Best practices in Marketing ROI and Analytics

One of our favorite marketing sayings is:

“If you can’t measure it, you can’t improve it”

Below are what we feel are best practices in marketing analytics and measuring and improving marketing ROI.

Marketing reporting is less important than making the marketing DECISIONS that improve ROI. Don’t measure just what you can – measure what you can ACT on.  Ultimately marketing ROI should not be about “who gets credit”, but instead about what decisions the measurements allow to improve overall profitability of the program – and the company.

Measure to find not just what works, but what works better; focus on “improving ROI” not “proving ROI”. Measuring marketing programs should not be a pass / fail exercise. Instead, focus your efforts on learning what you can do that will improve ROI. This isn’t about dropping low-profit programs; it’s about a holistic view of what works and where profit comes from. The best ROI may come from improving targeting or optimizing sales conversion.

It’s possible to measure just about anything in marketing, but impossible to measureeverything in marketing. Just because you can measure something doesn’t mean you should. Marketing measurement costs time and money, so focus your time and energy on the metrics that will support the most profitable decision-making.

Don’t be an “arts and crafts” cost-center; marketing should be a revenue driver worthy of investment. It’s easy to measure marketing activity (inputs such as budget and programs), but hard to measure marketing results. Contrast this to sales, where activity is hard to measure but results are easy to see. Given this dynamic, is it any wonder that Sales tends to get the credit for revenue but marketing is perceived as a cost center? To build credibility, focus your measurements on the metrics your CFO cares about – things like revenue, cash-flow and profit – and position your budget in terms of investment instead of cost.

Avoid “vanity metrics” that sound good, but mean little if anything about real marketing ROI. Many common marketing metrics – such as names gathered at a tradeshow, Twitter followers, and press release impressions – sound good and impress people, but don’t really have any strong correlation to revenue. It’s OK to track these internally if they help you make better marketing decisions, but avoid sharing them with executives outside of the department unless you have previously established why they matter.

Focus on effectiveness (doing the right things) more than efficiency (doing possibly the wrong things well). The best ROI gains come from focusing time and money on doing the right things (such as targeting the right segments) more than on how well or cost-effectively you do them. Metrics that show a CFO that marketing is impacting revenue are more likely to protect the budget than metrics that show how well the marketing department is operating internally.

Program planning includes ROI planning:  1) what to measure 2) when to measure and 3) how to measure. It’s important to quantify the expected outcomes from any marketing investment being planned, and to know exactly how you will measure the program against those goals. You can also take specific steps to make marketing programs more measurable, such as setting up control groups or varying spending levels by geography to measure relative impact.

True marketing ROI requires understanding all the costs involved, not just top-line impact.Sometimes a marketing program that appears profitable won’t be if sales expenses and COGS (cost of goods sold) are taken into account. Even better, incorporate the full lifetime value of a customer into your calculation. The more your metrics can correlate to the net-present value of lifetime profits from incremental closed revenue, including all marketing and sales costs, the better.

Fundamentally, marketing measurement is about sales effectiveness, not marketing. The two most important questions you can answer about marketing’s results are: (1) what effect is marketing investments having on sales effectiveness and productivity and (2) how are marketing activities lowering the combined expense to revenue ratio for sales and marketing combined? By focusing not just on marketing is isolation, but on how marketing impacts sales productivity, you will get a much more comprehensive view of the true ROI of your activities.