We like to joke that Rule 54 of digital marketing is “If a consumer can take an action, it’s being tracked by the marketing team and it has an acronym.” It’s no secret that successful marketers are obsessed with metrics and quantifying their marketing decisions, but not all metrics or applications are created equal. Marketers tend to be idealists and their vision and drive can get disconnected from the results required to maintain a successful business. We’ve learned that it’s important to establish the connection between marketing and financial decisions early on, so we want to share five things we do to help coordinate interests across a company and keep them aligned moving forward.
1. Define the “Big Picture”
We look at the “big picture” as the reason you’re even doing marketing. What is the goal? Is it to increase sales? profitability? What about simply to increase brand awareness? Maybe you want to hire new employees? Whatever it is, every marketing initiative needs to first identify which business objective it is in service of accomplishing.
2. Connect the Marketing and Finance teams
Starting a dialogue between the people that set budgets and the people that spend budgets is the best way to avoid painful conversations down the road. Finance knows how to build a ROI model based on historical performance, so leverage those skills.
Some important metrics to consider for these conversations may be:
Customer lifetime value — No matter which business you’re in, it’s important to understand the total value a customer brings you into perpetuity. While marketers may be focused on the revenue brought in immediately after customer acquisition, the finance teams should be able to paint a fuller picture of the customer’s true value. For example, if the average customer makes 10 purchases in their lifetime, then a new customer acquisition would be 10x more valuable than a marketer may see. Being on the same page here allows the team to build a more robust and accurate ROI model.
Various income statement ratios — Marketers don’t know what an income statement is. If they took any accounting in their lives, it was a lifetime ago. The relationship between the myriad cost line items and revenue can really open a marketer’s eyes up to the big picture. I would wager that your marketing team doesn’t know what % of sales that your company spent on marketing last year. That’s scary. When your entire team understands ratios like this they can do the math in their head about the easiest way to increase their budgets — increase revenue!
Run Rate vs. Trailing Twelve Months (TTM) performance — Some finance teams quote everything in terms of run rate (most recent month x 12). Others quote everything in TTM (actual performance over the past year). Marketers aren’t usually quantitative enough to appreciate the differences. So what’s your company standard? And how do you communicate that effectively?
3. Evaluate Past Efforts
If an existing marketing strategy is driving revenue, it’s important to keep that revenue in mind when building new marketing goals. Don’t throw the baby out with the bathwater!
Evaluate the existing path of marketing from first contact with a customer to conversion, and use the metrics laid out by Finance to measure the performance of these efforts. Be very critical of whether existing data is an assumption or observation, and tie the observations back to revenue to get a complete picture of what happened during a given time period.
4. Set Achievable Goals and Decide How You Will Track Them
Once it’s clear how marketing has driven revenue in the past, set aggressive but realistic goals for future revenue. Use the historical model created in step 3 as a starting point, and move backward from conversion to customer contact to create budgets required to hit goals.
It’s important to consider multiple future scenarios with differing assumptions when creating revenue projections, but they should all stem from a baseline of what’s happened in reality. The historical model should be the best baseline reflection of reality and include the necessary metrics to set budget forecasts for the next year’s revenue targets.
This is the time for dissent if there are complaints, and any comments should be earnestly considered before being accepted or rejected. Once a plan in finalized it should be well documented, and all members of the team must support, even if it goes against their initial complaint.
After deciding on the goals, it’s all about defining how you’ll measure them. If you’re unclear how success will be measured, then results will always be ambiguous. The methods for measuring key objectives should be clearly articulated as well as deciding which data sets are going to be most useful in tracking your progress.
If your company has existing data sets (and I guarantee every company has some useful data on their customers), use it! To be used effectively, though, it must follow the same formats and classifications that you set out for your efforts going forward, so be consistent and make sure your data is in order. If you’re starting from scratch, make sure that you always keep the big picture in mind.
In line with supporting team decisions, marketing actions must consistently refer back to the original plan, communicate progress along the plan, and keep everyone (marketing, finance, sales, etc.) engaged and aligned.
Broadcast updates to the metrics that the team agreed upon to track success, and how those updates relate to the plan’s schedule. Point out the areas that perform better expected and how they succeeded, as well as the areas that may lag and how they can be improved. That last point is an important one that shouldn’t be overlooked: be a problem solver rather than a problem identifier when evaluating an existing plan. A plan does not need to be rigid, no project ever goes exactly according to plan, but changes should be tied back to the key metrics.
Over-share findings of what’s working well and what’s lagging in terms of your key metrics, and most importantly keep moving forward!
Originally published at www.metricdigital.com.