Most articles and books written on marketing metrics and dashboards speak to large corporations and specifically to the corporate marketing departments within them. But most marketing organizations don’t have massive advertising budgets or state-of-the art information systems. For these organizations, the key to useful metrics is to figure out how to make best use of the imperfect data available. This article lays out a few principles to help marketing, sales, and finance agree on how best to use metrics to drive marketing in the right direction and ensure it is appropriately funded. Lies, Damn Lies, and Marketing Metrics By Kathryn Roy Why track metrics? Marketing organizations track metrics for two reasons: • To demonstrate to other departments the value contributed by marketing To measure the effectiveness of what they do, and revise plans according to results reliably be used to predict future results. There is a third benefit to metrics that is sometimes overlooked but equally important: The process of developing marketing metrics can achieve alignment between corporate goals, marketing department objectives, and marketing activities. The exercise will help cull out activities that are no longer contributing to the goals and objectives as well as identify missing objectives or activities. Measure effectiveness Distinguish between effectiveness metrics: doing the right things, and efficiency metrics: doing (possibly the wrong) things well. It’s fine to measure efficiency if you have already established that the activities drive financial results, but never substitute efficiency • © 2005 Precision Thinking, All Rights Reserved Marketing has to vie for budgetary dollars along with the other departments. Unlike sales or development organizations, however, the connection between marketing effort and sales results is not always obvious, which is the main reason marketing budgets are seen as more discretionary. To justify marketing investment, the challenge is to find marketing metrics that correlate to financial results, strongly enough that the metrics can WWW.PRECISIONTHINKING.COM PAGE 1 Lies, Damn Lies, and Marketing Metrics metrics for effectiveness metrics. Efficiency metrics do not help convince sales, finance, or senior management of the effectiveness of marketing; they are no defense against efforts to prune marketing budgets in difficult times. There is no benefit in measuring how many pieces of collateral are produced if the sales force does not use the collateral to gain access to prospects or convert them into customers. Having a full house at your seminar is meaningless if most of them would never qualify as prospects. Direct vs. indirect metrics Activities that strongly correlate to financial targets can be categorized as “direct” metrics in that you can directly measure the impact of these activities on revenue, costs, or margins. The closer marketing activities are to sales activities, the easier it is to construct a direct metric and the stronger the justification of marketing expense. Kathryn Roy (kathryn@ precisionthinking.com) is Managing Partner at Precision Thinking, a consulting firm that helps B2B technology companies detect and exploit competitors’ weaknesses through effective marketing strategy and programs. The Intuit marketing groups that handle upgrades for Quicken or QuickBooks can measure effectiveness by tracking the dollars in upgrades that result from their direct mail campaigns minus the campaign expense. Intuit marketers use the results from each campaign to fine-tune what they say and how often to say it. Direct measurements are clearly the best way to go, when available. Direct metrics are trickier for companies with sales cycles of a year or more. To illustrate both the challenge and work-arounds available, let’s look at the metrics issue from the perspective of an enterprise software company. Marketing metrics for enterprise software companies The marketing department for an enterprise software company has three primary responsibilities: • Creating a positive, broad impression of the company / product / service / solution • Providing convincing and professional-looking sales tools that reinforce key messages Generating leads • AWARENESS AND PERCEPTION METRICS Many corporations may not have the budget to formally survey prospects to measure awareness and perception. Fallback alternatives include: • • • • The number of positive press mentions vis a vis the competition The positive rating by analysts The number of press releases The number of customers willing to be references The number of press releases is the most problematic because they fall into two categories. Releases covering positive financial results, product releases, credible awards, new partnerships with leading industry players, and customer wins help create the perception of healthy growth. These contribute measurably to improved awareness and perception. Releases covering attendance at industry events may be an excuse for a salesperson to touch base with a prospect, but won’t change the prospect’s impression. When counting press releases for their contribution, agree on a filter in advance and count only the meaningful ones that pass the filter. LEAD GENERATION METRICS The most direct metric for lead generation is net revenue per campaign. For example, how much in revenue was collected from leads from the seminar road-show in the following 12 months, after subtracting the cost of the seminars? The most direct metric requires both a sophisticated systems to track this metric and a reasonably short sales cycle, say 6 months or even less. Backing away to a less direct metric, a company could ask sales to classify WWW.PRECISIONTHINKING.COM PAGE 2 Lies, Damn Lies, and Marketing Metrics the leads based on expected value (revenue anticipated x probability of closing). When that option is not available, the backup (indirect) route is to simply track the number of leads per activity. METRICS FOR LEAD GENERATION Most Direct Revenue from leads minus expense by activity Less Direct Expected value weighting of leads by activity Indirect alternative sales tool effectiveness metrics: • Put offers in the material and measure hits against the offer to detect how often the pieces are read Pay prospects to read the collateral in a focus group, as fast as they typically would, and have them answer questions to see if the desired points are communicated and credible Poll sales people about their use of collateral and their opinion about its effectiveness • Number of leads by activity • In many cases, it is difficult to tease out the specific impact of an activity when multiple campaigns are applied to the same prospect base. If direct mail pieces are used in combination with telephone campaigns, it may be hard to determine how much of a sales increase was due to the direct mail campaign vs. the telephone campaign. In these cases, the only way to determine effectiveness is to design tests with a control group, where you separate your target population into two similar groups but differ in one aspect of their treatment. If there is a difference in revenue between the two groups, that provides an indication of the relative value of the activity in question. SALES TOOL METRICS You can’t always rely on sales feedback to judge sales tool effectiveness; many salespeople have never met a sales tool that they didn’t like. Marketing can turn out beautifully formatted ROI tools for prospects to use that lack ease-of-use or credibility, but never realize it. What busy prospect is going to take the time to tell you that you goofed? An alternative metric is to measure prospects’ reactions. Simple surveys suffice with webinars and seminars. Focus groups can be used to gauge reaction to collateral mock-ups. However, in enterprise sales, few sales representatives will volunteer their prospects as guinea pigs. The best route is to leverage your web site. As more sales tools are delivered electronically, marketing should follow up promptly with a subset of the first recipients via a telephone or email survey to ask: • • • Do you remember receiving this? Did you have time to peruse it? Did it provide information that you found useful (and if so what, if not, what was missing)? What metrics can you use for sales tools like collateral and on-line demos? Sales support material are among the most treacherous pitfalls for marketing. Too many software tools at our fingertips enable production of glossy output that misses the target. Sales process consultants continually rail against the lack of effectiveness in their client organization’s sales tools. Direct metrics like adding up the revenue of customers who received each piece will grossly exceed your revenues for the same time period if sales uses multiple tools. Here are some WWW.PRECISIONTHINKING.COM Clearly, you need to forewarn the prospect that this will be brief (5 minutes is great) and offer an incentive, e.g., enter them in a drawing for Bose headsets. This sounds like a lot of work for a sales tool, but is less daunt- PAGE 3 Lies, Damn Lies, and Marketing Metrics ing when you start to focus on quality, not quantity of sales tools. How many metrics is ideal? There’s no magic number of marketing metrics, of course, but good practice recommends identifying an effectiveness metric for each key ongoing marketing activity. The goal is to cull out activities that no one can justify. Not all dashboard metrics need to be consistent each year. Presumably you have initiatives that vary each year, whether a major upgrade program or doubling revenue in key accounts. Each major initiative could have a metric to track progress towards goal. The next step is to decide which metrics should be reported on a marketing dashboard. Dashboards are designed to track and organization’s performance over time, not report on each specific campaign or activity. Ideally, campaign metrics provide the necessary feedback to determine whether to continue, revise, or drop the campaign. The dashboard should be tracking the results of combinations of campaigns and activities that contribute to the same marketing objective, e.g., qualified leads. When compiling a list of dashboard metrics, care must be taken to keep the list to a reasonable number by recognizing both duplicates and diagnostics. Externally reported metrics – those marketing shares with other functional organizations like sales and finance, should be clearly related to the financial targets marketing is expected to contribute to. One example would be the number of qualified leads produced by marketing per quarter. An alternative metric would be to report the total deal value of deals closed (or pipeline in cases of long lead cycles) from leads generated in the current period. Since these both measure the value of efforts to generate leads, it is best to pick the most appropriate metric rather than show both. If deal value varies considerably, the total deal value metric is better. If deal values are fairly consistent, volume of leads could be used. To avoid overwhelming audiences with long lists of metrics, typically only the highest level metrics are displayed and the viewer is allowed to drill down into associated diagnostic metrics. For example, if marketing is measured on renewals and renewals for the US are down, it would be good to hone in on regional results to see if this is a nationwide trend or localized. If leads are up 20% more than expected, it is worth drilling down to see which initiatives are driving the increase in leads. Regardless of how many metrics you end up with, start small. Select from the candidate metrics those for which it is straightforward to reliably collect data and for which you have buy-in from other organizations that these fairly represent the connection between results of activities, marketing objectives, and corporate goals. Initial success will secure the support needed to invest in collecting additional metrics. Why sales metrics make poor marketing metrics Obviously, marketing should contribute to corporate goals such as revenue and profitability targets. There is clearly a benefit in aligning sales and marketing by having them compensated to some extent on common goals. There is no harm in inserting the corporate metrics associated with financial goals on the marketing dashboard as long as marketing doesn’t use these high level goals to evaluate low level activities. If sales exceed plan in a quarter when marketing runs a Webinar, marketing couldn’t use the sales metric to endorse the value of the webinars. Rather, marketing would have to measure something more pertinent such as the value of deals closed with the prospect companies that attended a webinars or the number of follow up sales meetings that were scheduled with the attending prospective companies. WWW.PRECISIONTHINKING.COM PAGE 4 Lies, Damn Lies, and Marketing Metrics In selecting sales metrics, avoid those with timing issues, such as quarterly bookings. In some cases, directing marketing to focus on quarterly bookings can divert resources from activities that will help meet or beat future quarter bookings. Since marketing initiatives typically occur a quarter or two earlier than sales follow-up and revenue impact, shared metrics should take that into account by using longer time frames. The other difference between sales and marketing metrics occurs in aggregation. Sales metrics typically look at sales results over all products and services, while marketing initiatives are often tuned to a specific offering. It would be more useful for marketing to measure results for each individual offering when multiple products or solutions are involved. In closing In spite of all the hoopla about marketing metrics, few marketing organizations use metrics broadly. Those that do, typically borrow metrics from other marketing organizations. Since there is significant variation in the types of activities each marketing organization invests in, however, there is value in a more systematic review of which metrics are appropriate for a specific marketing organization. As marketing organizations identify metrics, the key is to focus on effectiveness, not efficiency. The end result will not only help drive improvements in marketing initiatives and ensure alignment between corporate goals, marketing objectives, and marketing activities, but also convince other departments of the value of marketing. The more direct the metric, the more convincing it is of marketing’s contribution. In the case of activities where you cannot measure their direct impact on financial metrics like revenue, an indirect metric must be found that measures effectiveness, not efficiency. The goal is to measure whether the investments are having the desired impact in moving prospects through awareness, consideration, and purchase. The key is to use a metric for which people outside the marketing organization can perceive a credible link to results. When marketing metrics first became a hot topic, savvy marketers learned how to game the system. Just as you can spin statistics to support your preferred perspective, you can devise metrics to make your department look better than it is. Just as with statistics tortured to support a specious conclusion, metrics without a solid connection between corporate goals, marketing department objectives, and the results of marketing activities will not serve to convince other departments of the value of marketing nor will they provide the valuable feedback needed to constantly tune activities for improved performance. WWW.PRECISIONTHINKING.COM PAGE 5