200,000, equaling $600,000. Which is a 6:1 ROI.
However, in calculating a projected ROI, not all customers will remain with you over the time period. So you typically need to factor in a churn or attrition rate.
These are just the tip of the iceberg when it comes to analyzing marketing performance.
There are many other important calculations and areas to assess. So for brevity, here a few more calculations for you to delve deeper into:
- average value of a customer: what a customer is worth in terms of profit per year (not sales revenue). This involves looking holistically at a customer and totaling all their purchases across all divisions of your business. Rather than looking from a silo perspective. For example, some marketers just look at e-commerce sales or within their product portfolio, but disregard that customers also shop offline and buy other products from your business. Hence you should be totaling all their sales to get to a single customer view of their value to your whole business.
- incremental value of a customer: This is a more meaningful measure of the impact of your marketing on a year on year basis. It looks at the incremental value of a customer as a result of your customer marketing activity. You are ultimately aiming to achieve a shift in customer value on a year on year basis. Hence questioning whether all your retention and loyalty marketing is actually working. For example, if a customer was worth $2,000 last year, and is now worth $2,200 this year, then you have achieved an incremental value of $200. And what % increase is this? Correct, a 10% increase!
- quality score of your leads: This is a great metric to rank the quality and therefore the potential value of your leads. All top salespeople will learn this metric and focus on the hottest opportunities and leads first.
- retention rate: this is the % of people staying engaged with your company, remaining active on your database and not opting out, and continuing to purchase your products. It’s important to look at this calculation from an active point of view. Meaning who are the customers that are continuing to be active (engage and purchase) rather than simply be on your database or part of your loyalty program.
- engagement rate: we have purposely left this calculation well down the list. Whilst it has been an exciting metric with digital and social media marketers, it’s nowhere near as important as looking at the financial measures outlined above. You can have amazing engagement rates that never lead to sales or incremental customer value. So be careful with this one. It’s really just a measure of how engaged or involved people are with your content or activity. But a question to answer is, “is your content actually attracting the right quality of prospects or customers?” The engagement rate is the rate of people engaged as a % of the total base of people. So in social media terms, if you have 50,000 followers and 50 people liked or commented on your content, then you have achieved a 0.1% engagement rate. Now that’s not particularly high, is it? So don’t get too excited when you get 50 people engaging with your content. Think about how you can impact the other 99.9% to make a more demonstrable impact and achieve significant behavioral change.
Speaking of behavioural change, why not act now (sorry, it’s the marketer in us)
Has this post helped you become an instant expert?
Well, it may take more than reading one post, however, if you feel that you or your team need assistance in assessing marketing performance from a strategy, structure, budgeting, or stakeholder alignment perspective, then you can become even more of an expert by delving deeper here.
And if interested to discuss with us, then we’d love you to forward this page link to your manager.
Thank you for reading. Here is your TrinityP3 Instant Expert Certificate.
PS – remember to stay tuned for the next posts in this mini-series of data-driven and digital marketing tips to fast track your marketing career:
How are your budgets set? Top down? Or bottom up? Are you using Zero Based Budgeting? Find out how we can assist with budget setting and measurement here