Measure Twice, Cut Once?Posted by Richard Dannenberg on Aug 13, 2013 in Small Business Marketing | Comments Off on Measure Twice, Cut Once?
In carpentry, measures are straightforward. When you’re building a deck, the idea is to measure the length you need for the deck board before cutting the 2 x 6. The proverbial adage is “measure twice, cut once,” and it’s proven to be sound advice for me on many occasions. If only measures could be that clear and precise in marketing.
The trendy terminology in marketing jargon is “metrics,” but let’s stick with measures. The word metrics reminds me of the dismal failure in the 1970s to convince the United States to use the same system of measurement that most of the rest of the world was comfortable with. We remained stubborn and certainly over half of the population today has no conception of how many kilometers distance there is between their house and the grocery store. Marketing measures are kind of like that, too, except it’s not the people that are difficult, it’s the measures themselves.
This is blog post #5 in a series about formulating a strategic marketing plan for your business. You can read the earlier posts on the DP Marketing Small Business blog. So far, we’ve discussed the idea of marketing as an investment, covered how to define marketing objectives, and considered the formulation of strategy and the selection of tactics. Today we deal with measures, the problematic factor in the strategic equation.
Problems with the Tape Measure?
Why is measurement problematic? The first issue is that marketing measures are taken after the fact. To relate back to carpentry, this would be tantamount to sawing off the end of the 2×6 carefully in small bits until it was exactly the size of the rest of the boards on the deck, then measuring to find out that the length was 8′ 6″. Because we really don’t know ahead of time how our tactics will perform, we have to measure after the fact.
The next part of the problem is choosing the unit of measure. There is no shortage of possible units in the marketing vernacular – clicks, likes, hits, form response, bounces. The difficulty is relevance. Let’s go back to an idea we discussed in blog post #2 (see I Want Money). Marketing should be all about efficiency – the idea is to get more profit out than the dollars spent. Ultimately this is the most important measurement and the primary task is to link the marketing effort with an increase in profitability. The technical name for this calculation is Return on Marketing Investment (ROMI).
Return on Marketing Investment
The short-term calculation of this measure is pretty simple on the surface. The formula for ROMI is (Gross Profit – Marketing Investment)/Marketing Investment. As an example, Sally spends $30 to print flyers to distribute to all the houses in the neighborhood advertising that her lemonade stand will be open next week. She spends $10 for a bunch of lemons and some sugar, then mixes up a big batch of lemonade. At the end of the week, she’s produced $100 in revenue from the lemonade – $90 in profit after deducting the cost of goods sold (lemons and sugar). Using the formula ($90 – $30)/$30, Sally’s ROMI is a whopping 200%, leading us all to the conclusion that we should stop what we’re doing now and go into the lemonade business.
But here’s where Problem #3 arises. It’s certainly possible to calculate revenues and gross margin, but can we really be sure that all of the sales can be attributed to the $30 that Sally spent on flyers? Did the flyers spur all of the neighbors to buy lemonade, or would some of them have made the lemonade purchase without any advertising prompt whatsoever. Marketers love the simple calculation, which allows them to lay claim on all of the profits produced, but to really calculate marketing return requires an understanding of individual customer motivations and behaviors.
This is where the incidental measures come in, and with them Problem #4. Clicks and likes are heartwarming, but utterly meaningless unless they can be connected with a result. For example, if Joe, Sally’s Dad, likes the Facebook page of the local theater company, that’s just nice. If he uses Facebook to ask a question about tickets, that’s better. If the response on Facebook links to a website where Joe actually buys tickets to the next production, that’s excellent. If the theater doesn’t track any of this, then their marketing director can only make a weak conjecture that Facebook works and he may be wasting his time responding to folks who “like” his page.
You can easily see that the difficulty is in tracking the links that actually contribute to the revenue. For most small businesses, this is the breakdown point. The time and attention requirements are just too great for owners or busy employees to do a good job of collecting data. If you’re a larger company with a budget, there are some excellent marketing automation packages that can collect lots of data – Hubspot and Marketo are two of the better applications that will allow you to analyze website and social media data including sources, contacts, and interaction. These packages integrate directly with the heavyweight Customer Relationship Management (CRM) applications, allowing the marketer to track individuals through the marketing and sales pipeline from leads to prospects to customer. Even better, individual activity can be aggregated to draw conclusions on the effectiveness of tactics. Great stuff, and while I can make an argument for investment in this kind of technology, reality is that the expense and time management requirement is pretty heavy for a small business.
That doesn’t mean that measurement is impossible for a small business, though. There are built in and no cost tools that can provide relevant insights. Google Analytics is an amazing tool that can provide fascinating data about website traffic, especially if you’re smart enough to link landing pages to specific products or initiatives. Analytics are a gift from Google (who also wants to know about your traffic), but well worth the intrusion for the data provided. Email software (like MailChimp) also can provide very meaningful insight data. Low cost (and even free) CRM applications can be customized to track interaction with prospects from the point where initial contact is made. We’ll write more about these tools in a later post.
It’s possible to gather a lot of data, even without sophisticated marketing automation tools. The challenge is knowing what to look at . . . which data sets provide meaningful information and which are extraneous. Let me suggest a couple of ways to think about this.
Comparative Aggregate Data
This is information that’s generally provided as a “quick look” by Google or your email program. These are secondary measures that can give you an insight into what’s working. For example, the graph below tells me that email campaigns sent Tuesday and Wednesday mornings generally are opened by greater numbers of my respondents.
Other useful indicators like this are Traffic Sources, Social, and Campaign data from Google Analytics. Google also lets you look at specific landing pages and date ranges. This provides a quick look at traffic generated from campaigns or initiatives directed at a specific page (with a specific call to action).
The measures above give some insight about the interest your company is generating from an activity. They don’t provide the information needed to track individual customers, though, or how much it actually costs to get one. This requires correlative data, and collecting that information requires some work. Here’s where you have to make some decisions. If you are a B2B sales organization dealing with a limited number of contacts, it may be possible to track individual customer touches manually with a CRM. You’ll have to have some discipline about this and make sure that the entire team is in on the effort. If you can pull this off, you will be able to directly correlate the origin of each lead with sales dollars. You can then look at sources and revenue generated and draw the conclusion that the Facebook Ads you ran produced $10,000 in revenue, $3500 in profits, at a cost of $700. Your ROMI is 400% and lemonade doesn’t look so good any more. Because you’re tracking real revenue back to a specific initiative, this is a good measure.
If you’re in a B2C business, or have a larger number of leads and customers to track, the reality is that you’ll still going be dealing with conjecture. You can support that conjecture with data, though. Here are some options for correlation:
- Online product promotions – correlate landing pages with sales revenue.
- Customer segment tracking – this requires a good database, but measures a manageable category or segment of customers. Response of the smaller group can be extrapolated to apply to a larger customer base.
- Correlation of available measures – even if you’re not keeping detailed records in a CRM, it may be possible to correlate campaigns with an increase in website responses or leads and ensuing revenue as leads are converted.
Here’s a final example. You’re a small retailer without a sophisticated CRM system, but you do maintain an email database that records the date of subscription and customer information. Your point of sale system (POS) also records customer name and phone number. Content marketing activity in early November produces 20 new subscriptions. At the end of the year, sales numbers for those customers are extracted from the POS to correlate seasonal purchases with the newsletter signup. Those numbers could also be compared to a random set of customers who did not specifically respond to the November messages. While this doesn’t produce enough information to accurately calculate ROMI, it can at least indicate whether the content marketing is contributing to increased revenue.
The key to generating relevant data for a small business is to have some record of how the customers originate and what marketing messages engage them. These are the inputs. There are plenty of meaningful output measures that you might want to track: increases in customer count, revenues, average sale amount, and profitability/customer, to name a few. If there is a way to relate the customers measured with the actual outcomes, decisions can be drawn about the effectiveness and efficiency of the marketing tactics.
In the next post, we’ll discuss the final aspects of your strategic marketing plan – budget and timetable.
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