Digital Analytics / Business Alignment is Getting Better
I recently attended eMetrics Boston, and was encouraged to hear a lot of presentations hitting on the idea of tying digital analytics reporting more directly to outcomes. I see the same kinds of ideas in streams coming out of the eMetrics conferences in London and other locations. This is a good thing, given the most frequent C-Level complaint about digital analytics is not having a clear understanding of bottom-line digital impact.
Yes, we’ve largely moved beyond counting Visits, Clicks, Likes and Followers to more meaningful outcome-oriented measures like Conversions, Events, Downloads, Installs and so forth. No doubt the C-Level put some gentle pressure on Marketing to get more specific about value creation, and analysts were more than happy to oblige!
Is Marketing Math the Same as C-Level Math?
Here’s the next thing we need to think about: the context used to define “success”.
In my experience, achieving a Marketing goal does not necessarily deliver results that C-Level folks would term a success. And here’s what you need to know: C-Level folks absolutely know the difference between these two types of success and in many cases can translate between the two in their heads using simple business math.
Here’s an example. Let’s say Marketing presents this campaign as a success story:
Spent $20,000, created 1000 new customers who bought $50,000 worth of product
Sales generated = 2.5 x ad spend
It’s very likely at least the CEO and CFO, if not all the C-Level players, know the cost of product averages 55% of revenue, and to process credit card / pick, pack, and ship costs another 5% of revenue. That means for each sale, only 40% of revenue can be considered as contributing to the business. 40% of revenue = $20,000, the same as was spent on the advertising. So this campaign actually generated no positive financial benefit for the company at all – ignoring other costs (like cost of returns) that will make the case worse.
C-Level thinks: this is a waste of time and money, don’t let them spend too much
This is how a Marketing success can become a Business failure, and why there’s more work to do on this idea of providing clarity on the impact of digital to the C-Level or whatever senior management level you deal with. Sure, very senior level people probably don’t review individual campaign results, but someone, somewhere down probably has to roll up all the individual campaign results into a success record of some kind, right?
Now, the above example is a very simple one and perhaps for many marketers / analysts in the commerce area a “duh” example (want more complex examples? see the Control Group Series). But given how often we see ROAS and similar marketing metrics used to define success in case studies, seems like a good place to start!
And for those of you thinking this example doesn’t apply to you because you’re not in the commerce category, trust me, you’re mistaken about that. Every business has costs related to generating revenues, providing services, and so forth. For this reason, basing a financial success metric on “sales” is frequently not telling the relevant C-Level story.
Also, many of you are thinking, “But Jim, because these sales were to new customers, and some of those will purchase again, and some of those will become best customers (or donors, or subscribers, or whatever appropriate to your business model), don’t you have to include these ideas in the story?” And you’d be absolutely correct about that.
Getting Down to Business
Here’s what is important to realize:
1. The downstream revenue ideas above are not included in the original success story
2. More importantly, the C-Level folks are likely aware of these concepts but don’t know specifics so can’t easily run the math in their heads to create their “need to know” number
Which is pretty much the point of this post: why would you ever want the C-Level people to have to run these numbers in their heads? Why not just give them the information they need to know to validate the outcome from their perspective?
– On average, this batch of new customers will each generate $20 in sales beyond the first purchase transaction in the next 12 months (based on past customer behavior)
– This adds 1000 x $20 = $20,000 in sales to the campaign = $70,000 on a 12 month basis
Here, you can leave the C-Level folks to do their kind of math and determine the business outcome. Or, if you’re a bit more tuned into the C-Level thought process, you would add:
– Taking into account 40% of sales flows to the business, $70,000 x .4 = $28,000
– Since we spent $20,000 on the campaign, we created $8,000 for business use
More than Metrics at Stake
C-Level people now run a completely different kind of math in their heads with this information, math that can have a much greater impact on your team’s future.
Looks something like this:
Campaign will generate $8,000 in business benefit in 1 year on $20,000 in spend
Company could invest the $20,000 at 3% risk-free and create $600 in 1 year benefit
Or, could take more risk and invest in software project said to generate 20% return
Both seem like crap compared to the $8,000 on $20,000 = 40% (on annual basis)
C-Level thinks: do these people have enough budget, I wonder?
Obviously, a completely different C-Level story line.
The exact formulas and numbers the C-Level will use for above may differ by type of business, stage of growth, and so on, but the general thought process is the same – they’re looking for real financial ROI on the effort to compare with corporate rates of return.
Perhaps it would be worth a chat with someone in Finance to discover the specific approach your C-Level uses to evaluate financial investments?
Enabling this simple bit of additional business math – especially if you are in a Marketing or Analytics management role – does 2 things:
1. Demonstrates all the way up the chain that the people doing this work really understand the business – so perhaps the work they do should be given more weight
2. Begins to set a measurement standard that is anchored in the reality of business and can be applied to most marketing and many other types of customer-centric investments
Now, perhaps you’re thinking nobody asks you for those kind of metrics; it’s not your job to get into the business side of measuring outcomes. Fair enough!
But I can tell you this: there are people in the company who very much care about this approach to success measurement, and those same people are likely to be C-Level folks who are deciding about allocating resources for salaries, software, and hardware.
If you can prove your efforts are creating real business money, it’s easier for management to say yes to spending more on budget, staff, resources, whatever it is that you need.
My advice: don’t let the C-Level folks run their own math, and maybe honestly misinterpret the real financial contribution your team is making to the business.
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