Category Archives: Metrics

Return on Revenue

Return on Revenue (ROR) is used to determine the profitability of a company by taking Net Income/ Revenue.  It is a financial tool used to year to year profitability performance.  But, you can take this same formula and apply it to marketing projects as well. 

 

Essentially what the ROR does is tell you the impact expenses have on the marketing project.  So it will help to tell you if the project is truly giving you a better return or not.  If you know the impact then you have a better ability to say if the project is worth keeping or not or how those expenses need to change in order to maximize your ROR.

 

This formula is also helpful to bridge the gap between financial tools and marketing tools, something that has been hurting marketing for years.  With this tool, finance knows how to use it (if your finance department doesn’t, they you might want to shine the light on their cost activities).  It’s simple, takes 5 minutes and can help in many situations to improve marketing’s position as an investment center rather than a cost center.

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SWOT

SWOT stands for Strengths, Weaknesses, Opportunities and Threats.  It is one of the most popular tools in marketing used today.  For good reason, it is a simple tool, easy to use and gives a nice general heads up on what is going on in a given market.  Like all tools, it has its positives and negatives.

 

The plus about the SWOT is in its simplicity.  You don’t need to be an expert in marketing to do this; it is very qualitative so it is easy to use.  The strength of this tool is really in the skill of the person doing the analysis and that is the weakness.  A SWOT is only as good as the person who is doing the analysis.  The SWOT can be a very subjective tool, which is why the strength of it is in the ability to really understand what it is they are analyzing.  Without the strength of a good analyzer, the SWOT’s ability to really inform loses a lot of what it can offer. 

 

Often large companies hire an consultant to do this or a junior person, I do not recommend this as part of a good analysis program.  If you get a junior person, ensure the more experienced executive is around to answer all the detailed questions to fill in the knowledge gap.  The SWOT can and often is very subjective when used; I highly recommend you have someone who can detach themselves from the results.  Often on the threats and weaknesses, people can over look certain things based on their own biases.  For example, you may not see a new technology or competitor as a real threat because of your own view of them.  This can weaken the tools ability to really tell you what you should be looking at. 

 

To really help counter the weaknesses of the SWOT, it is best to use it with quantitative tools along side it.  These tools can help shore up some, not all of the weaknesses in SWOT.  If you don’t use these tools with SWOT, you really need someone who understands the market and the tool really well!  Otherwise, use caution with this tool, it’s easy but sometimes too easy if not used right.

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Marketing and Finance, Still Having Problems with Metrics

The National Advertisers Association and the Marketing Management Analytics released their annual survey with some rather interesting results.  Here are a few highlights:

 

45% of organizations lack marketing ROI definitions (up 20% from last year).

 

61% of marketers said there is only “some” cooperation between finance and marketing.

 

42% of marketing executives said they are dissatisfied with their marketing ROI metrics.

 

Those are some ugly numbers!  This seems to be an endemic problem at many companies, this poor relationship between finance and marketing.  I can only speculate what the root problem is.  But I think it is up to marketing to fix their end.  Having a lot of friends in finance I often get the impression that they think marketing is fluff, kind of a fluff department that really doesn’t add any value beyond cute pictures and slogans.  Unfortunately that is sometimes true on some companies.  In a lot of companies if these numbers keep up, it won’t help change this perception.  Better analysis of marketing activities are needed and needed in a lot of organizations.

 

This is not the first study that shows similar numbers so this is certainly not a one off situation or unique.  More marketers need to ask and address the questions regarding how they can directly demonstrate their impact on the bottom line.

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ROI Changing the Client Agency Relationship

More companies are demanding their ad agencies prove ROI for ad dollars.  This is really shaking things up as more ad companies are scrambling to find ways to prove their worth.  I am completely for this!  However I do wonder about the approach.  Many are moving toward the web marketers domain and trying to prove ROI in that area, which is a lot easier to do than say for TV or radio.  So this is really the easy approach, the real holy grail of ad metrics isn’t being touched yet by the majority and I am waiting to see what the industry will do to tackle the harder areas.

 

The really interesting aspect of this is what kind of cultural change is this going to create?  This is one of those touch points that has a ripple affect throughout the entire system.  Ad agencies are often best at the creative, I remember interviewing at a few and my numbers approach was an alien language to most of them.  They saw the value, just no in their domain, but 5 years later the market is demanding they change.  How does that impact the culture of many agencies?  We are seeing the first step, will they move further into other channels where measurement is not as easy?  In these other channels it demands a lot of creative thinking to find the right metrics.  I’ve heard of people using six sigma in ad agencies, I don’t find those of much use, we are going to see more agencies try such measures and fail, a new system will be needed, one that is unique to marketing and that has been my belief from the start.

 

In terms of the client side, many marketing executive demand the ROI because their boss demands it, but many marketers do not understand those numbers themselves.  So the client side is going to have to beef up on the numbers also.  This again is going to create a fundamental cultural shift.  CMO’s have the shortest tenure and I believe we are going to see a rise of the metric inclined CMO, will this help the tenure issue?  Time will tell but if I were to place a bet on it, I feel strongly it will. 

 

The overall impact is interesting and will continue to be something to watch for the next few years.

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NPS, a Metric on the Rise

NPS is a customer satisfaction metric that is popular these days.  Toted by Bain & Co. and advocated by companies such as GE, it has gained a lot of attention as the new way to gauge customer satisfaction.

 

NPS focuses on dividing customers into four groups to see which ones would most likely recommend you to someone.  That’s where customer satisfaction has been focused mainly in the past few years, would client A recommend you to potential clients B and C?  I’ve used NPS, it’s a good metric, and I think if used in conjunction with other metrics and tools, it is a great piece of the puzzle you can add in to get a clear picture of what it is your customers really think.

 

A piece of the puzzle is really what it should be seen as; it should not be the only metric you use.  I had a battery of metrics and NPS was just one of them.  It helps pinpoint problem areas and areas that a company really excels at, but on its own, it won’t give you the grand “aha” information most companies seek.  On its own it will not tell you the answer to the “so what” or “now what” questions you need to ask with any customer service analysis.  It only helps answer the “what.”

 

Don’t get me wrong, I do like the tool, but understand it is just a piece of the metric arsenal.  Alone it can’t help you win the market, but as part of a team of metrics, it can.

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