How Do I Measure Marketing Metrics and Financial Metrics to Illustrate ROI?
Marketing Metrics and Financial metrics have always been a part of a firm’s dynamic, integrated decision-making process and management of formal controls as it relates to corporate spending, appropriation of funds and targeting new and existing customers.
Now, more so than ever, companies are turning to big data solutions to better focus on marketing metrics that directly impact profitability. Metrics in general “should be necessary, precise, consistent and sufficient for review purposes” (Best, pp.44). The application of marketing metrics and the impact on ROI and profitability greatly impact industry conversations on what best metrics measure market share, profit and growth, internally with financial data and externally with marketing metrics. Big data and defining new measures of marketing metrics continue to be important trends in evaluating the decision-making process for companies across multiple industries across the global market.
The application of marketing metrics and financial metrics greatly inform the impact of profitability on the decision-making process. The American Marketing Association explains that “more marketing and financial metrics equal better decision outcomes,” and the two measure different, but not mutually exclusive internal and external measures of growth (AMA, 2016). Marketing metrics are important for several two very important reasons: “first, they provide measures of marketing performance, such as customer satisfaction, retention, and loyalty. Secondly, marketing performance metrics are correlated with profitability” (Best, pp 44-46). Financial Metrics such as profit, expense, asset management and shareholder metrics are critical in evaluating internal quality and “capital productivity.” According to Yahoo Finance, Forbes500 tech leaders Microsoft, Apple and IBM have considerable marketshare as tech giants in the consumer electronics industry. The financial metrics of these companies help to inform internal direction, but when coupled with marketing metrics, approach growth and ROI holistically.
Microsoft’s (MSFT) gross profit for the year 2015 measured at 59.93B, a forecasted marketing growth rate of 7.11% and a large market share in tech avenues of consumer electronics. Apple (AAPL) $93.6B gross profit, 27.86% annual revenue growth, as compared to a growth rate of 6.95% in 2014. IBM generated $25 billion in 2014 on cloud, analytics, mobile, social and security alone and $22.1 billion in revenue from continuing operations. These figures are predicated on financial metrics that help inform marketing decisions. Marketing decisions and marketing activities are external measures, that when coupled with the internal financial metrics, or “leading indicators of future financial performance” allow for a company to differentiate and become profitable (Best, pp 44).
Forbes.com posted an article entitled The Financial Times bets on new ad format: Brands pay for time, not pageviews or clicks, by Matthew Ingram, that explains that big data marketing metrics are building continuous momentum in informing financial investment decisions among not only top-tier companies but also, smaller start-ups. Ingram speaks to competitiveness metrics and big data benchmarking of visual media and advertising that ad companies are now experimenting with, focusing on a new metric, “cost per hour” or CPH rather than simply evaluating click rates. “While CPM (Cost per thousand clicks) values every impression the same, CPH uses time to measure value. The FT has shown through extensive testing that brand familiarity and recollection among readers increases significantly the longer an ad is in view. Adverts seen for five seconds or more on FT.com show up to 50% higher brand recall and familiarity than ads that are visible for a shorter period of time” (Fortune, 2015).
CPH is a perfect example of how powerful marketing metrics can be to inform internal spending, as well as being the next big idea in harmonizing financial metrics with real-time, new marketing metrics, as there is no real shortage in website, but rather in individual attention spans. This type of data market data has the ability to enable companies to focus their efforts and boost their performance-based metrics.
The importance of informed, valuable metrics in both marketing and finance decisions, allows for companies to compare marketing ROI and profitably criterion by utilizing both internal and external benchmarking. Forbes author, Wes Nichols explains that with the advent of big data, marketing and finance are brought closer together to make informed business marketing decisions. Nichols explains, “Companies that fail to update their marketing organizations and continue using antiquated measurement solutions are at risk of being left behind” (Nichols, 2014).
New marketing-finance relationships, combined with advanced analytics technology are increasing efficiency on delivering the bottom line. “Short of creating a killer new product or service, there are few ways a big company can move the needle quite so dramatically” (Nichols, 2014).
Financial and Marketing metrics are being utilized in tandem as a cohesive set to make informed business decisions now, more so then every with the ability to collect, and extract key data points and cross-over metric analytics with advanced big data analytics.
Best, Roger J. Market-Based Management. Upper Saddle River, NJ: Pearson Education, Inc, 2013. (pp.44-46).
Bartone, C. (2013, December 17). Why Do Some Managers Use More Marketing and Financial Metrics To Evaluate Product Development and Marketing Decisions? Retrieved July 13, 2016, from https://www.ama.org/publications/JournalOfMarketing/Pages/pr-jm.11.0463.aspx
Ingram, M. (2015). The Financial Times bets on new ad format: Brands pay for time, not pageviews or clicks. Retrieved July 13, 2016, from http://fortune.com/2015/05/19/financial-times-advertising/?iid=sr-link1
Nichols, W. (2014). How Big Data Brings Marketing and Finance Together. Retrieved July 13, 2016, from https://hbr.org/2014/07/how-big-data-brings-marketing-and-finance-together/
Global 500. (2015). Retrieved July 13, 2016, from http://fortune.com/global500/