When it comes to choosing metrics for a marketing dashboard, measurements are specific to not only industry but also company, division—and down to the specific department and the critical objectives at hand.
The marketing dashboard can be anything you want it to be, as long as it shows the forward-looking information that benefits you most. In fact, the marketing dashboard should be tailored to meet the specific goals, objectives and strategies of your company, its structure and its unique culture. Nevertheless, there are some categories of dashboard metrics that are appropriate in many circumstances.
One note about terminology and philosophy as we begin our descriptions: Marketers show a tendency to use dashboard metrics that relate to revenue (top line sales) as opposed to profits (bottom line). This is a critical error that not only risks misleading decision makers about the effectiveness of marketing investments but also perpetuates the cynicism with which other departments view marketing.
The potential to be misleading is relevant in that marketing costs must be allocated to the sales they generate before we determine the net incremental profits derived from the marketing investment.
If we spend $5 million in marketing to generate $10 million in sales, fine. If the cost of goods sold (COGS, fully loaded with fixed-cost allocations) is less than $4 million, we probably made money. But if COGS is more than $4 million, we've delivered slightly better than breakeven on the investment and more likely lost money when taking into account the real or opportunity cost of capital.
Presenting marketing effectiveness metrics in revenue terms is seen as naive by the CFO and other members of the executive committee for very much the same reason as outlined above. Continuing to do so undermines the credibility of the marketing department, particularly when profits, contribution margins or even gross margins can be approximated.
Why Revenue Metrics Can Be Dangerous
There are several common rationalizations for using revenue metrics, including the following:
- Limited data availability
- An inability to accurately allocate costs to get from revenue to profit
- A belief that since others in the organization ultimately determine pricing and fixed and variable costs, marketing is primarily a top-line-driving function that does not influence the bottom line
Pat LaPointe is managing partner at MarketingNPV (www.MarketingNPV.com) and the author of Marketing by the Dashboard Light: How to Get More Insight, Foresight, and Accountability from Your Marketing Investments.