While quantum physics deals with discrete, indivisible units of energy called quanta, marketing programs deal with concrete, divisible units of measurements called metrics. It’s a rabbit hole all folks in marketing need to know how to go down to pull out what they need.
No organization can continue to spend on a marketing effort without knowing what’s working and what’s not. Measuring marketing program successes or product launch failures give organizations the metrics to control marketing spend so they can continue to invest in what’s working and adjust what’s not.
Data-driven marketing improves efficiency and effectiveness of marketing expenditures across the spectrum of marketing activities from branding and awareness, lead generation to loyalty, and new product launch to Internet marketing. In 1990, Gary Lilien and Philip Kotler came up with the ROMI marketing model (return on marketing investment). The term became main stream in 2002 when Gary Powell wrote the book, The Return on Marketing Investment.
The formula for ROMI is:
[Incremental Revenue Attributable to Marketing ($) * Contribution Margin (%) – Marketing Spending ($)] /Marketing Spending ($)
Still confused about how to calculate ROMI? Microsoft Office now has an ROMI template to assist you in this calculation.
New Marketing Metrics
As marketing campaigns have become more technologically sophisticated and digitally measurable so have the metrics to prove or disprove them. Four new marketing metrics are being touted in the book, Data-Driven Marketing, which was voted the best marketing book in 2011 by the American Marketing Association.
To shine in the eyes of your CEO and CFO, integrate these metrics and formulas into your day-to-day marketing practices.
- Profit– calculated by taking gross sales minus expenses (standard on a P&L statement)
- Net Profit Value (NPV)— NPV is a way to decide whether or not to invest in a project by looking at the projected cash inflow and outflow. See the example below.
Suppose we’d like to make 10% profit on a three-year project that will initially cost $10,000.
- a) In the first year, we expect to make $3,000
b) In the second year, we expect to make $4,300
c) In the third year, we expect to make $5,800
So the NPV is $3,100 because your company would make $13,100 off a $10,000 investment.
- Internal Rate of Return (IRR)— Determines the value of cash returnswith cash invested. Considers the application of compound interest factors. Here’s the formula:
The formula is n periodic cash flow Σ _______________ = investment amount t = 1 (1 + i) t where i = internal rate of return t = each time interval n = total time intervals Σ = summation
An example would be if you received $3,000 per year for five years on a $10,000 investment. The internal rate of return was about 15%.
- Payback– Helps you determine the costs of the project, above what you would otherwise be expending if you hadn’t done the project at all. For a detailed guide of how determine the payback follow Money’s guide to determining project payback.
Tracking results is really nothing new, but the formulas have changed and perhaps gotten a bit more sophisticated. Instead of looking at tracking as a chore; change your thought process that these elements are key indicators of your success. Remember the quote from Bill Hewlett cofounder of Hewlett-Packard, “You cannot manage what you cannot measure, and what gets measured gets done.”
Now we can hedge our bets by nurturing our customers in thorough steps and tracking how far down the rabbit’s hole they go via QR Codes®, landing pages, PURLs, coupons cashed, tickets purchased, donations given, and on, and on, and on.
Don’t let the power of numbers and formulas scare you. It’s not quantum physics; it’s just good business.