Marketing Metrics Primer

Marketing Metrics PrimerStart Here. These Are The Basics of the Basics.

This marketing metrics primer is for owners of small businesses and marketing executives of large businesses – especially those who have had little or no experience with marketing metrics (marketing measurement). I have said that this web site is an introduction to marketing metrics. Well, this primer is an introduction to the introduction. It is written in straightforward language and simple math.

The Marketing Metrics Process

This primer (introduction) shows you practical techniques for measuring the results of your marketing program. These step-by-step techniques are the components of a marketing metrics process. The process will:

1. Help you determine the profitability – Return on Investment (ROI)or R eturn on Marketing Investment ( ROMI) – of your program.

2. Help you optimize your program to achieve the highest possible profitability.

If you have never measured your marketing profitability before, this primer will show you how.

If you already have a profitability-measurement system in place, this primer may help you strengthen your measurement system and identify profits you’ve overlooked. Most measurement systems unintentionally understate profitability. Later, I’ll explain why. But first, I need to cover something fundamental. I need to define two terms as used in this primer: "results" and "measurement."

Definition of the Term "Results"

Marketing programs, including advertising and public relations (PR) programs, can produce three types of results:

1. Awareness:  The target audience knows something about your company, product or service.

2. Perception:  The target audience thinks about your company, product or service in a certain way.

3. Behavior:  The target audience does something (e.g., buys your product or service), or refrains from doing something (e.g., doesn’t boycott your company).

There are effective measurement techniques and tools for each type of result. However, in this marketing metrics primer you and I are interested primarily in behavior, because only behavior affects profitability directly.

So when I use the term “results” without any modifiers, I mean actual behavior.

Definition of the Term "Measurement"

By "measurement," I mean the specific Marketing Metrics Process. It has four steps:

1. Defining: Defining the results that your marketing program intends to promote.2. Assessing: Assessing the dollar values of these potential results.3. Tracking: Tracking actual results and determining whether your program

promoted them.4. Optimizing: Tuning up your program based on the tracking; doing more of what

works well, and less of what works not so well.

In this marketing metrics primer I refer to the above process as "Define-Assess-Track-Optimize."

Big Payoffs

Successful practitioners of results measurement repeat the Define-Assess-Track-Optimize process continuously. They define, assess, track, and optimize – and keep repeating.

In every repetition of the four-step process, they make their programs more profitable, often double or triple, until the programs reach a point where, for all practical purposes, they can’t be optimized any further. One of my clients named this point “Optimization Nirvana.”

Marketing Metrics Process - An Example

This is an example of a small-business owner who uses the marketing metrics process to successfully measure and optimize a marketing program. The owner is a composite of three of my clients, and all names used here are fictitious.

Keep this in mind: Although I have slightly simplified the calculations for sake of discussion here, this same marketing metrics process can scale to meet the needs of the largest marketing program; so, no matter how much your company grows, the process will still work.

Meet Dr. Mary Smith

Mary Smith, D.C., is a chiropractor in Jackson, Michigan, population 36,000. She has one office, which is in a visible, convenient location. Three years ago, she purchased the practice from John Wilson, D.C., who was retiring. Dr. Wilson accepted a ten-year note.

Many of Dr. Wilson’s former patients are still with Dr. Smith. Several new patients sign up each month – from patient referrals, advertising, and her web site. In total, she spends about $22,000 per year on advertising and public relations. (This amount, chosen for purposes of discussion, is much higher than most chiropractors actually spend.)

She’s making a comfortable living, and her practice is growing steadily, but she still has a lot of space in her calendar. She’d like to take on new patients faster.One Tuesday morning, looking at an especially sparse page in her calendar, she wonders if she should expand her marketing program. But she’s prudent, and she

has had, in a previous career, some experience in marketing metrics process. So she pauses and asks herself a good question: “What’s working now?”

Reverse-Tracking the Sources of (Some) Patients

That evening, after she closes the office, she sits down with a yellow pad, a pencil, and a printout of her patient list. She checks off the names of the patients she inherited from Dr. Wilson, and tries to remember how she attracted the others. She’s able to identify the sources of some patients, but not most.

She promises herself that, starting tomorrow, she will try to identify the source of every new patient. She plans to do this for six months and then analyze the results, just before the annual cutoff date for Yellow Pages advertising. But this evening, before she leaves the office, she asks herself a few more questions.

Defining the Results

First she asks: “What’s the purpose of my marketing program?” She writes, “Attract new patients who otherwise might not have become patients. Get them to call the office.”

She has defined the specific behavior that her program intends to promote. That is the first step in the marketing metrics process. Her answer is an obvious one, but it’s not the only possible answer.

For example, she could have designed the program to persuade patients to take advantage of additional services such as nutritional counseling, or to return for treatment after they’ve lapsed.Both of these behaviors would increase her revenue and profit. But so far, Dr. Smith has determined that she will measure her program based on a single result: attract new patients. She has wisely decided to try only one thing at a time.

Assessing the Dollar Value

Now she moves on to the second step in the marketing metrics process: assessing the dollar value of the potential results. She asks herself this question: “What is a new patient worth to me?”

First, she writes down the easy part of the answer: “Typical office visit = $40.” For the next part of the answer, she has to spend two hours going through her patient files.She calculates that, on average, each patient comes in twice per month for 30 months – a total of 60 visits. She multiplies 60 times $40. On average, each patient represents $2,400 of revenue.

Then she asks, “What’s my incremental cost to serve one new patient?” She figures that the direct cost is only an occasional small expense for heat packs and other supplies.

She also has overhead costs such as rent and utilities; however, the addition of a modest number of new patients won’t increase these costs. She knows that she

will eventually have to move to a larger office, but she wants to pay off her note first.So she assumes that all the revenue goes to pretax profit. Therefore the total profit from (the “lifetime value” of) a new patient is $2,400.

Dr. Smith has completed her assessment. She has assessed the dollar value of the kind of behavior that her marketing program intends to promote. Satisfied with her work so far, she goes home.

Tracking Actual Results

The next morning, she begins the next step in the marketing metrics process: tracking actual (not potential) results. She revises her intake questionnaire. She adds the question, “How did you hear about us?” and five checkoffs: Yellow Pages, Newspaper Ad, Web Site, Referral, Other (specify _______). She also asks her receptionist to gently ask patients for this information when they’ve omitted it from the questionnaire.Six months later, Dr. Smith has added 52 new patients. She knows the source of each one. Now she has some highly reliable raw data that she can analyze. After 30 minutes of calculations, she comes up with this chart:

Tactic        Patients   LT Value      Cost   Pct Return---------     --------   --------   -------   ----------Referrals           26      62400         0     InfiniteYel Pages           15      36000      6100          490Web site             8      19200       150        12700Newspaper            3       7200      4800           50---------     --------   --------   -------   ----------TOTAL               52     124800     11050         1029Lifetime (LT) Value  =  Patients Generated  x  $2,400Pct Return = (Lifetime Value - Cost of Tactic) x 100 / Cost of Tactic

She has, in a straightforward way, without any over-engineering, successfully completed three of the four steps of the marketing metrics process.

She recognizes that her program was highly profitable over the six-month period, with a 1,029-percent return on investment (ROI) or return on marketing investment (ROMI). And, she notes that the profitability of different tactics varied widely. Referrals cost almost nothing, but they generated $62,400 worth of new patients in six months.Meanwhile, her Yellow Pages ad returned 490 percent versus 50 percent from her newspaper ads. Her web site generated $19,200 – a whopping 12,700-percent return.

Optimizing the Marketing Program

She moves into the next, and final, step in the marketing metrics process: optimizing.Referrals are working well, so she sets up a program to promote more referrals. She writes letters to all patients, suggesting that if they’re pleased with her service, they may want their friends to derive the same benefits.

Yellow Pages advertising is working well, so she increases the size of her ad. She offsets most of the additional cost by discontinuing her newspaper ads, which are less profitable.

She continues to maintain and enhance her web site.During the next six months, she adds 121 new patients. Her rate of adding new patients has more than doubled, because she has optimized her program: doing more of what works well.

Optimization Nirvana

For six more months, the same rate of new patients continues. When her Yellow Pages ad again comes up for renewal, she keeps the same size ad, but writes more effective copy. This change, plus a few refinements in her referral program, further increases the rate at which she adds new patients.

Her calendar fills up completely. She stops accepting new patients except to fill vacancies.

Dr. Smith has fully optimized her marketing. She has reached “Optimization Nirvana.”

Defining Your Potential Results

Now, on to your measurement system. We begin with Defining Your Potential Results. In order to measure the results of your program, you must first define what your program is supposed to do. You can’t measure what you can’t define.

In this step, we’re not concerned with numbers. We simply want to identify the kinds of results that your program intends to promote – or could incidentally promote.

Here’s a list of 25 kinds of results, organized into two groups: results that primarily increase revenue and results that primarily reduce expenses. This is a broad but not necessarily all-inclusive list of possible results.Keep in mind that only a small fraction of these may apply to your company and the industry(ies) you operate in.

Results That Increase Revenue

More sales leads Increased closing ratio, a/k/a conversion rate (a higher percentage of leads

become customers) Shorter sales cycles More new customers Larger sales to existing customers, consisting of:

o More units per sale, oro Higher-ticket products or services, oro Upsells (sales of related products or services)

More-frequent sales to existing customers Longer customer relationships

o or reduced attrition o or re-activation of inactive customers

Additional distributors or licensees for your products or services Additional suppliers whose products or services you can resell profitably Additional strategic alliances More-successful liquidation of unneeded assets (e.g., real estate, machinery,

patents)

Results That Reduce Expenses

Sales of higher-margin products or services (reduced cost of goods sold) Fewer product returns or fewer refunds for service errors Reduced product or service liability Avoidance of lawsuits against your company Avoidance of regulatory action against your company Quicker or less-expensive resolution of regulatory challenges Avoidance of grassroots community action against your company Avoidance of boycotts, vandalism and sabotage Prevention of crime against employees Reduced shrinkage Fewer accidents Increased productivity per employee (reduced labor cost per revenue dollar) Lower recruiting costs Reduced employee turnover

This wide-ranging input can be a big help toward defining your potential results. However, you may be objecting that you’ve never approached your marketing program in this way.

If so, you’re not alone. In marketing, there is an unfortunate tradition of defining your potential results only in terms of awareness and perception (mental states). For example: increase awareness of Product X; create favorable community attitude toward ABC Company; improve employee morale.

“Hypothetical Chains of Causation”

There’s nothing wrong with defining your potential results in terms of mental states. Just go one step further and identify the actions those mental states could lead to. You can do this by drawing what I call “Hypothetical Chains of Causation.”

For example, if your ads increase a prospect’s awareness of Product X, that prospect probably becomes “warmer” than a prospect who hasn’t heard of Product X. Your salesperson may close the warm prospect earlier, especially if the prospect also sees good PR on Product X during the sales cycle. So the Hypothetical Chain of Causation is:

     awareness → familiarity → confidence →  earlier decision → shorter sales cycle

In the next hour, you can make a small but productive start. Print out a copy of that list of 25 kinds of results. Lay it down next to the goals page of your marketing plan (if your plan isn’t written out, you can do this exercise mentally). Then ask yourself how each of your goals could lead to one or more of the results on the list.

One Step at a Time

Notice that I say “could lead to.” At this point, don’t worry about whether your program actually does lead to a result, or how you might track the result, or how to put a value on the result. Those questions are covered on later pages. Stay narrowly focused on defining your potential results (audience actions) that could result.

In other words, just think hypothetically. Identify every kind of result that your program could possibly promote. Draw Hypothetical Chains of Causation. Write everything down. I promise: It gets easier once you get into it! If it sounds difficult, that’s only because it’s unfamiliar territory for most of us marketing people.

Try Starting at Zero

If you seem to be having trouble, here’s another technique that can help. Many big-company CEOs use this one. I don’t think they have a name for it, but I call it “Zero-Based Intuitive Measurement.”

Imagine that your marketing program never existed – that your company had never spent one cent, or one minute of effort, on marketing. What previous results would not have happened? What future results may not happen?

If you spend an hour or two defining your potential results, you’ll probably achieve the definition you need for your first round of measurement. Remember, you’re going to be refining the process from year to year, so your first round need not be fancy. It’s even OK if it’s very rough. The important thing is to get started.

Assessing Your Potential Results

After defining your potential results comes assessing your potential results. That is, you assess the dollar value of each type of potential result.

For some kinds of results, you can achieve precise assessments. For other kinds of results, you can't be as precise (but I will suggest ways to make reasonable estimates). Let’s begin with assessing your potential results in the more-precise type of situation: sales-related results.

The Value of Incremental Sales

For the value of incremental sales, you generally want to use the gross margin of the incremental sales.

Let’s assume that you started a new (incremental) advertising program, that it cost $50,000 in its first year, that it promoted $600,000 in incremental sales during the same year, and that the gross profit from these sales was $200,000.

If you subtract your incremental advertising dollars ($50,000) from the incremental gross profit generated ($200,000), you see that you have generated a net $150,000 of incremental operating profit.

In terms of operating profit, your return on investment (ROI) or return on marketing investment (ROMI) is $150,000 / $50,000 = 3 times the amount invested. ROI is usually stated as a percentage; your ROI is 300 percent.

A Mix of Products

In this example of assessing your potential results, I assumed that all the sales generated by your advertising had the same gross profit. However, in many actual cases you may generate sales of products or services with widely different gross profits. In those cases, you would need to average the gross profit numbers.

And I also assumed that all the sales generated were one-shot sales to existing customers. But it’s also important to determine whether your marketing program helped create new customers, because the value of adding a new customer can be significant.

The Value of a Customer

When assessing your potential results, be careful not to understate. The fact is, most marketers do understate (unintentionally) the profitability of their marketing programs.They make that mistake by thinking in terms of one-off sales, not repeat sales. They overlook the lifetime value of a customer. So, when you are assessing your potential results, remember to include lifetime value in you calculations.

In many industries – for example, catalog sales – repeat sales typically generate all the profit. In other words, many companies are willing to acquire new customers at a break-even cost, or even at a loss, in the expectation of making many additional sales to these new customers.

Now, this may or may not be typical in your industry, but I mention it here to demonstrate that many profitable companies stake their businesses on the predictability of lifetime value, and succeed by doing so.

Whatever industry you are in, the lifetime value of a customer to your company is the gross profit from all the purchases that customer makes, for as long as he remains a customer.

To calculate lifetime value, you need to know three numbers:

a. The average value of a sale.b. The average number of sales to each customer per year.c. The average number of years a customer stays with your company.

If your company doesn’t calculate and record these kinds of numbers, you or your sales manager may need to look back through the sales records for some raw data. You don’t have to look at literally all the records – just take a sample – say,

five percent – and extrapolate the numbers you find. Be sure to go back several years, because many of your customers may be long-standing customers.

Or, if these records are not available, you may need to wait a few years until you have accumulated some precise data.

The Calculation

Average value of a sale: If the average sale includes a mix of different products (or services), take a weighted average of the gross margins on the different products, and multiply this number times the average number of units in a sale. For example, if your weighted average gross margin is $3 per unit and your average sale is 100 units, the average value of a sale is $300.

Average number of sales per year, per customer: In many industries, customers buy several times per year. So, in your sampling, be sure to determine how many times your customers buy.

Lifetime: The average number of years a customer stays with your company.

Lifetime value equals the average value of a sale, times the average number of sales per year, times the lifetime in years.

For example, if the average value of a sale is $3,000, and the average customer buys four times per year for five years, then the lifetime value of a customer is $3,000 x 4 x 5 = $60,000.

A refinement

I’ve simplified this example in order to produce round numbers for discussion. If, when you are assessing your potential results, you want to be more precise, you can calculate the present value of the customer’s purchases over the lifetime, which in the example would yield a number lower than $60,000.

To get the present value, assume $3,000 received every three-month period, assume that there will be 20 of these three-month periods, assume a prevailing rate of interest per period.

Then plug those numbers into a financial calculator or a PC-based software package that can calculate present value.

A Pleasant Surprise

For companies who never calculated lifetime value before, the number is usually a pleasant surprise. Often it’s much higher than anyone assumed – especially in retail companies, where employees tend to underestimate the value of a customer who makes frequent small purchases. The purchases may be small, but of course they add up.

For example, many people patronize the same dry cleaner for decades. If a dry cleaner finds that his average customer stays for 10 years, his average customer could be worth more than $5,000 – even in this workaday business where a single transaction rarely exceeds $50.

This is why I say that, when you're assessing your potential results, do not overlook the lifetime value of a new customer that your program helped acquire.

The Value of a Prospect

From the lifetime value of a customer, you can calculate the value of a prospect. All you need to know is the closing ratio, a/k/a conversion rate.

The closing ratio for new customers is the number of new customers that your salespeople (or partners, or reps, or direct marketing programs, etc.) create per qualified prospect contacted.

For example, if your people close one out of four, your ratio is 0.25.To determine the value of a prospect, simply multiply the lifetime value of a new customer by the closing ratio. For example, if a new customer is worth $60,000 and the ratio is 0.25, then the value of a qualified prospect is $60,000 x 0.25 = $15,000.

The Value of a Lead

Now we can answer the most frequently asked marketing metrics question:

“How much is a sales lead worth?”

You’ve already gathered most of the numbers you need in order to answer this question. All you need now is one more number: How many qualified prospects do you get per raw lead? For example, if you get one prospect per ten leads, this ratio is 0.1.Multiply the value of a prospect by this ratio and you have the value of a lead. For example, if a prospect is worth $15,000, as in the example above, then a raw lead is worth $15,000 x 0.1 = $1,500.

This calculation, too, may be pleasantly surprising to many companies. Assessing your potential results can be an eye-opener.

Stick With It

I realize that these researches and these calculations may sound tedious. That's one of the reasons that so many markers give up on trying to prove their profitability.

But I urge you stick with it. Assessing your potential results and proving that your marketing program is profitable -- in real dollars, not just in customers' mental states -- could turn out to be one of the best things you ever did for your career.

Assessing Other Sales Opportunities

You now have the tools for assessing other sales opportunities. Not all of these opportunities exist in every company; we include them for completeness. You can

decide, possibly working with the sales department, whether assessing other sales opportunities is worth your time and effort.

Increasing the Lifetime Value

Generally speaking, it is worth your effort. That's because some of the opportunities can increase the lifetime value of a customer, which may add quite significantly to your company’s profits.

Larger Sales to Existing CustomersSuppose your marketing program helps your salespeople increase the size of the average sale (through more units per sale; or higher-ticket products or services; or upsells). This can be a very large contributor to profits, and often is a key element in the profitability of a marketing program.

If you increase the average sale by, say, 25 percent (with the same gross margins), you’ve increased the lifetime value of a customer. Assuming that the larger sales continue, lifetime value is now worth 1.25 times (125 percent) what it was before. Likewise, the value of a prospect is now worth 1.25 times as much as before, and so is the value of a lead.

More-Frequent Sales to Existing CustomersIf your marketing program can induce customers to buy more times per year, this also increases the lifetime value of a customer.If the norm is four times per year and you increase it to five, the lifetime value is now worth 1.25 times (125 percent) what it was before. The value of a prospect and the value of a lead are also worth 1.25 times as much as before.

Longer Customer RelationshipsIf your program can increase the length of customer relationships – by reducing attrition or by re-activating inactive customers – you can add to profitability. If, for example, you increase the average lifetime of a customer from four years to five years, you’ve again multiplied lifetime value (and hence the value of a prospect and a lead) by 1.25.

Combining the IncreasesOften, you can combine different results to produce geometrically larger results. That is to say, the various increases do not add; they multiply:If you increase the average sale by 25 percent and the frequency of sales by 25 percent and the lifetime of a customer by 25 percent, the combined effect of this across-the-board increase is not 75 percent, but 95 percent (1.25 x 1.25 x 1.25 = 1.95).If, instead of 25 percent, you achieve a 40-percent increase across the board, the combined effect is not 120 percent, but 174 percent (1.40 x 1.40 x 1.40 = 2.74).

Three More Sales Opportunities

Here are three more kinds of sales opportunities. These are generally less significant than what we’ve covered already, but they may be important in your situation, so I include them for completeness.

Sales of Higher-Margin Products or Services

Your marketing program may help sell higher-margin products or services. You can calculate the improvement if you know the margins involved.

For example, let’s assume for simplicity that your company is selling only one product, with a margin of 30 percent. If you replace that product with a new product, and the new product has a margin of 40 percent, multiply 10 percent by the sales volume to get the dollar value of this improvement.

Shorter Sales CyclesIf your company has a long sales cycle, and your marketing program helps shorten it (PR, especially, can help with this), you add to operating profit by helping the company recognize revenue sooner.To calculate the value of this improvement, you need to figure the gross profit on the accelerated sales, and the number of months or weeks you have cut from the cycle. Then you calculate the present value of having those gross profit dollars sooner.Another effect of a shorter sales cycle is that it may move a significant amount of revenue into an earlier fiscal quarter or fiscal year.

Increased Closing RatioWhen assessing other sales opportunities, you can also consider the closing ratio. It’s possible (although uncommon) for marketing to help your salespeople close more prospects. It’s uncommon because closing ratios depend very heavily on the individual salesperson’s experience level and skill; typically, each salesperson improves his ratio gradually over the years.

However, sometimes factors other than individual sales experience and skill are involved, and you may find, while assessing other sales opportunities, that your program does increase the closing ratio. You can readily calculate the value of this improvement. Determine the gross profit per year at the old (lower) closing ratio and the gross profit per year at the new (higher) ratio. Then subtract the old gross profit from the new gross profit.

If you can assume the improvement is “permanent,” you’ll want to extrapolate over several years.

At your particular company, assessing other sales opportunities, as I have described here, may be highly productive or only marginally productive. I suggest at least giving it a look and discussing it with sales. At the very least, the discussion may remind sales that the marketing group is always assessing other sales opportunities, in a sincere effort to help sales succeed.

Assessing in Special Situations

Assessing in special situations occurs when the raw data you need is not under your direct control, and you have to go and get it.

When the Data May Reside Outside the Marketing Department

For example, you may be assessing in special situations that involve people outside of marketing:

• Fewer product returns or fewer refunds for service errors• Reduced product or service liability• Prevention of crime against employees• Fewer accidents• Increased productivity per employee• Lower recruiting costs• Reduced employee turnover

If your marketing program is expected to help achieve any of these kinds of results, it’s usually quite easy to determine the value of a potential improvement.

Someone KnowsThat’s because someone in the company probably knows the value of an improvement, because he has calculated or estimated the (unacceptably high) cost of the current situation. Otherwise, the situation wouldn’t have come to management’s attention. So, find that person.

For example, if your company is trying to reduce employee turnover, someone knows what turnover is costing the company right now. Therefore, it’s a simple matter to calculate what a potential 10-percent reduction would be worth in terms of operating profit.

Remember: At this point, you’re still just trying to assess the value of a potential result. You’re not trying to determine if your program has achieved the result, or even if it can achieve the result. All you want to know at this point is how to calculate or estimate the value of a potential result.

Unique or Unusual Situations

In contrast to the previous example, you may be assessing in special situations that no one has figured out; where the company is pursuing a result it rarely pursues, or has never pursued before.For example, the company may want to enter into its first strategic alliance, and may want to use public relations to help attract other companies and to build the perceived value of a strategic alliance.

Or, a company that has never been boycotted may be faced with a potential boycott, and may want to use public relations or community relations to help head off the boycott. Other unique or unusual results could include:

• Additional distributors or licensees for your products or services• Additional suppliers whose products or services you can resell profitably• More-successful liquidation of unneeded assets (e.g., real estate, machinery, patents)• Avoidance of lawsuits against your company• Avoidance of regulatory action against your company• Quicker or less-expensive resolution of regulatory challenges• Avoidance of grassroots community action against your company• Avoidance of vandalism and sabotage

External Sources of InformationWhen you are assessing in special situations like these, you have three kinds of resources at your disposal:

1. Your fellow managers. Someone may have already begun making an estimate that has not yet come to your attention.

2. Secondary research. By using sources such as Factiva or by generally searching the web, or by hiring research experts, you may find articles, books and case studies on the situation in question. If so, you will be on your way toward a reasonable estimate. (PLEASE NOTE: I have no financial interest in Factiva.)

3. Primary research. This may be more time-consuming than using the other two sources. However, depending on the importance or severity of the situation, it may be worth doing. In this research, you directly contact companies who have faced the situation before. Naturally, you would approach only companies who are not competitors of your company.

It May Be Easier than You ThinkIf you approach other companies and ask for guidance, you can discover a gold mine of information and advice. Even without setting up formal benchmarking programs, you may be surprised at the willingness of strangers to help you. Often they are motivated by benevolence or just plain ego (pride in having solved a problem or achieved a result).

It is true that assessing in special situations is sometimes difficult and time-consuming, but often it is easier than you think. Every situation is different, so I advise you not to give up before giving it a try.

On the next three pages of this primer, we discuss in detail three kinds of tracking: Forward, Backward, and Special. When marketing people refer to tracking, they generally mean Forward Tracking.

Tracking Results Forward

"Tracking results forward" and "tracking forward" and "forward tracking" are various phrases for that which most marketers just call “tracking.” It is the most effective and accurate form of tracking. You start with the sales lead and track forward to the sale.

To use Tracking Results Forward, you build some kind of tracking mechanism into each tactic that you want to measure. This is exactly what direct-response advertisers do.Let’s take a look at some common tracking mechanisms, and then discuss how you can adapt them to your program. Some of these tracking mechanisms are recent, such as web analytics, and some are a century old, such as the coded coupon.Remember, this is just a sample of tracking mechanisms, for purposes of discussion. It is not a catalog of all tracking mechanisms.

Web Analytics Solutions

For any business you do on the web, your tracking can be almost fully automatic and almost effortless, thanks to web analytics solutions such as Google Analytics.

With these solutions, you can determine how much revenue (and hence profit) is generated by each piece of web content, each ad, and each email.

Response Cards

As you know, some hard-copy sales letters and catalogs include response cards, a/k/a bounce-back cards. If the reader wants to order a product or service (or receive more information before deciding), he mails back the response card. The card contains a code that identifies which promotion the reader responded to.

When the advertiser receives the cards, he can track which promotions produced which orders or inquiries. (Today, with the popularity of toll-free telephone numbers and the web, these cards are used less frequently than they used to be.)

Telephones, Departments, Coupons

A sales letter or catalog may direct the reader to call a toll-free number and have his credit card handy. The toll-free number is assigned only to that specific promotion, so when that line rings, the advertiser knows which promotion triggered the call.By the way, the popularity of this tracking mechanism was a major reason for the explosive growth of toll-free numbers.  

Similarly, a newspaper ad may direct the reader to call a certain local telephone number, or a certain extension; or to ask for a (real or fictitious) department or a (real or fictitious) person.

Or, the ad may direct the reader to visit a retail store and bring in a coupon cut from the ad (this mechanism was pioneered a century ago by advertising genius Claude Hopkins). Or, the ad may direct the visitor to ask to see a specific salesperson, or ask about a special offer by name. All of these are tracking mechanisms.

Because they use Tracking Results Forward, direct-response advertisers can precisely calculate the results of every promotion they run. They can also test different versions of a promotion. For more detail, see Tracking Codes and Split Testing and Rotation.

Borrow Ideas from the Direct-Response People

You can use the same method of Tracking Results Forward, even if your tactic was not specifically designed as a direct-response tactic.

A Simple But Effective Tracking SetupFor example, a large bank used a simple tracking technique to determine the impact of its minority outreach program, which included seminars, brochures and videos. The bank kept a record of each person who attended a seminar or requested a brochure or video.

Months later, the bank was able to compare these prospects’ names with the names of new customers. This comparison revealed which tactics introduced more customers to the bank.

Unless you are trying to track thousands of leads, a tracking system can actually be as simple as the one above. You literally could operate with pencil and paper if you wanted to.

Measuring Publicity vs. Advertising

You could also track leads that came from publicity, to distinguish them from leads that came from advertising. That's exactly what a large manufacturer did, by using a special 800 number in press releases.For more detail, see Track Press Releases.

Measuring the Effect of Speeches

Similarly, you could track the effect of speeches delivered by officers or (or technical specialists) of your company. To see how a large law firm did it, go to Track Creatively. This is another mechanism that's so simple you could run it with pencil and paper.

Don’t Be Intimidated – Tracking Can Be Easy

As you can see from these examples, Tracking Results Forward doesn’t have to be complicated or tedious. It’s often merely a matter of finding a way to capture prospects’ names. When you have these names on file, organized by tactic, you can do your analysis at any time. Your raw data is always at your disposal (why this is important).

Tracking Results Backward

Tracking Results Backward means you already have made a sale or gained a new customer and now you are trying to learn where that sale or new customer came from. Tracking Your Results Backward takes one of two forms:

First Form

The first form (which is widely used) is commonly known as “Point-of-Sale Tracking.” You have just made the sale, or are now making the sale.

For example, "Mary Smith," the chiropractor, in her intake questionnaire, asks the new client “How did you hear about us?”

In Point-of-Sale Tracking, you don’t need to have built a tracking mechanism into the marketing tactic and track the leads from that tactic. Instead, after the fact, you capture the tracking information directly from the customer.

Second Form

The second form of Tracking Results Backward (which is less-frequently used) occurs longer after the sale.

For example, I once worked with a consulting firm to help them set up a new marketing program and a simple forward-tracking system. I also suggested that, while they were waiting for some meaningful forward-tracking data to accumulate, the partners look back several years in the client files and record how clients had become clients.

Naturally, the partners easily remembered the source of many clients who had become clients as a result of personal networking by those very partners. (A usual occurrence in consulting.)

However, the records also contained a pleasant surprise: several clients had become aware of the firm by reading favorable magazine articles about the firm (the client files contained notes about inquiries that the articles had triggered).So, for the first time, the firm’s partners recognized that their modest publicity efforts over the years had actually been very profitable.

Recall that “Mary Smith” also used this form of tracking, when she looked back through her client files and tried to recall the source of each client.For more detail on looking through sales records, see Tracking Backward.

Strengths of Tracking Results Backward

You don’t have to plan ahead; you can set up a backward-tracking system when the marketing tactic you want to track is already in place and running. For example, years ago when the consulting firm had started its publicity program, they never even thought of tracking its results, much less set up a tracking mechanism.

Weaknesses of Tracking Results Backward

The key weakness of Tracking Results Backward is that sometimes people become annoyed when they are asked, “How did you hear about us?”The annoyance usually comes not from the question itself but from the wayit is asked (for example, too aggressively), or the timing of the question. As an example of bad timing, some online businesses ask the question “right before the submit button.”Another weakness is that people don’t always accurately recall where they heard about a product, service, company, job opening or other situation.

The Subliminal Power of PublicityThis difficulty of remembering is especially true for publicity. When people learn about something from publicity such as favorable articles or favorable reviews, they often recall it as word-of-mouth or general knowledge. This is the unique subliminal power of publicity: It often works so well that people don’t even know it is being “used on them.”

For example, even after a multi-decade avalanche of tourism publicity from Costa Rica, many people who decide to vacation in Costa Rica insist that they never saw any articles about the country. They recall that they heard about it from friends, or that they “just always wanted to go there.”

In other words, the subliminal power of publicity has a downside: the difficulty of measuring publicity by means of tracking backward. Whenever possible, it’s better to use tracking results forward – by generating and tracking inquiries.

Tracking in Special Situations Sometimes you find yourself tracking in special situations. By "special situations," I mean situations in which you can easily identify cause and effect without resorting to any formal tracking, whether forward or backward. Instead, you can reasonably assume that all (or most) of the results came from your tactic or program.

This assumption will save you a lot of work; all you have to do perform gross before-and-after measurements of the target result.

Preventing Electrocution

For example, an electric utility launched an advertising program to promote safety consciousness. The program warned contractors and homeowners about the dangers of accidental electrocution. During the years that the program was running, the number of electrocution accidents decreased significantly.

The electric company assumed that its safety advertising was the sole cause of the reduced accident rate. This was a reasonable assumption because: (1) No other major advertising or public relations program about safety was in place during the same period; (2) normally, human behavior does not change quickly over a large demographic base (in this case, the customers of the electric company).

A Garish Sign

Here’s a more mundane example of tracking in special situations. An apartment complex in Texas was suffering from a low occupancy rate. To attract new tenants, the managers placed a portable sign in front of the rental office, announcing a special reduced rate for all rents. It was one of those garish signs mounted on trailers (like this one).

Occupancy rates quickly increased. The managers could reasonably assume that the sign was the sole cause, because they didn’t change anything else during the period. They also knew that the walk-in traffic in their office increased while the sign was up. Naturally, many walk-ins spontaneously mentioned that they came in because they noticed the sign (a passive form of Point-of-Sale Tracking). But the managers didn’t need to track this data. They knew their hokey sign worked.

Retailing Lends Itself to Special Situations

In bricks-and-mortar retailing, tracking in special situations occurs often; during limited-time offers, clearance sales, and other one-shot events, you can usually omit formal tracking.

To measure the effectiveness of these events, you can of course opt to use Forward-Tracking mechanisms such as coupons. Or you can use Point-of-Sale Tracking. But normally you won’t need to bother. These events are so clear-cut that the results normally isolate themselves. Most retailers just watch the “blip” in sales or store traffic during the event, and that’s probably good enough for most results-measurement calculations of this kind.

One exception would be an event that you promote via multiple advertising vehicles. For example, if you’re running a special sale, you may want to know how many people came as a result of newspaper ads, versus radio commercials, versus store signage. In this case, you would use one or more forms of tracking, as we discussed before. Of course, in e-commerce, you have automated tools to do forward tracking, and so you use them.

A Word of Caution

Tracking in special situations is easy. You don't have to do formal tracking – you can just measure the results before and after your tactic or program.

But be careful. Make sure you have eliminated all other possible causes of the results. It’s easy to overlook causes, so you may want to “sanity-check” your assumptions with outside counsel. If your company uses an ad agency or PR agency, and you believe your agency people are objective in these matters, ask for their help.

If you don’t have outside counselors of this kind, at least test your assumptions with respected people in your network (remember that people who don’t work in marketing often notice things that we marketers overlook).

Now let’s move on to Optimizing Your Marketing Program to make it more profitable. This is where you get the real payoff from measurement. It is not uncommon for small businesses to double their marketing ROI in one year by using this method.

Optimizing Your Marketing Program

Optimizing your marketing program is the main purpose of measurement. If you’re using multiple tactics to produce one kind of result, measurement is the best way to decide how to allocate resources among these tactics.

Most marketing departments allocate resources based on tradition, inertia, guesswork, ego, politics, whims, imitation or conformity. Or, most of all, a fixed percentage of sales,They can’t optimize because they don’t measure.As a direct result, they unwittingly limit their performance, and sometimes miss enormous opportunities in the marketplace.

You Can Do as the Elite Marketers Do

But if you determine what’s working in the marketplace, optimizing your marketing program will be fairly easy and straightforward. You will be emulating elite marketers: companies such as Amazon and American Express, who have built optimization into their operating methods.

Optimizing your marketing program boils down to one task: keep testing the results of your tactics, and keep shifting resources from less-effective tactics to more-effective tactics. In the case of online advertising, the cost of testing is negligible, so companies in general tend to do it often.

However, in any one company, such as yours, the implementation can take many different forms and can proceed at different rates.

Commercially available software, such as Marketo’s Program Analyzer, may help you. PLEASE NOTE: I have not used or reviewed the product; this is not a recommendation of the product or an endorsement of the company. I have no financial interest in the company. I refer to the product here only to show that optimization software is available.

Some General Advice

Because I don’t know the specifics of your company or marketing department, I can’t give you specific advice for optimizing your marketing program. However, I can offer you some general comments and prudent guidelines.

The style and speed of optimizing your marketing program should be appropriate to:

The size of your overall marketing program: If you are running a large, comprehensive program, a re-allocation of resources from Tactic A to Tactic B may be a safely small percentage of your spending. Conversely, if Tactics A and B are your whole program, a change could be significant. Generally speaking, you should make moderate changes. It’s like pruning a bush; if you prune away too much of the bush at one time, the shock may damage the bush.

Your company’s market position: If you’re the market leader, you may be able to afford to make bigger or faster changes than a small challenger could.

Your corporate culture: If your company is (or you personally are) very risk-averse – if you place more value on avoiding mistakes than seizing opportunities – you may want take a gradual approach toward optimizing your marketing program. Conversely, if your company prefers to seize opportunities, you may want to move more boldly.

Start with a Pilot

Especially if your company has a well-developed (as opposed to new or small) marketing program, it is usually prudent to establish measurement and optimization systems in stages.

In other words, don’t try to measure everything at once, or change everything at once -- a well-established marketing program is probably doing most things well. Just select a few tactics and run a pilot. How you select any tactic is up to you. However, two good selection criteria are:

It looks like an easy tactic to measure: As we have discussed several times in the preceding pages, some tactics are easier to measure and some are more difficult. You can gain experience and confidence more quickly if you start with an easier challenge. Remember the Chinese proverb: “To move a mountain, begin by carrying off the small stones.”

It’s an important tactic to measure: You may have one tactic that’s so important that you want to tackle it first. That’s fine, unless it also appears to be among the most difficult to measure. You may want to gain some measurement experience before you change an important tactic that (by luck or by design) may be well-optimized already.

After you get your first round of meaningful measurement data, you can take your first crack at optimizing your program. Whatever your situation, err on the side of caution.

An Example of Caution

For example, if you have two tactics aimed at promoting one kind of result, you may find that the stronger tactic is much more effective than the weaker one. It would be tempting to just eliminate the weaker tactic and reassign all the funds to the stronger tactic.

Recall that “Dr. Smith,” the chiropractor, did this when she discontinued her newspaper advertising and put the funds into Yellow Pages advertising. However, her situation was fairly simple. Yours will probably be more complex.

On the first round, you may want to reassign only a portion of the funds, because: (1) The weaker tactic may in fact support the stronger tactic in some way; (2) you may find a way to significantly strengthen the weaker tactic, as you gain more experience.

Best Wishes!

I wish you great success with your measurement system and with your marketing program.

The next page summarizes how the content of this website relates to the wider topic of marketing research. The page is for your information if you have not studied or worked in marketing research before.

Advertising MetricsThis page discusses seven popular advertising metrics that measure what you did; that is, where and how you spent your budget.

Media planners use these seven metrics before a campaign. They also use them after a campaign, for analytical purposes. The metrics remain part of the permanent record of the campaign and help media planners make increasingly better decisions in future campaigns.

Types of Metrics

There are two types of metrics, with regard to Return on Investment (ROI) or Return on Marketing Investment (ROMI): Navigational Metrics and Evaluative Metrics.

Navigational Metrics help you increase your ROI/ROMI. Evaluative metrics help you measure your ROI/ROMI.

That is why you need to use both types of metrics. One guides you toward your goal and the other tells you when you have arrived. They work together.

Please note: For our purposes here, we will consider the two terms Return on Investment (ROI) and Return on Marketing Investment (ROMI) interchangeable.

Navigational Metrics

Navigational Metrics cannot, by themselves, measure profitability. However, they can help you steer your program toward higher profitability.

That is to say, they can help you adjust your program so as to more effectively gain the prospect's awareness, engagement, understanding, belief and favor.

These mental processes and mental states, in the aggregate, will indirectly result in higher ROI/ROMI (which you may or may not be measuring).

Navigational Metrics measure internal numbers as to how you spent your advertising budget and public relations budgets -- what your actions (outputs) were.Navigational Metrics also measure what your audience thought of your actions: all of the mental responses – but not actions – of the target audience.

Example of a Navigational Metric: Message Testing, the technique of trying out alternative messages on an audience sample before using messages in public.

It is powerful because one message can be much more effective than another; not just a small percentage more effective but sometimes twice or three times more effective -- or more. I have seen it myself many times, in large and small companies.

On the assumption that a more-effective message will, all other things being equal, result in more-effective ads (or press coverage) and lead to more sales, this will make you more profitable (or less unprofitable).

Here are brief descriptions of the seven navigational metrics with links to more detail:

First Four of the Seven

Reach

Reach-advertising is a measurement of the size of the audience to whom you will communicate (or to whom you have communicated) with your advertising schedule.

In other words, Reach is the total of the readers, listeners, viewers or surfers of every medium in which you will run (or have run) an ad or commercial.

Wikipedia has a detailed and helpful entry on reach-advertising. This is the first paragraph:

“In the application of statistics to advertising and media analysis, reach refers to the total number of different people or households exposed, at least once, to a medium during a given period. Reach should not be confused with the number of people who will actually be exposed to and consume the advertising, though. It is just the number of people who are exposed to the medium and therefore have an opportunity to see or hear the ad or commercial. Reach may be stated either as an absolute number, or as a fraction of a given population (for instance ‘TV households’, ‘men’ or ‘those aged 25–35’).”

Media planners use it as one of their planning tools. They try to balance it with Frequency (number of exposures) and do it all within the allotted budget.

Resources available to help in your calculation include rate cards and directories. SRDS displays a handy calculator for the relationships between Reach, GRPs and Frequency.After the fact, it is a measurement for reporting and analysis. It is a permanent record of where your advertising messages went.

Frequency

is the number of times your schedule was exposed to an average person or household during a given time period.

For example, if your commercials, due to repetition, reached a total of 30 million households in a region that has 10 million households, the Frequency would be 3.That’s my short definition of Frequency-Advertising, for the sake of conceptualization and discussion. However, the concept is actually more complicated than that.

Gross Rating Points (GRPs)

equal Reach times Frequency, expressed as a percentage.

GRPs measure the total of all Rating Points during an advertising campaign. A Rating Point is one percent of the potential audience. For example, if 25 percent of

all targeted televisions are tuned to a show that contains your commercial, you have 25 Rating Points.

If, the next time the show is on the air, 32 percent are tuned in, you have a total of 25 + 32 = 57, and so on through the campaign. The word "gross" reflects that the calculation double-counts (actually multiple-counts) the audience; that is to say, it is possible to reach a percentage higher than 100.

GRPs could also be applied to other media besides television: radio, print, billboards, the web, and so on. If you attach a United Way banner to your corporate headquarters building, and 3 percent of your target population drives by the billboard twice every day for 120 days, then GRPs = 3 x 2 x 120 = 720.

Weaknesses:

By itself, it provides no analysis – for example, it provides no evaluation of an outlet credibility with the audience. It counts each outlet in terms of total circulation, listenership, viewership, etc.

It can underestimate the value of a magazine that reaches a relatively small number of people many of whom are opinion-makers, fashion-gurus, and other thought leaders, or consumers who are avid participants in the kinds of products and services you offer.On the other hand, it can OVERestimate the value of a big-circulation magazine that does not reach many of those kinds of consumers. It's a matter of quantity vs. quality.It doesn't even mean that everyone you counted even saw your message. For example, many television viewers whose receivers were tuned to "your" program may have been in the kitchen or bathroom when your commercial was on the screen.

Target Rating Points (TRPs)

are related to Gross Rating Points (GRPs). A TRP is one percent of the specifically targeted audience, not the total audience, being reached by an advertisement.

That is to say, it is a Gross Rating Point times the ratio of the targeted audience to the total audience.

George Boykin of Demand Media explains what “target audience” means:

“Marketers commonly define target audiences in terms of demographic and psychographic profiles, and with growing frequency, even exographic profiles. Demographics describe ‘who’ your audience is in quantifiable terms such as age, gender, household income and education attainment. Psychographics and exographics attempt to explain the motivational ‘why’s’ of consumer behavior.”

“Media companies, such as A.C. Nielsen, use demographic data to define target audiences for TRP purposes, to the exclusion of psychographic and exographic data. In contrast, marketers must engage in primary research, such as focus groups, or resort to mining data stored in ‘big data’ warehouses to understand motivational issues that drive consumer behavior.”

From rate cards or directories, plus your own market research, you calculate the ratio of the target audience to the total audience in each market.

Suppose that your target audience consists of golfers, and that golfers make up ten percent (0.10) of the potential audience of a certain local television station.Similar to our discussion in the Gross Rating Points example, if 25 percent of all targeted televisions are tuned to a show that contains your commercial, you would have 25 GRPs. If, the next time the show is on the air, 32 percent are tuned in, you would have 25 + 32 = 57 GRPs. And so on, cumulatively, through the campaign.

At any point in the campaign, the total TRPs equal the total GRPs times the ratio (0.10) of the target audience to the total audience. So, for example, 57 GRPs equal 5.7 TRPs:

57 x 0.10 = 5.7

If you want more detail, look at this step-by-step guide to calculating Target Rating Points, from Cynthia Myers of Demand Media.

Weaknesses

By itself, it provides no analysis – for example, it provides no evaluation of an outlet credibility with the audience. And it does not give you a rich profile of your typical prospect.

Last Three of the Seven

Impressions

It means one exposure of an ad or commercial to an individual or household. A "gross" version of this number is the total number of exposures during a campaign. This number includes duplications, or multiple exposures to the same individual or household.

Media planners calculate the number by referring to rate cards from specific outlets or to directories such as SRDS or Cision or Alexa.

After the fact, it is a measurement for reporting and analysis. It is a permanent record of where your advertising messages went.

An impression is the display of an ad to a user while viewing a web page. A single web page may contain multiple ads. In such cases, a single pageview would result in one impression for each ad displayed. In order to count the impressions served as accurately as possible and prevent fraud, an ad server may exclude certain non-qualifying activities such as page-refreshes or other user actions from counting as impressions. When advertising rates are described as CPM or CPI, this is the amount paid for every thousand qualifying impressions served at cost.

Weaknesses

By itself, it provides no analysis – for example, it provides no evaluation of an outlet credibility with the audience. It is important not to make this metric do more than it is meant to do.

In general, always keep in mind that navigational metrics, although they do not measure your results, are useful and even essential to improving your results.

Cost per Thousand (CPM)

is the cost to reach 1,000 people or households.

Cost per Point (CPP)

is the cost to reach one percent of the audience.

Evaluative Metrics

To measure your actual profitability, you need evaluative metrics. Evaluative metrics can measure profitability; they can identify increased revenue or decreased costs that resulted from your program. That is to say, they can put a dollar value on your program.

Generally speaking, navigational metrics are different in advertising and PR, but evaluative metrics are the same for both advertising and PR.

PR Metrics

There are five popular PR metrics. These measurements help you analyze the media coverage that your public relations program stimulated.

Clip Counting

Clip Counting is the simplest form of PR measurement. It's nothing more than counting all the editorial coverage (news items, feature stories, guest editorials, reviews, roundup stories, buyer's guides, etc.) that mention your company, product or service. This coverage includes print media, radio, television, web sites and social media.

Smaller companies tend to do the clipping work in-house; the PR person or staff watches a selected portion of the press for articles. Larger companies tend to use an outside clipping service such as Burrelles Luce (also called a media monitoring service).In-house Clip Counting is less expensive (if you ignore the cost of your time), but it misses a lot, because you can't possibly scan every news outlet. Clipping services are expensive, but they are much more thorough.

Clipping services clip literally every article they see that mentions your company name in any way. For example, if an automobile accident occurs near your headquarters building and your company's name is mentioned in a newspaper

story, you will receive that clip (and pay for it), even though you probably wouldn't have bothered to clip it yourself.

Most PR people forward copies of selected clips to senior managers and other interested people within the company. To avoid information overload, they normally omit clips that mention the company only incidentally. Some PR staffs are even more selective: they forward only the most significant articles, omitting many roundup stories, buyers' guides and other articles – even if positive.

Forwarding clips to management has two major psychological benefits. The first benefit is ego gratification: managers usually love to see their companies (and especially themselves) mentioned in prestigious newspapers and magazines and on radio and television.

The second benefit is immediacy: if your company is mentioned positively in an article, management usually enjoys seeing the coverage right away.

Weaknesses

As a marketing metric, this technique has several weaknesses. It ignores the length of each article and its placement in the publication.

Media Impressions

In addition to clip counting, many PR people tote up Media Impressions (analogous to impressions in advertising). In other words, the PR people do a simple calculation of how many people were theoretically reached by the media coverage, via any print or electronic outlet.

I say "theoretically" because, just as in advertising impressions, this metric counts a lot of people who did not actually read the coverage (and people who did not even glance at the magazine page where the coverage appeared, or even at that issue of the magazine).

It also counts a lot of people who were out of earshot when the coverage was on the radio or television.

Use each news outlet circulation number (or listenership, viewership, audience, or number of subscribers or members).

For example, if an article about your company, product or service appears in a monthly magazine that has 1.8 million readers, than 1.8 million people may have seen the article.

This calculation assumes that 100 percent of the readers saw the article, but that assumption is never accurate.

For example, a subscriber may have skipped that article, or might have been on vacation and missed the whole issue. The same goes for radio and television – someone might have been out of the room when "your" program was on.

Some PR people also factor in a "pass-along" rate. The pass-along rate is the number of people who see each issue, including the subscriber/purchaser and every other person his copy is passed to before it is discarded.

Estimates of pass-along rates run as high as 5 (five readers per copy).So, a magazine that has a circulation of 500,000 and that claims a pass-along rate of 5 would have a presumed total readership of 2.5 million.

Often a magazine will state these numbers on its rate card. However, many PR people are skeptical of pass-along rates; in their reports to management, they conservatively use only the circulation numbers.

To calculate total Media Impressions for one month, you record the specific outlet's circulation number or total readership number for each clip that appeared during that month. This gives you an estimate of how many readers, listeners, viewers or surfers may have seen or heard your coverage that month.

Resources available to help in your calculation include rate cards from specific outlets and directories such as Cision and SRDS and Alexa. Keep two things in mind:

1. This is a potential readership number; the actual readership will be less.2. The number may have been inflated by double-counting; for example, a

reader may have seen your coverage in several magazines.

Like Clip Counting, it's better than nothing. All other things being equal, and assuming positive stories, it's better to have more impressions than fewer. Calculating Impressions is more useful than just Counting Clips, because the calculation includes the circulation of each outlet.

For example, if you merely count clips, an article in a suburban weekly newspaper appears to be as important as an article in The Wall Street Journal; but if you calculate Media Impressions, the Journal piece would count for much more (as it should, unless your business is strictly local).

Calculating Impressions is also an easy way to summarize your clips. It gives you some numbers to show to your management.

Weaknesses

This technique has the same kinds of weaknesses as Clip Counting, because the numbers ignore article length and placement, appropriateness to the target audience, and message content. And, of course, the numbers do not measure audience behavior or your profitability.

Accuracy of Coverage

Accuracy of Coverage is not one metric but a combination of component metrics. PR people differ about what those component metrics should be and about how they should be combined and used. The aggregate public also has opinions on accuracy, but that is a separate topic; here we are speaking about PR peoples' opinions only.

That is to say, this is one of the most controversial subjects in public relations. That's unfortunate, because obtaining accurate media coverage is important to most businesses.

So, we have a messy topic and a lot of differences of opinion. However, my mission in this web site is to simplify everything for you and to introduce you to the most important marketing metrics. And so, I will attempt a simple summary of the topic of accuracy of coverage.

The basic issues include: whether reporters have seen/heard, understood, believed and respected your messages; and whether reporters are treating your messages fairly – especially in the context of how they are treating your competitors' messages.Some of the key points are: whether "your" stories appear in the media; how often; the prominence of "your" stories when they do appear in the media; the presence of your core messages; the absence of your core messages; inaccuracies that appear to be ignorance or lack of understanding (as opposed to typos and oversights); and the general tone of the coverage.

Unless you have a large and sophisticated PR department, I would suggest that you make use of outside services. There are services that will monitor your coverage for you and services that will analyze your coverage. Some of these services have proprietary methodologies and software.

There are also specialist consultants who will work with you and tailor their expertise to your specific situation. I recommend these for most organizations.Consultants typically offer content analysis and related types of analysis. If this interests you, go to Content Analysis for details.

This is an important navigational metric. If you speak to veteran PR people, you will hear many stories about reporters who, with no apparent malice, caused a lot of damage just through ignorance or misunderstanding. And you will also hear stories in which a competent analysis of the coverage enabled PR people to "educate" those reporters. I have seen several of these "happy endings."

Also, you can use this metric to diagnose your publicity program and prescribe changes, often quite precisely.

Weaknesses

It's expensive. Competent consultants deserve substantial fees; and the analysis is rarely a one-time affair.

Content Analysis

Content Analysis drills even deeper than Accuracy of Coverage; it identifies issues and messages and often includes rich detail. It produces reports that can capture the attention of senior management (or a client) and can spark discussions of PR strategy and long-term PR goals. In part for these reasons, it is a popular tool among PR people.

Content Analysis is a tool for identifying the issues or messages that appear in a defined amount of media coverage. It may also involve analysis of frequency, prominence, accuracy and tone of coverage – or even more. And it may involve analysis of long-term trends in the coverage of your industry and company.

First you define the sample: which media and what period. Then you (or your consultants) read every word of the coverage, record the issues and messages, and summarize. Usually, you repeat the process to evaluate your improvement.This tool can help you diagnose your publicity program and prescribe adjustments. For example, you can determine that you should spend more time educating certain reporters, because their writing indicates that they aren't aware of -- or don't understand -- your key messages.

And you can show impressive analytic charts to your management. In some corporate cultures, that is crucial.

Advertising Value Equivalency (AVE)

This is a very controversial metric; it is an attempt, in good faith or otherwise, to put a dollar value on media coverage. Although it appears to be an evaluative metric (it "measures" PR in dollars), the dollar-denominated calculations have nothing to do with profitability, and can confuse or mislead senior managers who are not familiar with marketing metrics.

To calculate the AVE for one month, measure the space (column inches) occupied by a clip (for radio and television coverage, of course, you measure time). Then multiply the column inches (time) by the ad rate for that page (time slot).After you do the same for every clip for that month, add up the costs to get a total cost. The total cost is the cost of the ads that theoretically could have occupied the space (time) occupied by all your editorial coverage for that month.

Advertising Value Equivalency is a navigational metric: it can provide rough measurements that can help you navigate your PR program toward higher profitability.Many PR people incorrectly assume that AVE is an evaluative metric. That is to say, they assume that it can help them measure the profitability of their programs, because it appears to show a "dollar value" of publicity.

But the "dollar value" is not a measurement of value; it is a measurement of cost.True evaluative metrics do measure dollar value: the value of increased revenue or the value of reduced costs that resulted from your publicity.

Weaknesses

Moreover, even as a navigational metric, AVE has several weaknesses.

AVE numbers can drastically overestimate or underestimate the "equivalency" in "advertising value equivalency."

Consider that a highly positive article can be worth much more than a single advertisement in the same space.

Measuring What They Thought

There are several marketing metrics for measuring What They Thought, or what your target audience thought of your communications.

This category of metrics is concerned with questions such as:1. Did they notice your ad?2. Did they remember your ad?3. Did they understand the messages in your press coverage?4. Did they believe the messages?

The category does not include any actions (behavior); for example:1. click-throughs2. telephone calls to your toll-free numbers3. online views of your product demo4. online purchases5. in-store purchases

So, in general, it includes what they thought (mental states), but not what they did (actions), as a result of your communications.

Two Distinctions

Let's notice two important distinctions between measuring mental states and measuring actions:First, when you measure mental states, you usually measure the mental states of aggregates, not individuals.For example, if you take a survey and ask people which type of car they prefer, you are interested in the aggregate numbers and percentages, not in the opinion of any one person whom you surveyed.In contrast, when you track the actions of members of your target audience, you are very much interested in individuals, for the purposes of tracking what they did later.

For example, if a prospect responds to an ad by calling your 800 number and requesting an information packet to be mailed to him, or clicks your web ad and downloads more information, you want to know whether that particular person buys something, because the gross profit from his purchase will be part of the ROI from that ad. And you want to give all the due "credit" to every ad.Second, measuring mental states cannot help you calculate ROI; it is navigational, not evaluative.

Measurement Tools for Mental States

There are several tools and methods for measuring mental states. For example, the Burke Test measures day-after recall of commercials. Starch Tests measure recall of print advertising.

Specialized equipment for measuring Eye Movements can tell you a lot about how customers pay attention to (or ignore) your ads, commercials, web pages, product packaging, and retail displays – and tell you with accuracy and precision.

Message Testing enables you to privately try out a set of messages to determine the most persuasive message in the set and then use that one in public.

An Editorial Survey enables you to find out what editors (or other influencers such as industry analysts) know about your company, product or service.

The next category is What They Did, or the actions that people in your target audience took as a result of seeing or hearing your communications.

Their actions -- not their thoughts -- determine your company's return on investment.

Measuring What They Did

Here are various metrics for measuring What They Did: the actions taken by members of your target audience, as opposed to What They Thought.

The actions might include, for example:

1. asking for more information2. subscribing to a periodical3. purchasing a product4. referring a friend or business associate5. agreeing to be a reference account

They also might include the reduction or elimination of costly behavior such as:

1. accidents for which your company would have been liable2. boycotts of your company's products

Unlike the measurement of mental states, the measurement of behaviors is evaluative – it can help you measure your profitability (return on investment). That is to say, it can tell you the value of the increased revenue or decreased costs, from which you can calculate the incremental gross profit and the ROI that resulted from your communications.

Tools for Measuring What They Did

Some surveys, such as Readership Surveys and Public Surveys, can give you (rough) results numbers.For example, you can ask people if they bought your company's MP3 player as a result of reading an ad, or stayed at your company's flagship hotel as a result of seeing reviews or other favorable editorial coverage.

In a related way, you can survey your customers and ask them how they decided to buy your brand (Tracking Backward).

The accuracy of these tools is limited, because people often forget why they picked a brand, or they subconsciously suppress the knowledge that they were swayed by "PR," or other reasons.

In some cases, you can use Isolation to identify the cause of a purchase or other result.

If, for example, you operate a small retail store, and you place an ad in the local newspaper announcing a special, one-day-only offer, you can later watch the "blip" in your sales and attribute it to that ad. Obviously, this works only in fairly simple situations.

Isolation

Isolate the Cause is a simple evaluative method in which you introduce one new tactic and (temporarily) leave all other tactics unchanged, so that you can attribute any increase in results to the new tactic. It is primarily for special situations as opposed to continuous use.

For example, a "bricks-and-mortar" retailer with one location is planning to run a clearance sale on Makita power tools. He wants to use this opportunity to test the "pulling power" of a new suburban weekly newspaper.

He makes a single insertion in the paper, announcing the special event. He announces the special event only via this one ad – for example, he does not put up any in-store signs or send out post cards.

And he makes no change in his generic advertising. For example, he does not change his regular radio ad to mention the special event.

Then, he watches the "blip" in sales or store traffic during the event. That is to say, he looks up his normal store traffic for that day of the week and time of year, and subtracts it from the traffic he recorded during the special event. He also notes the increase in sales of Makita tools.

In this way, he can, with rough but useful accuracy, attribute the increased traffic and sales to the ad in the suburban weekly. Notice that he did not need to use any tracking mechanisms such as "10% additional discount with this coupon" or "come in and ask about our Makita clearance." Of course, in e-commerce, you have automated tracking tools in place, and so you use them.

Here's an example of using isolation to measure a program of promoting safer driving (cost control):

A manufacturer opened a large office in a quiet suburban neighborhood. Although the company had conscientiously cooperated with the town to place traffic signs at the approaches to the office, many employees were driving too fast on the way to and from work.

Understandably, the company's neighbors began to complain. So the company launched a corrective program, consisting of:

Internal communications reminding employees that they must drive safely in the surrounding residential neighborhood.

A community relations program that informed the neighbors of the company's efforts and encouraged the neighbors to report any violators.

This program was inexpensive but very effective. It achieved two results:

An overall improvement in employees' driving habits (at least near the office). Community awareness that the company was paying attention to complaints

and taking them seriously.

Because the company could reasonably assume that no other major changes occurred during this period, it could attribute the improved driving habits to the corrective program.

Best Way to Measure

By far, the most accurate way to measure how much your ad/PR program affected what people did is to employ Tracking Forward, which consists of building tracking mechanisms into your vehicles before the fact.

In your offline ad/PR, you put a code in every ad, coupon, response card, etc., so when a prospect buys, you know what he has responded to.

Split-Testing

In split-testing, you simultaneously run two (or more) versions of your ad and track the results to see which ad "pulled" better. In rotation, you run one version at a time.It is not uncommon for one version of an ad to pull twice or even three times as much as another. This is why smart advertisers take the time to do the testing. It can gain them thousands or even millions of dollars more in profits (ROI).

For discussion, let's consider a print ad. You produce two (or more) versions of your ad, identical in size and shape but differing in one way – the element you wish to test. For example, you might be testing two headlines to see which one works better. Or two opening statements.

The most common number of splits is two; for this reason, a split-test is also called an "A/B split" and an "A/B test." In each of the two versions of the ad (A and B), you include a tracking code with a suffix indicating the version number.For example, a coupon in your ad could include a code such as "LAT20161109A" for "Los Angeles Times, November 9, 2016, Version A." Or, if you have been using sequential integers as tracking codes, the code can be as simple as "371A."When the press is printing the page that contains your ad, it alternates between your Version A and your Version B. If a newsstand gets 50 copies of the paper, 25 copies will have Version A and 25 will have Version B.

Split-Testing can give you a precise and highly accurate comparison of the results from one ad version versus another. Because split-testing it is a long-established technique, large newspapers and magazines usually have it down to a routine.

Rotation

You choose the publication and the size and shape of the ad. You write two ads, both the same size and shape. In a daily newspaper, you run Version A on one day, Version B the next day, Version A again on the third day, and so on.

In each ad, you include a tracking code to indicate the publication and the date.

It can give you a precise and highly accurate comparison of the results from one ad version versus another. It is an alternative when split-testing is not available.

Weaknesses

Rotation delays your measurements -- especially when your ad is running in a weekly or monthly.

In addition, the accuracy of your testing may be reduced; for example, your audience may be distracted by current events from one week or month to the next.

Return on Investment (ROI)

Return on Investment (ROI) or Return on Marketing Investment (ROMI) equals the gain from a program minus the cost of the program, divided by the cost of the program.

ROI = (gain - cost) / cost

For example: Let's assume that you started a new (incremental) advertising program, that it cost $50,000 in its first year, that it promoted $600,000 in incremental sales during the same year, and that the gross profit from these sales was $200,000.If you subtract your incremental advertising dollars ($50,000) from the incremental gross profit generated ($200,000), you see that you have generated $150,000 of net operating profit.

Stated differently: the effect of your advertising added $200,000 to operating profit, and the cost of your advertising subtracted $50,000 from operating profit, for a net increase of $150,000.

Your ROI is($200,000 - $50,000) / $50,000 = 3 = 300 percent

In other words, on average, each dollar you spent on the new (incremental) program brought in three dollars of profit.

For clarity of presentation, we usually express ROI as a percentage. So, in this case, we say "300 percent" rather than "3."

Keep in mind that a "300 percent" return on investment means the company received revenues of 300 percent of its investment, plus the return of the investment itself. Therefore "300 percent" means it quadrupled its money.

Similarly, "200 percent" means it tripled its money, and "100 percent" means it doubled its money.

Why We Use Gross Profit in the Calculation

Some marketers use sales revenue to measure ROI. But it is much preferable to use gross profit (also called gross margin).

Why? Because if you use gross profit, you will be speaking the conservative language of your CEO and CFO.

Here is a detailed example:

Let's say you have invested $100,000 in a campaign and you have identified $500,000 in incremental sales that resulted from that campaign. You can prove it from the leads you have tracked. That's good.

But if you calculate ($500,000 - $100,000) / $100,000 = 4 (an ROI of 400%), you will be overstating your ROI.You are ignoring the cost of goods sold (COGS), also called "cost of sales." As the accounting world sees it, your company's incremental gain from those sales is this:

Revenue - COGS = Gross Profit

So, to talk the language of your CEO and CFO, you need to know the gross margins on the kinds of items sold (which you can probably get from Sales or Accounting). Then, you can make a calculation like this:

Sales revenue ($500,000) minus COGS ($200,000) equals gross profit ($300,000).Gross Profit minus the Cost of Your Campaign, all divided by the Cost of Your Campaign, equals ROI.

($300,000 - $100,000) / $100,000 = 2

The ROI is 200 percent.

So, whenever you measure ROI, inquire into the COGS. In exceptional cases, such as the sales of services that have no direct costs, you won't have to figure in any cost. Be guided by what Accounting says.

15 Metrics Every Marketing Manager Should Be TrackingWritten by Rebecca Corliss | @repcor

A marketer who is skilled at using data -- whether you're entry-level or a CMO -- is a powerful force. Having data at your side will help you make smart decisions, suggest fast changes when necessary, and find opportunities for different marketing channels and teams to work together. Who doesn't want that?

Quite often, however, even good marketers are in the business of only monitoring the basics:traffic and leads. But there's a substantial world beyond those important yet simple measurements. In fact, you can go much deeper into your data to see how certain marketing components are working together, learn what improvements can be made to better your marketing, and avoid some serious pitfalls before they happen. All you need is to have your marketing metrics list ready, and the tools to get started.

So to help you get started, here are some of the key marketing metrics and reports you should be analyzing if you're looking to advance your marketing game. It'll help you strengthen your analytical tool belt, and run marketing programs that work smarter -- not harder -- for your business. You ready? Let's go.

Goal Setting and Progress Tracking The first few sets of metrics and measuring methods are to help you (you fearless marketer, you), stay ahead of your lead generation goals so you can have a solid month.

1) Leads Waterfall

Wouldn't it be great if you knew at the start of every day if you were on track to meet your leads goals for the month? Well that's exactly what a leads waterfall graph is for! This chart helps you guide your progress by visualizing what you need to achieve on a day by day basis. As your month progresses, plot what you actually achieve each day to compare your results to your goal. Now you can catch yourself when you're falling behind the first day it happens, so you can react quickly to pick up the pace. If you're a HubSpot customer (in fact, with closed-loop marketing software all of the metrics recommended in this post will be much simpler to get), you can simply input your numbers into the software to get a graph like this that automatically updates:

If you're not using HubSpot software, you can still keep track of this number using Excel. We've written a blog post that tells you how, which you can read here.

2) Traffic Waterfall

The same concept as above can be used for traffic, which is important if you hope to achieve a particular leads goal. Use a waterfall to monitor your traffic growth closely. Again, if you fall behind, you can act quickly, perhaps by creating content that will draw more readers in at a faster rate.

3) Average Lead Close Rate

Do you know the average rate at which your leads close? You should track this often, I recommend on a monthly basis. Why is this number helpful? It will help you monitor the quality of your leads at any given time. If it's high, you're attracting high-quality potential business. If that close rate drops, you might not be attracting the right people.

4) Average Leads Per Business Day Month Over Month Growth

Lots of marketers track month over month growth, but fewer track lead per business day month over month growth. So how is that different, and why might that be important? Well, not every month is the same length! In other words, this metric helps you measure growth more fairly by drilling down to how much you can produce in a single business day.

For example, if you generated 300 leads in January, and your boss tells you to maintain that same about of lead generation in February, could you relax that month? Unfortunately no -- that actually requires 15% growth in average leads per business day in order to maintain 300 leads. In other words, you need to achieve the same results in 19 days as you did with 22.

Channel Effectiveness This next section is to help us ensure we're closely monitoring how well each specific channelis performing. A channel in this case (no, not ESPN) is a lead source. So "social media," for example, is a channel just like "SEO" is a channel. By separating these channels individually, you can get some really interesting insights into which are working best for your business, so you know if you're investing in the right sources.

5) Month-to-Date (MTD) Goal Per Channel

How closely are you measuring the growth and progress of each of channel? For example, are you on a mission to scale social media as a lead generation channel? Or maybe email marketing? Let's say you set a goal to generate 100 leads via social media in March. By using your handy dandy leads per business day metric, you can set daily goals to help you there. This is a numerical-only version of the waterfall chart above, but it could also easily be graphed to help you have a visual representation.

This metric is also a great tool to incentivize, say, your blog team to hit a lead goal for their own channel. Now it's easier for them to do it, because they can actively track their daily progress.

6) Close Rate Per Channel

Every marketer should understand what channels work best for their business from a customeracquisition standpoint. Maybe SEO is your best volume-producing lead generation channel for your business, and social media is one of your smallest. Well, regardless of lead volume, it's possible that social is driving more customers for your business! How, you might wonder? Perhaps the close rate of leads generated via social media is significantly higher than leads generated via SEO ... so much so that SEO's volume isn't enough to make up the difference. That high close rate is also a very strong indicator of the quality of those leads coming from that channel. In other words, do more on that channel! It's your sweet spot.

7) Paid vs. Organic Lead Percentage

Lots of marketers group their channel analysis into larger buckets -- for example, "paid" and "organic" might be separated for analysis. The paid bucket is any marketing that you spend money on (aside from employee time), like social advertising, sponsored newsletters, etc. Organic is the opposite; it's all leads that you generate without cost other than your team's time. Blogging, SEO, social media, and email marketing fall into that bucket.

So if you're a marketing director using both of these "types" of lead generation, you probably want to keep a close watch on how much of your leads are coming from one bucket over the other. You might also set a goal to decrease paid channels as a lead source over time. Measure what percentage of your leads come from each bucket to get a sense for how your organic efforts are working for you, and if you are scaling to reduce your dependency on advertising.

Content Effectiveness How do you measure the impact of a blog post? Or an ebook? How do you know if the effort and time you put into that piece of content ... well ... paid off? Measuring the impact of content is a tricky, tricky skill, but it can absolutely be done. Below are a handful of wonderful metrics to let you know if the stuff you're making is paying off.

8) Leads Generated Per Offer

One great use of content, particularly premium or long-form content, is to gate it behind alanding page to encourage your visitors to fill out a form. That content is often called an offer, because it's what you are offering on that landing page. But how do you know if that offer was worth creating? Simple! By tracking how many people filled out that particular form on the offer's landing page. Now that you have that number, how does that lead volume compare to other offers of yours? Knowing that will help you determine how effective different types of offer content are to your marketing efforts.

9) Landing Page New Contacts Rate

So we're all comfortable with landing page submission rate, or the rate at which landing page visitors fill out your landing page form. But how can you differentiate your repeat form-fillers from your newcomers? Well, new contacts rate is a great place to start! This metric is a wonderful tool to let you know the percentage of new people you're attracting to your business. In other words, what is the rate at which new contacts only are filling out your form? This is a much better gauge of whether your content is helping you attract a new audience that you can do business with.

10) Call-to-Action Clickthrough Rate

Let's step back for a moment ...  how do potential leads get to your landing pages again? Ah yes! Calls-to-action (CTAs)! You know, those little mini "ads" for your best content on your website that guide people to the content on your landing pages. By monitoring your call-to-action clickthrough rate, or the rate at which people visit a page and then click on the page's CTA, you'll be able to understand how valuable that offer is to incoming traffic.

It's also important to note that sometimes, a CTA's performance can be optimized simply by updating the CTA itself. So it's wise to test CTA variations like color, text, and position before you decide to change your entire content strategy.

11) Traffic-Driving Keywords

Here's a hat-tip to the marketers who love SEO. Another way to evaluate if your content creation is impacting your business is by tracking how well relevant keywords related to your business are performing in search.

But wait -- we don't necessarily care about rank. This metric evaluates keyword performance based on the traffic that's coming to your content via those keywords. Now what should you do with this information? If you have many traffic-producing keywords, you've done a great job creating a piece of content that has received significant links and shares, helping it perform better in search engines. Create similar and even stronger content to help your goals.

Marketing Qualified Leads Say what now? For those of you who are not measuring qualified leads (MQLs), or have not defined what a marketing qualified lead is for your business, here's the short answer: a marketing qualified lead is a lead that is ready to be rotated to Sales. There could be many ways to determine which leads are MQLs. Your company might decide a lead is marketing qualified after it takes a certain combination of actions -- like filling out a form, visiting your website five times, and visiting your product page. Or you might decide that a lead is an MQL once it requests a demo. It's up to you. The purpose is to know what leads are the most sales-ready so you are passing on the hottest ones to your sales team. Now let's measure them.

12) Total MQLs Per Month

Now that we understand what MQLs are, this is easy! How many of these MQLs are you generating month over month? Is it increasing? (That'd be nice.) This is a good metric to know if you're helping your leads get to the "marketing qualified" stage via nurturing and more sales-driven content. You could also look at this metric more closely by evaluating average MQLs per business day.

13) MQLs Per Channel

It would also be great to know if a particular channel is a strong source of MQLs for your business. How many MQLs do you get from your blog versus email marketing? Maybe you'll learn that one channel is a better source for generating newer leads who are still getting to know your business, but another is great for nurturing to the MQL stage. This metric would help you determine that.

14) Percent Leads That Are MQLs

Are more leads being nurtured into MQLs over time? Or is your business struggling to nurture your leads into MQLS? By monitoring what percentage of your leads are MQLs over any given time, you'll be able to understand how well MQL generation is working compared to lead generation. This is another great metric to track month over month. Ideally, the MQL percentage would grow over time while overall lead volume is increasing. That's the dream, baby!

15) MQL Conversion Rate Per Offer

This metric is your tool to measure both MQL conversion and content effectiveness. Say what? Let's back up. Ideally, after someone converts on an offer's landing page, you'd then guide that person through the steps that would (hopefully) turn them into an MQL. So in the event that anyone who requests, say, a free demo is an MQL for your business, you'd want to guide your new lead to a form that lets them request a free demo.

Now that we understand that, let's dig into this "MQL conversion rate per offer" metric. This metric tells you at what rate a person becomes an MQL, per offer. So if 20% of leads became an MQL after attending your webinar, but 10% of leads became an MQL after downloading your ebook, you would say the webinar has a higher MQL conversion rate. How is this helpful? Over time, you can learn what content is the best tee-up for a strong MQL opportunity.

Metrics make the marketing world go round, and there are more excellent ones to look at outside of the ones presented on this list. So share what metrics you measure in the comments, and keep sharpening your analytical chops so you can make the smartest decisions possible for your business.

Love marketing analytics yourself? What are your favorite marketing metrics to follow?