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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/ White Paper Promotional Offer If you’ve received or downloaded a copy of this white paper, You can save 25% on the purchase of any marketing planning tool sold on our site. Just fill out the order form and enter the discount code: “WP25”. 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.