InsightsAnalyticsIn Analytics, the Price of Light Is Less Than the Cost of Darkness

In Analytics, the Price of Light Is Less Than the Cost of Darkness

What portion of an online company's marketing budget should be allocated to research and measurement?

A while back I heard that sophisticated marketing companies such as the world’s leading brands spent about 10 percent of their marketing budget on research and measurement. Irrespective whether the number is accurate or not, it’s a good benchmark I think – 10 percent feels about right. These leading companies have been marketing brands for over 100 years and during that time they have come to understand the importance and relevance to their business in understanding the effectiveness of their activities.

I wonder what the equivalent proportion is for leading online businesses? How much do online businesses invest in measuring and tracking the effectiveness of their online activities? I suspect the answer to that is generally “too little, too late.” We all know companies that have a reputation for using analytics as part of their strategic armoury and have invested heavily in analytical technologies and have built up formidable analytic teams. These are the companies that people travel to see and hear from at events like eMetrics and Exchange. However, these companies are the exception rather than the norm.

My consulting activities with clients and prospects often trigger ideas for this column. For instance, I visited a company last week that had recently appointed a user experience manager who is responsible for Web analytics and site optimization. The client had been busy over the past six months implementing a solid and robust Web measurement tracking program. This had involved completely reimplementing their Web analytics tool, hiring a Web analyst, revisiting all the business requirements, and producing new reports and dashboards. He had also hired someone to specifically focus on site optimization and to run their testing and experimentation program. They had been busy laying the foundations, and investments had been made in people, processes, and technology. I could see how quickly they would begin to reap the rewards.

At the other end of scale, I’ve also been working with a client who is developing a brand new site. New sites don’t come cheaply, but senior stakeholders in the business are reluctant to invest in the appropriate measurement and analytics. The new site is close to launch and we’re now trying to shoe horn in analytics requirements into the tail end of the development process. They use a free tool that can cope with most of their needs but not all of them. And despite the significant investment in the new site, getting a modest budget to develop the data collection specification and the reporting configuration has been difficult.

These two experiences highlight the difference between companies that “get it” and those that don’t.

For the companies that struggle to recognize the value of investing in decent measurement and analytics, I’m reminded of one of my favorite quotes from A.C. Nielsen. Arthur Nielsen used to say that “The price of light is less than the cost of darkness.” The point is elegantly made – it’s not a question of whether you can afford to invest in measurement, it’s a question of whether you can afford not to. The point of measurement and analytics is to increase the effectiveness and efficiency of decision making and to reduce the risk of failure. It also leads to better accountability, which is possibly why sometimes it’s not welcomed with open arms.

Determining or justifying the return on investment in analytics can be hard. In some cases, like multivariate testing, the return on investment can be very explicit and indeed that’s how the technologies are often sold. However, working out the ROI on an analytics team and general analytics technologies can be harder, particularly in non-transactional environments. But there is always “a cost of darkness,” and the trick is to try and work out what that cost might be. For transactional environments it might be not knowing how to improve the conversion ratio, for media environments it might be around not understanding how to monetize the traffic more effectively, and for service environments it might be about not understanding which content is helping to deflect calls from the contact center.

Although hard to prove, I believe that even small investments in measurement and analytics can return a significant ROI, particularly in the early days of adoption. Perhaps “The price of light is less than the cost of darkness” should be in the footer in every business case for investment funds for measurement and analytics.

Neil is off today. This column was originally published on August 16, 2010 on ClickZ.


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