Your marketing reports may contain all sorts of performance metrics, starting from traffic data to conversions, but does it actually represent an accurate overview of the campaign performance? Odds say, “not”.
Digital marketing is all set to eclipse the eternal mammoth of mass marketing that has helped establish countless brands in all fours of the world – the oblong digital mouthpiece that perpetually tells a better part of the human race, what to believe is real. A recent WSJ article predicts that, in 2016, digital media will surpass broadcast media as a business-marketing medium, with a forecast of approximately $66 billion in revenue. In addition, according to a survey report published by Business2Community, more than two-third CMOs say that, over the next 5 years, digital marketing will account for 75 percent or more of their total budgets, with collective spend expected to cross the $250 billion mark, by 2018.
Who Will They Get Their Money’s Worth?
It is distressingly ironic that marketers are going to drain almost $33 billion, focusing their might on illusionary KPIs. Yes, you read that right. If the verdict of the global search major – Google – is any validation, 95 percent of those who invest in digital media waste 50 percent or more of their overall spend. Therefore, unless you are one of the rare 5 percent, you too are wasting half or more of your investment. Besides, even if you are among the 5 percent, the chances of “optimum budget utilization” are far from realistic.
So, how could it happen? The “monthly reports” suggested everything is in place! Moreover, why your agency did not do/is not doing anything about it?
How Could It Happen?
Forget marketing managers, even C-level execs, with their oceans of experience and expertise, usually fail to realize how their dogmatic KPIs have lost relevance in today’s rapidly challenging and increasingly complex business dynamics. An increase in sales, for instance, may not necessarily imply more profitability for the business, and vice versa. Similarly, even if your agency is able to reduce the average cost-per-acquisition in a given period, it doesn’t mean your businesses achieved any “growth” during the period.
Therefore, although traffic and conversion metrics provide a fairly clear overview of how “your” initiatives are performing – the data, in no way, ensures that your team is driving the maximum possible returns from your spend.
Mirage called “ROI”
Many marketers regard “ROI” as the definitive benchmark to measure campaign success, which, in most cases, is an elusive practice, especially for e-businesses. The approach is flawed for more reasons than one. For starters, regarding ROI as the key indicator of campaign performance can severely distort the true value being delivered by your marketing spend. What marketers need to understand is that ROI is a mere “ratio” of profits and costs. Dominique Hanssens, professor of marketing at the UCLA, says that most people who use ROI in the context of marketing either mean something else or do not apply it right.
Issues with Using ROI as a Performance Metric
- Limits success
- Has a short-term focus
- Ignores growth opportunities
- Ignores intelligence gathering
- Blindly favors outsourcing
ROI is calculated on “one-time” capital investments, whereas marketing is an “ongoing” expense. Though the Google-recommended approach of profit-driven marketing turns the philosophy upside down, by regarding marketing cost as an “investment” element, rather than as a “cost”, it lays no emphasis on the ROI being delivered by a campaign. In fact, it might come as a surprise, but in many cases, it is possible for a business to achieve growth with a deteriorating ROI, and your profits may go down even with an increasing ROI.
And Then There Are Blatant Lies
Though we could have skipped this section, but given the increasing number of businesses falling for the much whimsically named “vanity metrics”, it is only sensible to include it in the conversation. A number of performance metrics highlighted in the auto-generated digital marketing reports delivered by agencies speak little to nothing about the actual results driven by the client’s investment dollars. Besides, metrics such as Facebook Likes, YouTube views, user registrations, downloads, and the like, can be easily manipulated, and may not directly correlate to the success of your digital marketing initiatives.
Ideal Focus Area: Pure Profits or Economic Value Added
The ultimate aim of every marketing manager must be to grow revenue faster than costs while minimizing average CPA. Ironically, neither traffic metrics nor conversion metrics give the right presentation of the future revenue to be generated by your investment. That’s the reason why it always advisable to consider the actual economic value added by your investment. If, for instance, you invest $100 in digital marketing and make $150, whereas you could have invested the same amount in another avenue and made $120, the EVA of your campaign will be $30. Regarding EVA as the benchmark for campaign success not only provides a clear overview of the actual value delivered by your marketing dollars, but also ensures a consistent growth, even if it comes with an increase in CPA or decrease in ROI.
While focusing on all actionable data – whether traffic metrics, conversion metrics, or revenue metrics – help with campaign optimization and filling voids in the approach, none of these are fragmentary indicators provide an accurate description of your campaign’s performance. What matters the most is the quantification of the “value” added, and the “growth” delivered by your digital marketing spend, and most importantly, how you optimize it. That explains why Google recommends profit-driven driven marketing as the only approach to ensure consistent growth through digital enablement.
If you wish to learn more about what profit driven marketing can do for your business, feel free to speak with one of our All-Stars professionals. Or, fill out our contact form and one of our marketing mavericks will get take it from there.