The only worthwhile measure of marketing performance is revenue growth

k a Blog, Procurement

4C Associates’ sixth breakfast debate of 2013 focused on different methods of measuring marketing performance. Topics discussed included comparisons of various metrics available, the relationship between sales and marketing performance, and the act of incentivising and managing agencies to deliver first class marketing performance.

Peter Marson, Non-Executive Director of 4C, argued for the motion that revenue growth is the only reliable measure of marketing performance, whereas Phil Marsland, Group Chief Marketing Officer of Virgin Active, debated against. The event was hosted by Guy Allen.

The only worthwhile measure of marketing performance is revenue growth

There are hundreds of different metrics that companies can use to measure marketing performance, from ‘likes’ and ‘clicks’ through to brand awareness, customer loyalty or market share. There are many interesting approaches to analysing these metrics and software tools that can provide as many dashboards and charts as a company could wish for.

However, despite all this mass of information at their fingertips, most companies do not believe their marketing is actually effective. A survey of 3,000 marketing directors came back with the result, “65% of all marketing spend has no effect on consumers and is wasted.” The same survey also showed that almost half of companies do not actually track the results of their marketing spend. In another survey, almost half of all those marketers questioned said it was not even possible to track the impact of marketing spend.

The reality is, most of the complex measures are too hard to use in practice, and often are not very robust. It does not help that a lot of measures can be faked or are misleading. As a result, putting in place simple and effective measurement of the revenue impact is a big step forward. The heart of this is to measure ROMI – the Return On Marketing Investment. This measures the revenue impact of the marketing activity (stripping out other effects) as well as the contribution margin of the revenues, as well as the cost of carrying out the marketing. More sophisticated companies also think about not just the short term impacts, but also the long term ROMI.

In calculating ROMI, the unknown is the revenue impact of the marketing; the cost and contribution should be known. Therefore, revenue uplift is the one metric companies need to focus on in order to understand their marketing performance. The shareholders and senior management need to know the answer to this to determine if they are making the right investments in marketing to grow the business. While there are a multitude of other metrics that can provide useful insights, ultimately revenue growth (from which you can
calculate ROMI) is the only worthwhile measure of marketing performance.

 

Seeing growth in the revenue line is not the only worthwhile measure of marketing performance

Measuring the effectiveness and efficiency of marketing performance is much more than looking at revenue growth. Firms that are serious about improving their on-going and future marketing activities should focus on working with a much broader range of metrics than direct financial metrics, such as revenue goals and ROMI.

“Are you selling at a loss?”

To create value, firms need to make sure their growth is profitable. Sale revenue does not always translate into profit and marketing is not always attributable to a particular sale. Consequently, marketing activities should never be used solely to influence and promote sales. Firms measuring their marketing effectiveness mainly through sale figures are often ignoring marketing’s indirect benefits, such as building customer loyalty and improving brand recognition.

Timeliness

Revenue is only a backwards-looking financial metric which does not give enough information on individually executed marketing activities. To get a more realistic view, marketers should consider using a number of forward-looking, innovative metrics, such as brand equities and Net Promoter Score (NPS). Particularly when assessing future financial impacts, (financially speaking) indirect marketing metrics can be used as fluently as metrics that are solely focused on measuring financial outcomes.

“A rising tide floats all boats, and a falling economy is equally hard to escape in many sectors.”

Just because revenues are going up, it does not mean marketing has been performing well. Such factors as seasonality, other developments in the market and competitor’s financial performance, can all contribute to increases in firms’ revenue figures. For instance pre-2007, many credit companies were able to grow their business exponentially simply because of favourable macroeconomic conditions, not necessarily because of exceptional marketing campaigns. Hence, if firms are measuring their marketing effectiveness only through revenue growth as argued by Marson, the results would be wrongly attributed to the cause.

 

Q&A

One attendee suggested a situation where an organisation’s aim is not primarily revenue generation, as often is the case in charities, and whether the debaters would still see the value of measuring marketing performance.

Marson answered, in his opinion, very much so; in fact it is often the large charities that are the best example of measuring the effectiveness of marketing through revenue generation since their primary focus is on how much money they can raise. However, it is a different matter of what activities charities subsequently spend the fundraised money on.

The issue of smaller marketing budgets was also brought up by one participant who spoke from her own experience of how she had moved to a company where the available marketing budget was marginal compared to that of her previous employer’s. In this context she was interested in knowing how companies could be better at translating their marketing performance into sales. Both Marson and Marsland emphasised the importance of the best ways of targeting the right audience and being able to provide enough value for clients through various marketing campaigns exercised.

Results

A show of hands saw the vast majority of attendees vote against the motion. For more 4C Insights you can visit our content hub, follow us on Twitter and connect on LinkedIn.