Research published in AdAge at the end of 2016 helped decode today's five CMO priorities. Two of those priorities fell squarely into the domain of marketing performance management (MPM). The first priority was measurement. However, the study revealed that not just any kind of measurement will do: To be effective, you need to be able to measure Marketing's impact. The second priority was the need to do a better job of justifying Marketing investments.
AdAge was not alone in shining a light on those CMO priorities. The trend toward more compelling measurements of value were reflected in a Chief Marketer article that identified six trends for 2017, three of which included some type of measurement: cross-channel measurement, more sophisticated marketing measurement, and real-time attribution.
And a Forbes article predicted that 2017 is the year Agile Marketing will be taken more seriously. Why? Because "agile marketing results in a measurable improvement in marketing performance."
In another instance, Steven Wastie, CMO of Origami Logic, wrote that "2017 will the year of data and measurement.... Marketers will be under more pressure than ever before to prove accountability."
Perhaps you see the pattern emerging: For today's marketers, the challenge really isn't measurement; there is an abundance of metrics. The challenge is measuring Marketing's value and performance.
Notice we won't suggest that common three-letter term "ROI" as a way to demonstrate value. Although ROI is important, ultimately the goals of Marketing measurement should be to facilitate decisions and determine Marketing's contribution to the business. To that end, you need a way to measure the value Marketing creates.
Are You Sure Your Marketing Metrics Measure Up?
The number of data sources that businesses will rely on will grow 83% between 2015 and 2020, a Salesforce study forecasts. We will be able to measure even more than what we measure today. But, although it may seem counterintuitive, that isn't necessarily a good thing. With so much information, it is easy to find yourself sucked into a metrics vortex.
To avoid that fate, we need to be smarter about the performance metrics we select.
Most marketers still take a channel approach to their metrics. An Allocadia study found that the over 90% of the 200 CMOs and top marketers who participated in its research primarily track and report on output-based metrics (e.g., visits and inquiries). Although those are useful measurements, even the best performing channel will result in failure if you aren't moving the needle for the business.
Marketing budgets tend to reflect such a channel-centric approach, with marketing investments allocated by activities such as PR, email, events, etc. That approach to metrics and budgets is dangerous because channel-centric metrics simply perpetuate the myth that marketing activity equals value.
On the other hand, companies—whether startups or established firms—typically set annual revenue and profit targets. They then define outcomes that, when achieved, they believe will produce the targets. Outcomes clarify priorities. An example of a business outcome: "Increase the rate of adoption of a new product by X% among Y customers resulting in contributing X% toward revenue and Z more market share."
Achieving business outcomes requires various parts of the organization to work in concert. Let's continue using the above outcome example: Attaining the specified product adoption rate would likely require effort by R&D, Manufacturing, Sales, and Marketing. Ideally, the operational plan for each of those organizations would include performance targets associated with that outcome. For Marketing to complete that performance target, it may focus on product adoption rate: how many customers will adopt the product, which ones, at what cost, and in what time frame, and their contribution to the organization's market share.
Marketers making headway on measuring their value to the business take such an outcome-based approach to their metrics. Operating in this fashion allows Marketers to effectively tether their measurement data to key business outcomes. When done well, the links between activities and outcomes form a metrics chain, enabling Marketing to measure value and impact.
How to Translate Outcome-based Metrics Into a Measure of Marketing's Value
Value reflects worth. Though it certainly takes activity to produce the outcomes, Marketing activity in and of itself isn't valuable: You need a way to translate Marketing's work into a measure of business value.
Businesses hold in high regard all forms of value that determine the health and wellbeing of the firm: Employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value are all examples of value that determine an organization's economic value.
Considering that Marketing's purpose is finding, keeping, and growing the value of customer, the work of Marketing—i.e., marketing activity—should focus on creating customer value. Therefore, every marketing metric must in some way positively affect customer value. Achieving that objective requires knowing the following:
- The value drivers for your organization. Market share is an example of a common value driver that Marketing can influence.
- The way customer value is calculated. One of the most accepted methods of calculating customer value is customer lifetime value (CLV), which measures how valuable a particular customer (or customer segment) is to the company over his or her lifetime.
- The current customer value.
- The desired customer value.
- The way Marketing's contribution will be tied to customer value. This is the most critical step. Once the connection between Marketing and the organization's business values (such as customer value) are made, you can then choose a means to measure Marketing's performance within the context of business value.
Defining the performance measures from objective to value helps determine data requirements and calibrates the organization on how success is measured and linked. A performance metrics table is a tool that can be very useful in this process:
Using outcome-based metrics is vital to helping Marketing prove its value. These metrics are the first step in transforming the perception of Marketing from a cost center to a value center.
Why is this shift critical? Since cost centers are always under pressure to maximize efficiencies and reduce costs, they are always facing the relentless challenge of doing more with less. When Marketing is treated as a cost center, the Marketing leadership is constantly in the budget hot seat, with their sole focus on keeping their costs in line or below budget.
Of course, Marketing should stay within budget, but is that the primary conversation you really want to have? Wouldn't a conversation about how and why Marketing is moving the needle for the business be far more productive? Of course it would be. So make sure that you can have that discussion.
When your metrics link Marketing to business outcomes, you shift the conversation to what truly matters.