It’s not so easy to identify the kinds of results delivered by a marketing program. Any measurement framework is a tradeoff between accuracy and cost. Experience shows that most marketing departments start with low-cost, low-accuracy measurements and then begin to experiment with approaches that are more complex.
Key Challenges to Measuring Marketing Programs
There are a number of key challenges that you must address, including:
- The Timing of Measurements – You are investing money in your marketing programs today, but the impact and timing of your return on investment is uncertain. Will last month’s trade show affect results next month, six months down the road, or not at all? Marketers must make their best guesses on where to spend their budgets today, not knowing when to expect a payoff in the future.
- The Number of Touches – You usually need at least seven touches, or contacts, to convert cold leads into sales, according to conventional wisdom. The actual number is not as important as realizing that multiple touches are required. However, if this is the case, how do you allocate revenue to any specific touch?
- The Number of Influencers – How many individuals exert influence on a buying decision? Companies often set up buying committees whose size varies by purchase amount. A five-figure purchase may require a committee of a half-dozen people, but large corporations can have buying committees of 20 or more. Each person has influence on the buying decision, so how does a marketer know which programs will have the most impact?
- Extraneous Factors – Many variables cannot be controlled by a marketing department. These include macro-economic trends, weather patterns, and how well the sales department is trained. How can marketers justify a ROI calculation if it occurs during a sudden improvement in the economic environment? In other words, did the marketing program deliver results?
You cannot just throw up your hands in the midst of such uncertainties. Rather, you must set up a logical framework for measuring the effectiveness of your actions.
First Touch/Last Touch Attribution Modeling
One of the simplest measurements is called first touch/last touch. The concept here is to associate a marketing program with revenue from a deal. A first touch credits the revenue to the marketing program that first generated a lead that eventually ended in a deal. For example, if you hold a webinar and an attendee subsequently purchases your product, the webinar would be the first touch and get the credit.
A last touch attribution, as you might suspect, credits the last marketing program that interacted with a lead. For instance, if your webinar lead subsequently attends a product demonstration before making a purchase, credit would go to the demonstration, not the webinar.
Marketing departments like this measurement because it is relatively simple to implement and track, gives feedback about the stages of the revenue cycle, and can be used to calculate an investment-per-lead metric. On the down side, it ignores later (or earlier) contributors to revenue, favors lead generation over lead nurturing, and doesn’t indicate the quality of the lead until the deal closes.
Another problem with a simple first touch/last touch measurement is that there may be a substantial lag until revenue is collected, so your current marketing ROI may be incomplete for a long time. As you can see, this approach favors short-term deals, since they show results sooner. However, you should be more interested in building long-term value, not short-term results.
Revenue Cycle Projections
Marketers solve these shortcomings by adding revenue cycle projections to the measurement. For example, you can extrapolate the long-term value of a trade show based on revenue earned at the beginning of the revenue cycle (at the time of the trade show) and then projecting forward to later stages based on historical data (for instance, long-term results of last year’s trade show).
Revenue cycle projections focus on the impact of a program through all stages of the marketing and sales funnel by estimating the future value of current investments. This places emphasis on lead quality, not quantity. It’s not a perfect metric – it still only gives value to a single touch (first or last) without accounting for the contributions of other touches. Your estimates may be way off, and in any event, you must eventually match the estimates to actual results.
You are therefore obliged to look at more powerful (and complex) measurements if you want to get a good feeling for the value of our marketing programs.
Allocation Across Multiple Programs and People
This method acknowledges the importance of each marketing or sales contribution (touch) needed to close a deal, and tries to gauge the value of each touch. In this technique, you work backwards from the last touch (the immediately preceding event to a sale), such as a direct mailing in which the lead clicked to the website and made a purchase. Next, identify each significant preceding contact that contributed to the closing of the deal.
Now that you have a list of contributing touches, you need to apply an allocation methodology by weighting the importance of each touch point. There are three main allocation methodologies:
- Allocate by Time — Touches that occur immediately before the final one tend to have more value than much older contact events. You normally give more weight to a recent webinar attendance than to a white paper download from a year earlier.
- Allocate by Role – You allocate more weight to programs that touched that primary decision maker, as opposed to contacts that dealt with other influencers. Just be sure you correctly identify the key decision-maker, who is not necessarily the most senior executive in the deal.
- Allocate by Program Type – You can allocate weighting by the amount of engagement with influencers. In this allocation methodology, you would assign more value to attending a two-hour webinar than to a quick website visit. However, don’t necessarily assume that events that are more expensive deserve higher weightings, lest other executives in your firm question your assumptions.
As a concrete example, let’s assume that you close a $200,000 deal that involved three influencers from the buyer’s company, as follows:
- Influencer X attended a trade show and a seminar
- Influencer Y went to the trade show only
- Influencer Z received direct mail and clicked through to the website
You might divvy up the $200,000 credit by assigning half of it to the trade show and a quarter each to the seminar and the direct mail. Although somewhat more complex, this measuring method acknowledges all nurturing touches and lead generations. It’s especially useful when the sales cycle is long and involves a number of touches, each of which deserves some recognition.
You want to make sure that your value assumptions are not overly biased and that they don’t overlook less obvious contributors. Realize that you’re not getting an insight into the ways the different touches correlate or connect with each other to provide synergies.