Many marketing organizations use lead volume as the primary way to evaluate program effectiveness. This metric, however, is too limiting. Why? Because focusing on lead-centric metrics may work against you if you don’t look further into the buying process.
While one program may produce more leads than another at a lower cost and appear more efficient, the true measure of effectiveness is how many of those leads can be converted to the next stage in the buying process.
Even if a program is more expensive but yields a higher conversion rate, it is actually more effective. By evaluating a marketing program only in terms of qualified leads generated and cost, you risk eliminating programs that may result in a higher conversion rate. It, therefore, makes sense to move beyond the lead as the key marketing metric and instead use metrics tied to something more relevant, such as consumption, purchase, and/or revenue.
First Glance Is Misleading
Imagine you have two new customer acquisition programs in play: Program Excalibur produces 100 qualified leads, and Program Camelot produces 50 qualified leads.
At first glance, it might appear that based on volume or the quantity of qualified leads, that Excalibur is the better program. For the moment, let’s set aside whether each program met its performance target and explore why tracking just the number of qualified leads may take you down the wrong path by pursuing Excalibur and terminating Camelot.
Most marketers would agree that cost is an important metric, so let’s add cost to the illustration. The cost per lead for Camelot is $5 per lead, and it is $15 per lead for Excalibur. Again, ignoring for the time being whether these costs were within the target zone, it might seem that Camelot is worth further investment because while it didn’t produce as many leads, it produced quality leads less expensively. Do we have enough to make the decision? Maybe. But what if we added conversation rate as a metric to the equation?
Of the 100 qualified leads produced by Excalibur, 25 (25%) convert to sales-accepted opportunities. And for Camelot, only 10 (20%) convert. To keep things simple, let’s say both programs have the same close rate of 10% (two deals for Excalibur and one deal for Camelot). With this additional color, Excalibur once again looks like the champ.
What if we add velocity to the equation? Upon analysis we learn that it took only 15 days for Camelot leads to convert to prospect stage, and it took another 45 days on average to convert those prospects to customers. But for Excalibur leads, it took 30 days on average to move them to the prospect stage and 90 days on average to move to the customer stage. This means that the time and cost to close is less for Camelot deals than Excalibur deals. Now Camelot is back in the game.
Let’s weave in another bit of information into the equation. The average order value for the Camelot deals is $50,000, while the average order value for the Excalibur deals is $75,000. Excalibur once again is back on top.
Lastly, we can consider the performance targets that were set for each program. There were 200 qualified leads from Excalibur at $10 per lead with a 30% conversion rate, and there were 50 qualified leads from Camelot at $5 per lead with a 30% conversion rate. If we can improve the conversion rate for Camelot deals and understand why the average order is lower, you can see that Camelot has the potential to outperform Excalibur and is worth investing in. However, if we had made our decision solely based on volume of leads, we might have prematurely dismissed Camelot.
We can use the chart below to illustrate the example. This example identifies several important pipeline metrics beyond lead volume. Cost per lead, lead velocity, average lead value, time to close, and win rate are all important metrics for analyzing the success of programs and making investment decisions.
In addition, the performance targets set in advance provide valuable insight because they reflect how well marketing executed the program. As you evaluate marketing’s contribution to the opportunity pipeline, you should include these metrics in the analysis.
As the above scenario illustrates, cost per lead, lead volume, and lead quality together can be helpful metrics. But alone they are insufficient to evaluate the success of marketing initiatives. As you create your marketing metrics associated with the customer acquisition process, other metrics such as marketing contribution to the pipeline volume, the rate at which marketing generated opportunities move through the pipeline and convert to wins, and marketing’s contribution to pipeline value may serve you better.
As early as the 1940s, business leaders began developing processes to enable and evaluate how employees contribute to the success of the organization. These processes became the foundation for what we refer to as performance management. With the increased pressure on business leaders to be more personally accountable for the performance and conduct of their organizations, the emphasis on performance management has trickled down and across the organization, which includes marketing.
Performance management focuses on optimizing individual or group performance in order to achieve the organization’s key initiatives and objectives – and it includes the metrics and the data, measurement, alignment and analytical processes, methodologies, capabilities and systems needed to manage the performance of an organization. A sound marketing performance management process is essential for enabling marketing professionals to demonstrate and communicate the impact of marketing on — and contribution to — the organization.
Lately, we’ve been hearing many colleagues use three performance management terms interchangeably: marketing effectiveness, marketing accountability and marketing measurement.
While these three terms are complementary, they are also distinct from one another. Each serves an important role in the performance management process.
Here is one way to understand the nuances surrounding these terms and help you use them in your performance management journey.
Marketing accountability is a broad concept that reflects the ability of marketing to explain the basis for its actions. Accountability implies reporting, while marketing dashboards serve as its vehicle. Accountability has a computational aspect and covers a range of marketing capabilities, processes, and metrics. There are a number of possible marketing metric categories.
One such metrics category is marketing effectiveness, which measures the ability of marketing to produce a specific result. Another common and separate metric category is marketing efficiency. Being able to actually measure marketing effectiveness takes marketing measurement.
Marketing measurement is the act or process of measuring. Marketing measurement is essential to being able to perform marketing accountability.
These three terms are related, but not interchangeable. Each is an important aspect of marketing performance management. The whole point of performance management, marketing accountability and marketing measurement is to help marketing optimize its performance and achieve meaningful business results. The best way to approach marketing performance management, accountability and measurement is to see it as a continuous, process -one that can be repeated – which is designed to help you measure, analyze and learn so that you can make more informed decisions and successfully produce more and better predictable business outcomes.
Just as your car runs more smoothly and requires less energy to go faster and farther when the wheels are in perfect alignment, you perform better and your organization will be in sync when your marketing is in alignment with the business.
Alignment and accountability are the first steps every aspiring marketing organization must take to improve its performance management and measurement. Alignment and accountability are inextricably linked and are the cornerstones for transforming marketing into a center of excellence. Without alignment, it’s impossible to quantify the value of marketing to the business, and to select the right metrics — metrics that measure whether you are doing the right things to generate value for the organization.
The most sophisticated data collection and analysis can be completely undermined by a lack of proper alignment. Best-in-class marketing organizations create a direct line of sight between their marketing investments, activities and business outcomes. Alignment enables marketing to clarify the strategic intent of all the investments it makes, and to measure and communicate the degree to which marketing delivers on its commitments.
Finding the correct path to proper alignment can be confusing at first. Marketing groups often take a bottom-up approach to planning, and focus on developing marketing programs that usually include some combination of what has always been done or what they know best. Programs may not seem tightly connected to the business. The metrics typically used at the program level do not always demonstrate the connection between the broader business initiatives. As a result, it is difficult to quantify marketing’s contribution to the business, and the picture is hazy. This jeopardizes continued investments in marketing and can obscure the steps it should — and should not — be taking.
An outcome-based approach to alignment flips this problem on its head — creating a top-down perspective, starting with the business’ success factors and working “down the ladder” to reveal what marketing can do to support the business.
Metrics and key performance indicators (KPIs) can then be established to directly tie what marketing is doing with the success of the business. When done correctly, alignment provides greater insight into how marketing is expected to make a difference and provides you with that essential roadmap.
Is your marketing organization aligned?
You will know that you have achieved proper alignment when:
1. Marketing projects are prioritized based on their value and impact to broader organizational outcomes; not on what has the most political capital, is easiest to do, or the furthest behind schedule.
2. There is a direct line of sight between investments (money and people), objectives, program strategy and tactics.
3. Each member of the marketing team understands their role and actions necessary to achieve the business outcomes.
4. It is clear who is accountable for enduring execution of initiatives, projects and tasks.
Select an approach
If you think you need to improve your alignment, then you will need an approach. There are many ways to address alignment. The most important consideration is to choose a method that will visually convey the connection between marketing activities and business results and provide insight into selecting outcome-based metrics.
Too many of the metrics used today tell whether the tactics being implemented are being done correctly. If that’s you, then the key step to take after alignment is to identify metrics that will help determine whether you are doing the right things. The alignment approach you take should help reveal these types of metrics.
Instead of telling colleagues how important alignment is, show them by using quantifiable data. By connecting alignment and accountability, you can focus on measuring and managing marketing’s performance in a way that truly demonstrates the ability of marketing to generate value — and its contribution to the organization.
In today’s environment, marketing teams are under increased pressure to manage smarter, act more like a business, and improve and report performance. And they’re expected to do this while every aspect of marketing is under scrutiny and budgets are at risk. This intense pressure to perform is forcing many marketing organizations to explore how to do a better job of optimizing their resources and maximizing their results.
A Matter of Metrics
Even though most marketers know we’re under the gun to measure and manage performance, the ANA’s marketing accountability study revealed that despite enormous efforts, 42% of marketers remain dissatisfied with ROI measurements and metrics. What’s the hold-up? It may have something to do with our creative roots and the types of metrics marketing tends to lean toward.
For example, often when marketers speak about metrics, they’re really talking about measuring activities and efficiency rather than effectiveness and impact. For example, a common marketing metric, cost-per- lead, frames the results not in terms of revenue or growth, but as a cost. This approach to metrics and analytics is actually a recipe for a lower marketing budget. It doesn’t tell management anything about the contribution marketing is making to revenue, which is marketing’s primary responsibility—generating profitable revenue.
Michael Caccavale wrote in Sales & Marketing Management this past June that, “In general, marketers are good at managing their marketing systems in-house on a day-to-day basis. But the skill sets used to create these reports and analyses are different than those needed to assess the information in a database to make decisions about how to track customer behavior and attack the marketplace. While company marketing departments have plenty of talented ‘creative’ types, they may lack the ‘left-brain’ analytics.”
The drive for more performance measurement and management in marketing is no surprise. Our cousins in sales have always been performance-driven and held accountable to a revenue number. The sales organization is seen as a revenue driver because it operates in terms of producing positive numbers. Yet, in order for marketing to align with sales and impact business as a revenue driver in its own right, marketing also needs to measure itself based on positive numbers and revenue. The more we can tie marketing to revenue, the more we can demonstrate effectiveness and value—and the more the budgeting discussion is about how much money we need to allocate in order for marketing to hit its numbers so that the sales, product and other teams can hit theirs.
Implementing the Right Tools and Culture
To manage and measure performance, marketing organizations and personnel need metrics, systems, tools, processes, new skills and a culture of accountability. These are a completely different set of skills from what marketing has relied on years past when our primary focus was to develop creative to drive interest and awareness. But our budgets and future survival depend on our ability to add these metrics, data, analytics, processes and systems capabilities to our skills mix. While many of us know this, the challenge is the implementation.
As a result, many organizations are creating a “marketing operations” function to bring these capabilities to life and transform marketing into a performance-driven organization. According to IDC, many companies are adding marketing operations managers to their organizations. And even more companies are starting to make the investment in marketing operations. Over one-third of the respondents in the MarketingProfs/Forrester Research “2008 B2B Marketing Trends in Strategies and Spending” indicated that they plan to increase their investment and over half plan to keep it the same.
Essentially, marketing operations is defined as an operational discipline that leverages processes, technology, guidance and metrics to help run the marketing function as a fully-accountable business. As a result, by definition, marketing operations people tend to be more data, analytically and process inclined. By adding a dedicated marketing operations focus, organizations can leverage process, technology, guidance and metrics to run the marketing function as a profit center and a fully accountable business.
The Marketing Operations Roadmap
You’re convinced and you’ve already established a marketing operations function, or you are going to? Terrific! Then it probably makes sense for you to be sure your marketing organization is applying best practices. Our research at VisionEdge Marketing suggests there are five best practices a marketing operations function can utilize to help marketing become a performance-driven organization. These are:
2. Metrics and Measurement 3. Processes
4. Systems and Tools
5. Reporting Results
To facilitate the adoption of these best practices and to fulfill its role the marketing organization should create a strategy roadmap. To create the roadmap you will need to complete a strategic assessment that most likely includes conducting an executive stakeholder analysis, creating a business case, and identify the business outcomes marketing is expected to impact. Once this step is complete you will be able to assess your skills, systems, process and tools gaps, and develop your plan to close these gaps. The road map will need to identify what infrastructure, data, analytics capabilities, performance setting and measurement, data collection and analysis, and reporting processes will be needed. The roadmap can serve as an important vehicle for highlighting skills and training requirements and culture and change management.
As part of the roadmap, you should establish and secure agreement on the marketing operations charter, scope, role and responsibilities. Remember, while marketing operations will set up metrics to measure marketing’s performance, there will also need to be metrics to measure the marketing operations’ impact and contribution too.
As long as we live in a dynamic competitive environment, marketing will always be under pressure. However, by establishing marketing operations whether as a function and/or a discipline, developing a strategy roadmap to run marketing as an accountable business, and incorporating the best practices, marketing leadership and personnel can relieve some of pressure.
Is your business finding the cost of marketing, communicating and dealing with increasingly choosy customers has escalated in recent years? Are you finding managing customers across multiple channels more challenging? Are you experiencing faster commoditization of your products and services and intensified competition? Are you demanding greater accountability from marketing and asking your marketing leadership to more clearly demonstrate the impact and value of marketing programs? If you answered yes to any of these four questions, the timing may be right for you to consider focusing on performance management, particularly for your marketing organization.
Performance management is about understanding where money is being spent, for what purpose, and how these activities are affecting the business. I suspect many parts of the organization are already deploying performance management practices. However, for many companies, one of the last frontiers for performance management is marketing. Many marketing organizations are struggling with measuring marketing effectiveness and improving marketing accountability. Assessing marketing program’s impact based on customer and market data and analytics as opposed to intuition and experience requires a new processes. Marketing performance management is about developing these new processes. These processes should be designed to maximize both effectiveness and efficiency and can be implemented by any size enterprise. By establishing and leveraging these processes, you will be able to invest more in marketing efforts that achieve your business objectives.
As the chief executive officer for your company, you play a critical role in changing the way your marketing organization manages and measures its performance. A focus on marketing performance and the rigorous assessment and measurement of marketing investments impacts your company’s ability to achieve its business results. The marketing organization’s primary objective is to drive results by linking the strategy of your business to a customer-centric plan of action. By clearly identifying the linkages between investments and outcomes, the marketing organization will be able to maximize returns and generate better results for less. As the chief executive officer it is up to you to set the expectations that the marketing organization will be required to perform, communicate and report against.
For many marketing organizations implementing marketing performance management and measurement will require different and possibly even new processes. As Six Sigma initiatives have so clearly demonstrated, process lays the foundation for continuous improvement. What processes will your marketing organization need? There are a minimum of four:
1. A process for aligning marketing with the business initiatives and insuring linkage between marketing programs and business results. Many marketing leaders operate in the absence of clear links between marketing performance metrics and the outcomes expected. Marketing must be guided by the objectives of the organization’s top executive. The chief executive officer establishes the business outcomes that marketing will be measured against. Therefore it is critical that the as the enterprise’s top leader you define specific outcomes you expect your marketing leadership to impact and align the marketing initiatives and activities around.
2. A process for collecting and analyzing relevant customer and market data. Marketing performance measurement depends on the organizations ability to gather the relevant data. Relevant data is necessary for measurement. Gathering relevant data is a daunting task and may require your organization to invest in new tools and systems. While measured data about specific campaigns, channels, events and activities are interesting, marketing needs data and metrics that will guide marketing investments and link particular elements of the communication mix with the customers we intend to acquire and grow. Overtime with marketing analytics it will be possible to link the results of marketing programs to customer consideration, preference, loyalty, share of wallet and the financial results these outcomes produce.
3. A process for establishing performance targets and measures needed to create a measurement framework that links marketing initiatives to business outcomes. Measurement is what makes improvement possible. Measurement must be seen as central to the development and management of a performance-driven marketing organization. Performance targets and measures of related to customer consideration, preference, purchase intention, and loyalty can be linked to customer profitability and lifetime value and ultimately drive new improvements and performance gains.
4. A process for monitoring, reporting and communicating results and using these results to make fact-based decisions. Marketing organizations must be mandated to monitor performance. Accountability by its very nature implies measurement and reporting.
So where do you start? The first step is to conduct an audit or assessment of the current state of your marketing and marketing measurement. Marketing performance improvement begins with assessing the marketing organization’s current proficiency on these processes. A baseline needs to be set before performance can be improved. A successful performance-driven marketing organization is reinforced by a culture that links rewards, compensation and promotion to measurable results. As the chief executive officer you model the way and own creating this culture. By communicating the value of measurement and discussing the implications of embracing measurement (or not) you send the message whether performance management is critical to your company’s success. Of course, this also means that you will need to provide the budget and resources needed to train and develop the skills necessary for your marketing organization to make this transformation.