AdAge’s research, which was published at the end of 2016, helped to decode today’s five CMO priorities. Two of these priorities fall under Marketing Performance Management (MPM).
Priority was the measurement. The study showed that any measurement would not be enough: to be effective, it is necessary to be able to measure Marketing’s effect. Second, the study revealed that it was important to justify Marketing investments better.
AdAge wasn’t the only publication to highlight CMO priorities. A Chief Marketing article identified six trends in 2017, of which three included some form of measurement. These were cross-channel measurements and more sophisticated marketing measurements.
A Forbes article also predicted that 2017 would be the year Agile Marketing is taken more seriously. Why? Agile marketing improves marketing performance.
Steven Wastie (CMO, Origami Logic) also wrote, “2017 will be the year of measurement and data …. Marketers are under greater pressure to demonstrate accountability than ever before.
You may be able to see a pattern: for today’s marketer, the real challenge is not measurement. There are many metrics available. It isn’t easy to measure Marketing’s performance and value.
We won’t use the three-letter term ROI to show value. While ROI is important, the ultimate goal of marketing measurement should not be to determine ROI but to help make decisions and determine marketing’s contribution to the business. In order to do this, you will need to quantify the value Marketing brings to the company.
Are you sure your marketing metrics are up to date?
Salesforce predicts that the number of data sources businesses will use will increase by 83% from 2015 to 2020. We will be measuring even more than we do today. It may sound counterintuitive, but it’s not necessarily a bad thing. It’s easy to get sucked into a vortex of metrics with so much data.
We need to choose performance metrics that are more intelligently selected in order to avoid this fate.
Most marketers still use a channel-based approach to their metrics. An Allocadia research revealed that over 90% of 200 CMOs who took part in the study tracked and reported on output-based measures (e.g., visits and inquiries). Even though these are valuable measurements, even if the channel is performing well, it will fail if it doesn’t move the needle in the business.
Marketing budgets are often based on a channel-centric model, where marketing investments are allocated based on activities like PR, email, and events. This approach to budgets and metrics is dangerous because it perpetuates the myth that marketing activities equal value.
On the other hand, businesses- whether they are startups or established companies- normally set revenue and profit goals for each year. Then, they define the outcomes that will, when achieved, produce their targets. Outcomes clarify priorities. A business outcome might be: “Increase adoption rate of a product by X% in Y customers, resulting in X% more revenue and Z% more market share.”
To achieve business outcomes, different parts of an organization must work together. Continue with the example of the business outcome above: To achieve the specified adoption rate, R&D, Manufacturing, Sales, and Marketing would need to work together. The operational plans for these organizations should include performance targets that are related to the outcome. Marketing may choose to focus on the adoption rate of the product to achieve that target. This includes how many customers adopt the product and which ones will do so, as well as the cost and timeframe.
In order to make progress in measuring their value, marketers must adopt a metrics-based approach that is outcome-based. This allows Marketers the ability to link their measurement data with key business outcomes. The links between activities, outcomes, and metrics can be used to create a metrics chain. This allows Marketing to measure impact and value.
How to translate outcome-based metrics into a measure of marketing performance
Value reflects worth. Marketing activity is valuable, but it’s not enough to generate the results. You have to find a way to translate Marketing work into business value.
Businesses highly value all forms of value. Employee value is one example. Customer value is another. Supplier value, channel partner, alliance partner, manager, and societal values are other examples.
Marketing, i.e., marketing activity, should focus on creating value for customers, given that its purpose is to find, keep, and grow the value of the customer. Every marketing metric should positively impact customer value. To achieve that goal, you must know the following:
- Value drivers that your organization can influence. A common value driver is market share.
- How customer value is calculated. Customer lifetime value is one of the accepted methods for calculating customer values. CLV measures the value of a customer or customer segment to a company over their lifetime.
- Current customer value
- The desired value of the customer.
- How will marketing’s contribution to customer value be measured? It is the most important step. You can choose to measure Marketing performance in the context of the business value once you have established the link between Marketing and your organization’s values, such as customer value.
Determining data requirements by defining performance measures as objective and value allows the organization to calibrate how success is measured. The performance metrics table can be a very useful tool in this process.
It is crucial to use outcome-based metrics to prove the value of marketing. These metrics are the key to changing the perception of marketing from a cost center to a value center.
Why is this change critical? Cost centers are constantly under pressure to reduce costs and maximize efficiency. They are, therefore, always challenged with the challenge of achieving more. Marketing leaders are constantly on the budget hot seat when Marketing is treated like a cost center. They have to keep their costs within budget or even below it.
Marketing should indeed be within budget. But is this the main conversation you want to have with your team? Won’t it be more productive to discuss why and how Marketing moves the needle in the business? It would. Make sure you have this discussion.
You can shift the focus of your conversation when you link your marketing metrics to business outcomes.