Download Marketing Metrics The Direct Marketing Way

Marketing Metrics
The Direct Marketing Way
Marketing ROI – Can you measure it and
should you be?
The answer to both questions is that “Yes, you can.” and “Yes, you should be.”
Let’s face it, all the fans, followers, and likes in the world aren’t going to do a
thing for you bottom line if the end result isn’t a sale.
And, for those that make their income blogging and selling the names of
followers and the ad space around their content, remember you’re selling
content and although the reader may not be paying for it, if they don’t keep
coming back and don’t eventually buy something from the companies that
advertise on your site or rent your list, then you’ll need to find another way to
make money. That also goes for doing the rubber chicken circuit too -getting invited to speak at conferences and internal events put on by the
companies that buy your “shtick.”
Marketing analytics have been around for a long time; just ask any direct
marketer or retailer over the age of 50. Shocking for those marketers who
think of themselves as experts with 10 years or even 15 or 20 years of
experience and think that until we had the Internet there were no analytics.
There is a lot of talk about measuring the performance of the new media, and
the impact of multichannel media communications on the actual results of a
campaign or program or tactic.
It’s a multi-media, multi-channel world, you say, so how can you apply
measurement to any one activity, when the reader or
viewer may have been influenced by a lot of content/
promotions before they finally acted and responded? The
answer, from a P&L perspective, is the same that it’s been
since the advent of direct response advertising, you tie it
to the promotional activity where the response was
generated. It’s a nonissue how many ads or how much
content they saw before they saw the ad or content where
they finally acted. If every potential buyer started from
the same point in time, then such an argument might be
worth considering, but because people don’t all look for,
shop and purchase at the same time, it’s not important to
determine when they first saw an advertisement or started reading your
content. It’s a continuum, people entering and existing the purchasing cycle
at different points in time, all the time. Bottom line,
you only need to know what, where and when the
action was finally triggered. In magazines, we know
that we generally have to run an advertisement at least
three times before a reader responds to it. But, for the
sake of measurement, we applied all of the cost and
revenue factors associated with that response to the
advertisement or content during or in which the
response actually occurred.
Can you really calculate
marketing ROI?
There is a lot of talk about taking a holistic approach to marketing metrics. In
other words, at the end of the year (or period) did your marketing
promotional spend (which includes content) pay for itself using holistic
measurements like total ad spend, total revenue, total cost,
To keep us all on the
total “like”, this year vs. last year, etc, show an improvement?
same playing field, I
It certainly sounds like a nice clean way of looking at
define “promotion” as
marketing metrics, but it doesn’t necessarily allow you to
any marketing effort
determine what promotions, products, offers, etc. are
or content that is inperforming in terms of generating responses, orders, revenue
tended to produce a
and profits.
reaction, be it a purchase or the download
of a white paper by the
audience that interacts
with the promotion. A
lot of us have stopped
thinking of content as
promotion, but whether it entertains or educates or entices, marketing content is promotion, hence the old
school name
Whereas, the direct marketer’s approach of looking at
individual marketing activities allows you to get down in the
weeds so to speak and find out what is really performing. Are
those TV ads really working? What about the social media
buys? How about that direct mail promotion?
Direct marketers know that you can apply a P&L measurement
to all forms of promotion and that includes PR. But, you need
to be able to track sources, responses, and conversions to an
associated sale. If it results in an immediate sale, then it’s
fairly simple to track. If a promotion produces a lead, then you
need to follow that lead through the entire conversion, nurturing and buying
process.
What’s the best way to measure the impact of any media or medium – make
an offer – always make an offer – even if it’s so called education --- make an
offer. An offer, tied to the act of purchasing, I don’t care how many people
like our Happy Meal commercial. I only care about how many of the people
who responded, participated in the promotion, in the short or long term
actually bought something.
The nice thing about the direct marketer’s approach to metrics is that to goal
is to optimize the performance of every marketing activity/promotion and run
with the ones that get new customers and sales, maximize their exposure, and
cut back the ones that are just filling space.
The cross channel argument in terms of measuring the performance of any
marketing tactic has been around for a long time. And, most marketers who
have been around long enough realize that cross channel is always going to
affect when and where a consumer actually responds to a given tactic. But,
the argument was and is that you track the performance of each activity
individually for its impact, realizing that you’re going to have cross channel
impact no matter what you do, what media channel you
use. Do they respond to this one ad, or are they
responding to all the ads they have seen up to this point?
It doesn’t matter because it’s a continuum.
As direct marketers, we’re well aware of this phenomenon
and have learned that the most effective way to measure
ROI on promotions is to tie unique offers to every
promotional activity. You don’t have to develop a new
offer every time, but you do need to use separate offer codes and source codes
to be able to track responses and purchases.
It used to be simpler. As a retailer you ran an ad in the newspaper on Sunday
and by the end of the week you knew whether the ad worked and whether it
paid for itself. And, you could figure the P&L on the advertisement based on
actual sales that week. As a cataloger, you knew that you ran 4 catalogs a year
and that the average life of those catalogs in terms of response was 16 weeks.
You’d take your sales for the period and analyze advertising costs, sales,
margins, etc, based on space allocation and response rates. Simple! No
excuses, you never ran an ad on an offer that didn’t sell again. Now you have
a lot more cross channel, cross media activity going on,
so that makes the holistic measurement approach more
tenable. But as direct marketers we say that it still
doesn’t matter. I care when, where and what offer a
prospect or customer responded to.
One of the things that everyone is so excited about when
it comes to digital and Internet marketing is that today
you can track everything and this doesn’t involve
assigning offer codes or source codes in the sense of
direct marketing, but it does require a range of digital
tagging techniques including the “cookie” which we’re all aware of by now.
But, this type of tracking is not the most effective way to track promotional
performance. It can tell you where a reader came to you from another
website. It can tell you their unique IP address. It can tell you what links they
clicked on, etc. But, it doesn’t necessarily tie activity back to sales and P&L
performance.
If you want to track that, then you need to develop unique offers, unique offer
codes and unique source codes. A “source code” is just what it says; it’s a code
that you assign to a specific location or specific content or activity like a direct
mail piece that goes out this month. It requires a lot of detail work, but
fortunately there are a lot of software packages out there that will allow you to
do this and make the process a lot easier to manage. But, you have to be
disciplined enough to assign codes and then track them. I can’t tell you how
many marketers we’ve worked with over time that have the tools but just
don’t have the discipline to use them. We find that this happens all the time.
If the CFO isn’t your friend, you’d better make him/her your best friend. And, the best way
to do that is to show them results that are measurable from an ROI perspective. Whether
you like it or not the CFO is going to be involved in marketing decisions especially as they
relate to budgeting. They control the books and marketing spends a lot of dollars. If the
clicks and likes don’t turn into sales, then you’re going to have trouble justifying your marketing spend. You can only use the argument that you’re building the brand for so long.
We constantly see that businesses fail to assign source codes…where that lead,
customer came from and tie it to customer transactions.
Can you calculate social media ROI? Yes, the key is making an offer that the
attendee, viewer, reader acts upon, whether it’s requesting more information,
a white paper, a contact by a sales person, or actually making a purchase.
These rules apply whether it’s social media content or other promotional
practices, be they advertising, direct marketing, mobile marketing, sales
promotion, trade shows or public relations, etc.
As direct marketers, we conduct breakeven and ROI analysis on every activity
before it sees the light of day. We know going in, based on historical and
predictive data what an offer in a given promotional format in a given media
or channel should generate in terms of responses / orders. And with our
conversion rates, we can calculate what the final outcome in terms of orders or
sales will be. And, we do post program/activity analysis using these same
tools.
Marketing organizations have access to all kinds of data these days, but as
direct marketers, we know that the important metrics are the following and
really the ones that will tell us if our marketing dollars are being spent
correctly and generating the best ROI on the organizations marketing
investment. The key factors that the direct marketer wants to measure are
(the major categories):

Initial response rates

Conversion rates

Transaction or order values

Margin – product, order

Advertising media, space costs

Marketing collateral, marketing content
costs

Response / order related fulfillment
costs

Response / order related customer
service costs

Who’s responding and who’s not

Returns (for direct order)

Cancellations (for direct order)

Credit card processing fees (for direct order)
The nice thing about direct marketing metrics is that they are truly actionable.
Using these metrics, the direct marketer can analyze, track and measure
historical data, current marketing activity/promotional data and use these
analyses to develop predictive behavioral (response and breakeven data)
models.
From this we can determine which are the most effective media and formats
for our promotions. We can drop under-performing offers, products, media,
channel etc. from our promotional plans/calendars. We can determine if a
given medium performs better for certain types of offers. We can measure
and determine “when is the most effective timing for those promotions to
run?” And, we can continually test and evaluate the success of our marketing
programs. We know exactly what is working or not working.
In addition to the metrics mentioned above, the direct marketer also cares
about the same marketing metrics as the CEO & CFO and they include:

Marketing (personnel and promotion/advertising expense) as a % of
revenue

Campaign return on advertising investment – how much revenue is
generated from campaign as a percentage of the advertising
investment

Advertising costs to acquire a new customer based on customer
expenditure

New customers – number of newly acquired customers. Generally
compared to a previous similar time period.

Lost customers – number of lost customers – customers who have
not purchased or have moved to a competitor for a specified period,
compared to a previous similar period.

Customer life time value

Ratio of customer life time value to total selling costs/expense

Customer order value – average customer order value – what is it? Is
it going up or down in comparison to a previous similar time period?

New customer acquisition cost (your total marketing and sales costs –
your total selling cost/expense) –

Marketing expense as a percentage of total selling cost/expense

Time to pay back – the number of periods (months, etc.) that it takes
to pay back the initial acquisition costs

% of new business derived from leads generated from marketing
activities

Ratio of all new business leads generated by marketing activities to all
new leads in a given period
If the direct marketer is doing the fundamental data collection and analysis
outlined earlier in this paper, then developing answers to these questions will
be relatively easy.
Analysis Tools: To view and some of our standard breakeven and ROI analysis
tools click on the links below:
Campaign Inquiry Calculator
Campaign Lead Conversion Breakeven Calculators
Simple Campaign ROI Calculator
And to see other examples of the various planning and analysis tools we use to
determine a programs breakeven and ROI visit: http://
www.dwsassociates.com/marketing-tools/promotions/promotions/calcu/
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About the Author
Dudley Stevenson, founder and CEO of DWS Associates, has
over thirty-five years’ experience in consumer marketing,
business-to-business marketing, and direct marketing,
including developing, planning, and implementing go-to-market strategies.
He's also the author of "Marketing Direct: Breaking Through The Clutter."
Working with organizations ranging from start-ups to Fortune 100
companies, he and his team have helped clients such as IBM, SAS Institute,
Sony, Neiman Marcus, Arizona Highways, Marshall Field & Co., Mrs. Field’s,
UNICEF, SSA Global Technologies, Hartmarx, and Patagonia implement
successful direct marketing programs. A longtime member of the Direct
Marketing Association and the American Marketing Association, Stevenson is
also a sought-after speaker. He’s given hundreds of presentations and
workshops on marketing and direct marketing. His “Marketing Planning 101”
workshop alone has reached more than sixty thousand marketing and sales
professionals.
About
DWS Associates
Founded in 1982, DWS Associates is a full service marketing firm that
develops and implements multi-channel marketing programs for
organizations targeting business-to-consumer and business-to-business
audiences in global markets. Our focus is on data-driven, innovative lead
generation, lead nurturing, retention, and referral programs that attract,
engage and retain profitable customers. Our staff is highly experienced in
market research, competitive intelligence, business intelligence and analytics,
strategic planning and campaign management - so we help you increase sales
and marketing performance while building strong, unique, differentiated
brands.