Part one of this series outlines a seven-point framework for analyzing online marketing campaigns. This column will provide a detailed conceptual approach for assessing that program’s results.
While the mere mention of numbers or analysis instills some marketers with fear, success metrics are the scorecard of any online marketing program. They provide a concise, abbreviated format that shows how well your marketing helped accomplish your company’s goals. Often, this translates to increasing profitability.
At their core, success metrics fall into three major categories: counting things, developing rates, and assessing things over time.
These metrics provide a straightforward answer to the question: how many? They cover at least the following four categories. At a minimum, track the totals for each type:
Costs. Money outlaid to purchase and market the product:
- Sales. The number of dollars generated from a campaign. Acquisition campaigns may be allowed to lose money, since the long-term relationship is worth more than the initial cost. In the long run, all marketing must eventually yield revenue:
- Gross sales. The amount of money brought in by a campaign. It may also be known as top-line sales.
- Returns. The items customers send back, generally because they’re inconsistent with the marketing presentation or they don’t fit. If this is a significant amount or a number that’s out of line with past results, it indicates a problem.
- Net sales. Gross sales minus returns. This is the amount of revenue the company retains to apply to various costs.
- Purchasers. The people who ultimately purchase from your company. Important categories to track include:
- Contacts. The number of people who see your advertisement. This can be expressed as impressions, e-mail, or mailed pieces.
- Prospects. The people who respond to your marketing but who haven’t yet purchased. This measures the effectiveness of your advertising and its ability to attract an audience.
- Customers. Actual buyers of your product. They have been converted from prospects. Additional marketing may be required to convert prospects.
- Advocates. Folks who promote your products and brand. They may do so in a directly measurable way, such as forward-to-a-friend messages, or less directly measurable ways, such as old-fashion word of mouth.
Items. The number of things purchased that may be broken out by product type or category, depending on the business.
- Variable costs. The cost of goods, fulfillment (from taking the order to getting the product out the door), and bad debt (including credit card processing fees and returned product that can’t be restocked).
- Fixed costs. Marketing, such as media, premiums (incentives that get customers to buy), creative, and overhead.
Put the things in relationship to each other to better understand the marketing effectiveness. Among the dominant factors to track are:
- Response rate. The number of people who took action from a single marketing piece: total prospects/total contacts.
- Conversion rate. The number of people who ultimately purchased or took an action, depending on the campaign type: total buyers/total prospects.
- Order rate. The average number of orders per buyer: total orders/number of customers.
- Unit order size. The average number of items sold: total items/total buyers.
- Sales/customer. The revenue generated by each buyer: total sales/total customers.
- Average sale. The average revenue per item purchased: total sales/total items.
- Average order value. The amount customers typically spend: total sales/number of orders.
- Costs/media viewer reached (a.k.a., CPM (define)). Assessment of the media expense. It is often stated in terms of cost per 1,000 views and is generally only for the media cost (vs. fully loaded, which includes other related marketing expenses): media cost/[contacts/1,000].
- Costs/buyer (a.k.a., CPA (define)). Assessment of the cost to acquire a new customer: total costs/total buyers.
- Costs/contact. Often an assessment of costs for contacting existing customers: total costs/total contacts.
Assessing Over Time
Measuring things that happen over a defined period on a continuous basis allows you to determine trends in your business. Tracking periods may be in terms of hours, days, weeks, months, years, or marketing campaigns. What’s determined depends on your business. The periods must be of sufficient size to gather representative results that are significant to manage your business.
While it’s important to track your business against its past performance to determine how it’s doing against prior periods and budgets, remember to use third-party data for a competitive assessment of your performance.
This metrics framework presents a simplified way of accessing important business indicators and should always refer back to your business objectives. Depending on your business, more elaborate measures, such as lifetime value and contribution margin, may also be needed and can be included in your ongoing analysis.