Measuring your marketing expenditures and re-evaluating what you have accomplished can be rather daunting and rewarding at the same time. But the most crucial benefit is how your actions are to be affected based on your findings. It is not the news that measuring your actions is followed by better decisions, however it is so common that most of us (marketers) are mostly 99% focused on just launching our campaigns, accomplishing the laundry lists of the pre-planned roadmap and creating new one before we can catch a breath and take a minute to look back. Metrics can help us maximize our effectiveness and identify our strengths and weaknesses on both strategy and execution. And of course, there are no perfect models to assess our actions. However, when I was reviewing my recent readings on marketing metrics by Paul W. Farris et al, I chose the following top eighteen (because ten is not enough) to adopt into the arsenal.
From the category of shares (hearts, minds and markets)
– Loyalty – measures future revenue streams. Usually, includes a combination of share of requirements (a.k.a share of wallet, a given brand’s share of purchases in its category), willingness to pay premium, willingness to search.
– Top of Mind – I love this one = The 1st brand that comes into a customer’s mind when he or she is asked about a category. The percentage of the customers who the given brand came out on top can be measured.
– Willingness to Search - implies the likelihood that customers will settle for a second-choice product if their first choice is not available. ( I know I do that for my dining experiences).
– Willingness to Recommend – includes a percentage of customers surveyed, who indicated that they will recommend a brand to their friends.
– Sole Usage Percentage – measures the proportion of a brand’s customers who use only the given brand’s products and do not buy from the competitors in relation to total brand customers.
From the category of margins and profits
– Marketing Spending – includes total expenditure on marketing activities (advertising and non-price related promotions, can include sales spending). Very useful metric. It is advised to have 2 formulas for it: fixed and variable marketing spending. Fixed marketing spending includes sales force salaries and support, major advertising campaigns, marketing staff (our salaries!), sales promotion materials and cooperative advertising allowances. Variable marketing costs comprise of sales commissions, sales bonuses, bill -backs for local campaigns, rebates, early payment terms expenses. To calculate the latter, you should use your revenue number multiplied by the percentage of variable selling cost. Total marketing costs is a basic sum of both.
From the category of product and portfolio management
– Brand Equity Metrics – helps to monitor health of the brand. This is the hardest metric and has a number of models, true moneymaker for the agencies and consultants. Interbrand and Young & Rubicam are the leaders in evaluating brand monetary values. The Y&R evaluates a given brand based on the perceived differentiation on the market, relevance to consumer lifestyles, the esteem the consumers hold due to the brand and the perceived knowledge about the brand those consumers possess. Strong brands show higher degrees across all four values. Growing brands illustrate high levels of differentiation and relevance. Declining brands show relatively higher degrees of esteem and knowledge. Personally, I like the Brand Equity Methodology (a.k.a Moran), that calculates brand equity based on the multiplication of effective market share, relative price and loyalty index. Loyalty index can be calculated by a percentage of brand customers that will repurchase the brand in the next year.
From the category of customer profitability
– Customer Lifetime Value considers the present value of the future cash flows attributed to the customer relationship, allows to budget acquisition and retention initiatives. Very useful metric for contractual customer relationships, where you have a projected timeline, average usage/purchase number, price, retention and frequency values. If margins and retention rates are constant, you can calculate the CLV as follows: multiply margin into the retention rate divided by a difference of (1+ discount rate) and retention rate. Valuable metric to identify the limit on acquisition spending.
– Acquisition vs. Retention Spending -the former represents the average cost to acquire a customer and is the total acquisition spending divided by the number of new customers. The latter illustrates the cost of retaining a customer (your retention spending and number of the “saved” customers).
From the category of sales force and channel management
– Direct Product Profitability includes the adjusted gross margin of products, less direct product costs.
From the category of the pricing strategy
– Price Premium implies the percentage by which the price of a brand exceeds a benchmark price.
– Reservation Price means the maximum amount an individual is willing to pay for a product. It is a key metric to predict the demand for your product.
From the category of promotion
– Average Deal Depth – comprises of sales via coupons divided by total sales. Quick and easy metric to see brand dependence on promotional efforts.
From the category of advertising media and web metrics
– Cost per Thousand Impressions (CPM) Rates is our standard advertising basics- is calculated as cost of advertising divided by impressions generated. My only concern and eternal question – how much is the noise or extra in the total impressions number and how much is the actual working range?
– Share of Voice quantifies the advertising presence of a brand, in relation to total advertising in a given market. Helps to evaluate the strength of the advertising program.
– Visitors – implies the number of unique web site viewers in a given period. I still trust only this web metric, love it for its ability to measure the reach of the website, identify its loyal visitors and content effectiveness during the time you were testing your messaging.
From the category of marketing and finance
– Return on Marketing Investment is different from the common return on investment due to the fact that we take a risk and expense our initiatives in the current period. The formula suggested: (incremental revenue attributed to marketing multiplied by contribution % minus marketing spending) divided by marketing spending. In other words, you have to attempt to identify the revenue piece you brought divided by total invested marketing resources.
– Project Metrics: Payback, NPV, IRR are our favorites from the finance departments. I mostly prefer the payback and NPV as applicable models to justify your spending.
To sum it up, various measuring models might evolve over time: some will be rejected, some will be re-established, and some will be invented. However, the more you are aware of various metrics, the better you are in your decision-making process, the more accuracy and tangible benefit you will receive for your marketing programs. It is just a challenge at times not to forget to apply them. However, imagine the benefits of testing various metrics and seeing through practice what makes sense and what does not?
P.S. Forrester Research folks have recently posted a video on marketing metrics. There are more metrics discussed outside the above list, like customer advocacy related to customer-centric marketing. Check it out for your listening pleasure yourself!