Intro to Incremental Measurement: Financial Impact
Stakeholders don’t speak marketing, but money talks.
Measuring impact in marketing terms is a good way to internally evaluate marketing efforts, but often fails to impress your CEO or other stakeholders. It’s important to be able to state your impact in the same terms your business evaluates other investments. Some core marketing campaign measurements will translate well, sales for example, but it’s a big help to have reliable strategies to convert other marketing measurements into core financial metrics too. An added benefit is being able to internally compare and weigh the value of marketing efforts with differing response goals.
There is no shortage of techniques and ideas for calculating a marketing ROI. Many marketing suites and tools have their own approaches and without fail will spit out some positive value. Some of these are good, some of these are bad, almost all of these are difficult to explain. Especially hard to explain to any form of skeptic. Many marketing ROI calculations rely heavily on complex attribution models as their base. These aren’t just hard to get buy in for, but often a point of contention within the marketing, sales, and customer support sphere. Much of the confidence in and quality of your financial calculations comes from how you attribute customer behaviors to your marketing efforts. This is where our incremental measurement based on randomly selected holdout/control groups has one of its biggest advantages. It’s easy to explain, and most educated people have a baseline of trust and understanding for the controlled experiment. Even if they haven’t considered it since their freshmen year Chemistry class, there’s a good chance it clicks.
Once you have a good measure of how many customer response actions you can attribute to your marketing, calculating financial metrics will be simple in a lot of cases. First, you have to understand how much that response action is worth in dollar terms. Second, you need to have a baseline of costs. At minimum tally the direct costs for any offers included in that marketing action. With those revenue and costs numbers you can calculate most of your major financial metrics. Not all marketing efforts are quite that straight forward, but I’ll walk through a few examples at varying complexity that will cover most bases.
Let’s start with a simple and common example, a specific product sale driven campaign. This hypothetical campaign takes our customer list and sends a simple outbound message meant to drive those customers towards purchasing a new miracle hair loss treatment. Easy sale of course, but with a product that good how many of the nearly inevitable sales can we attribute to our email? We’ve done our incremental measurement and now we have a well based estimate of specifically how many hair loss miracle cure solutions our campaign drove. From this point it’s simple arithmetic, revenue or price per unit multiplied by the number of incremental sales. If our email included a discount code, how much cost was accrued by use of the code, simply subtract it out to get your net campaign revenue. If you’re super organized you may even have an understanding of operational costs to create, run, and measure your campaign. With those inputs calculating different financial return metrics is basically done.
That’s the simplest of examples, but not all campaigns have a direct revenue driving response goal. Much of what we do in a modern marketing environment is nuanced and geared towards engagement and top of the funnel behaviors. Let’s explore a slightly different way of thinking about these campaigns to allow for incremental measurement in our next example.
Our next hypothetical campaign will be a customized monthly newsletter to our customers that gives them tailored suggestions and content meant to drive additional interest and engagement. Ultimately looking for engagement that drives sales down the road, but those sales may come in many forms. The financial measurement strategy isn’t quite so on the face with this type of campaign. Once we understand the goal, measurement again becomes pretty simple. There is no need to attempt tracking all the different ways our campaign may create incremental revenue separately. Instead we can look at it in an aggregate manner. Comparing the average revenue per customer after the marketing action and how it differs between treat and control will give a quality estimate of the incremental revenue per treated customer to be expected. From that number we can extrapolate to our revenue number based on the quantity of treated customers. If you set different control groups along higher levels of marketing activity, for example an entire marketing holdout group or a channel specific holdout group, this technique can be implemented very similarly.
It can also seem less straightforward at first to quantify the value of marketing activities geared towards retention. For these campaigns you really don’t need to do anything different than our sales goal campaign. The response goal is just a customer remaining a customer at X point after the marketing or customer service experience. The difference in retention rates between your treated and holdout customer groups should give you an estimate of the number of customers you’ve retained because of the activity. Valuing these customers is less straight forward than a new sale though. If you don’t have a strategy in place for valuing customers you can try something like this: Analyze how long a customer you retained sticks around on average, and then apply your average subscription/service fee and incremental retention to that number. You can also go directly to a treat control revenue comparison like discussed above.
These techniques may seem like really simple answers to the enigma that is “Marketing ROI”. That’s because they are. Most of the complexity in Marketing ROI calculations really is in the attribution. When you leverage an incremental measurement strategy with your marketing you eliminate a lot of that complexity. Of course the price you pay is leaving some customer interactions on the table. In my opinion this is a small price to pay to have a solid foundation of measurement for making your decisions on. If you really need to add some flash to your marketing numbers try playing “Firework” by Katy Perry and dancing interpretively while you present them. If your boss doesn’t like it the plants from our first hypothetical controlled experiment sure will.
I hope you enjoyed this “Intro to Incremental Measurement” series. If you’re looking to elevate your company’s marketing through the use of data and analytics stick around for more. I look forward to navigating topics ranging from measurement and reporting tips to marketing optimization strategy and AI/Machine Learning application. Follow me here and on LinkedIn, so you don’t miss a thing.
If you missed the other posts in this series and want to check them out you can start here:
