Encore founder and ceo Steve Latham recently moderated the “Measuring Social ROI” discussion at the OMMA Metrics NYC Conference in March 2011.  The big questions addressed were:

1. Social Media: Shiny Object or ROI Producer?
2. What are brands doing to measure the impact of social ROI?
3. What works and how do you know?

These questions were discussed by industry thought leaders and expert practitioners from across the country including:

- Adam Cahill, EVP Media Director, Hill Holliday
- Ben Straley, CEO & CO-Founder, Meteor Solutions                                                                  \
- Jonathan Mendez, Founder & CEO, Yieldbot
- John Lovett, Senior Partner & Principal Consultant, Web Analytics Demystified, Inc.
- Jascha Kaykas-Wolff, VP of Marketing, Involver
- Moderator: Steve Latham, Founder and CEO, Encore Media Metrics

A video of the panel is embedded for viewing below.  You may also view it on ustream.

As always, feel free to comment and share!

The Encore Team

In early June I was fortunate to be one of 350 ad tech CEOs who attended LUMA Partners’ Digital Media Summit in NYC, featuring the best and brightest in the industry.  I’ve been to some great networking events before (IAB, 4A’s, etc.) but this was tough to beat.

In addition to meeting some amazing people, one of the highlights was the release of the latest display ad landscape or “LUMAscape” aka “the slide” that was originally produced by Terence Kawaja in 2010.  For those who are new to display advertising (or have been out of the market for the last 3 years), buying display media is like buying a house: you also need phone service, internet, cable, gas, electricity, dog-walking, etc.  In this case, Media is the house; ancillary services include ad verification, OBA compliance, data/tag management, audience measurement, ad serving, and our favorite: attribution.

The newest version of the slide is getting ever closer to accurately depicting all the segments and sub-segments that comprise the digital advertising landscape.  It also marked the debut of Encore Media Metrics as a recognized leader in the Attribution and Measurement category.

“The Slide”may also viewed on slideshare or you can download the LUMA Display Landscape here.

The industry is extremely fragmented, and is likely to stay that way for a while.  So if you want to play in the display advertising space (either as a buyer, seller or manager) you need to understand the difference between a DSP, DMP and SSP without yelling “WTF!”  Yes, it’s easier said than done but this map should help you get started.

Steve Latham (@stevelatham)

Advertisers are (finally) looking beyond the last click.  Here is an overview of the Five Forces that are driving adoption (also published by MediaPost in May 2011)

It’s been 3 years since measurement buzzwords “attribution” and “engagement mapping” emerged with great anticipation and excitement in online advertising.  The idea of looking across digital channels and beyond the last click to measure media throughout the funnel was thought to be the holy grail in online marketing.  Recognizing that “last-click wins” is insufficient for measuring the brand-building attributes of display media, brands, agencies and media vendors saw Attribution as the next big thing in digital advertising.

Yet as we entered 2011, very few marketers were using Attribution to measure and optimize online media spend.  Despite the universal desire for better measurement, most were still using old metrics (click-through rates, cost per click and direct cost per action) to analyze paid media.  Greg Papaleoni, who develops Analytics and Insights for Yahoo! Advertising Solutions, sums it up well: “While Full Funnel Attribution is the future of the ever-evolving digital media measurement landscape – it should be the present.  Those advertisers who embrace and implement this logic, methodology and technology sooner rather than later will enjoy a massive advantage over their competition.”

While adoption has been slow to date, this is changing quickly due to the convergence of numerous factors.  Borrowing on Michael Porter’s “Five Forces” model for analyzing industries, here is my take on the Five Forces that are driving digital media attribution (author note – I received permission from Professor Porter to adopt his model to this category):

1. The continuing shift of media budgets from traditional to digital.

While total U.S. media spend will grow only 3% in 2011, digital spend will grow 14%, surpassing Newspaper as the #2 medium.  Accounting for almost 30% of daily media consumption, Digital spend will continue to outpace all other channels for the foreseeable future.

2. The resurgence of display advertising

Per eMarketer, Display media spend will grow 14% in 2011, outpacing 10.5% growth in paid search.  While there are many reasons behind the growth (consumption of social, video and mobile content, better targeting capabilities, real-time bidding, richer formats, etc.) I believe the resurgence of display is driven by two primary factors:

• The maturing of search: There are only so many searches every day, and most marketers have optimized their paid search efforts.  For the big advertisers, there are no more keywords to buy.  As one search exec was recently quoted “paid search inventory is maxed out.” Incremental dollars will have to go elsewhere.  Display is the obvious choice.
• The return of branding:  As the economy recovers, marketers are re-investing in their brands.  During lean times, online dollars focused on harvesting existing demand (via search).  But with the improving economy, brand-building is once again a strategic priority.  In the digital realm, display media offers the most efficient, effective and scalable way to create awareness, consideration and preference for brands, products and services.

3. Increasing focus on accountability

While marketing budgets may have loosened, the focus on results has not.  As a result, marketers are keeping a very close eye on ROI from “brand-building” media.  With the ever-increasing need to show ROI, brands now want branding plus performance.  To properly measure brand-building media, we need to measure engagement, not clicks.

4. Evolution of web architecture

Recent forays by IBM and Oracle into the marketing arena signal a new wave in convergence of IT and Marketing.  As the IT behemoths push technology-based marketing solutions, CIOs are becoming more attentive to the needs of the marketing department.  The deployment of Data Management and Universal Tagging Platforms enable advanced analytics and media measurement that were off-limits to marketers in the past.  With this roadblock removed, the stage is set for new measurement tools to be deployed across their digital infrastructure.

5. The emergence of better Attribution solutions.

While early Attribution solutions were expensive and limited in capabilities (e.g. couldn’t attribute credit for organic conversions), a new breed of point-solution vendors (including my company Encore Media Metrics), are now offering more effective, flexible and affordable solutions.  For a very modest investment (as low as 1-2% of media spend), advertisers can now have a much more holistic and accurate view into the performance of each channel, vendor, format, placement and keyword.  These insights are enabling advertisers to optimize media budgets, yielding 20-40% gains in revenue.  The immediate return on investment in Attribution solutions may exceed 1-20x (100%-2,000%).

The Five Forces Driving Attribution are illustrated below:

As our business objectives change, so must the manner in which we measure results.  As dollars continue to flow into digital, brands and their agencies must use more efficient, accurate and effective metrics for measuring media throughout the funnel.  The emergence of more advanced and affordable Attribution solutions, supported by growing support from IT departments is paving the way for Attribution to become a foundational component within the digital marketing ecosystem.

Matt Miller, SVP of Strategy & Analytics at Performics, agrees, stating “Attribution is one of the top priorities for us and our advertisers.  Focus on attribution will only increase as advertisers build and implement strategies to maximize ROI across all digital channels.”

As always, comments are encouraged. And please feel free to share!

Steve Latham (@stevelatham)

Encore’s CEO was recently interviewed by AdExchanger, a leading online marketing  news publisher, about the launch of Encore, the problems we solve and how we’re positioned.  You can read the article on AdExchanger or see the transcript below.  Enjoy and feel free free to share!

Encore Media Metrics Incorporating Attribution For Paid, Owned And Earned Media

Steve Latham is CEO of Encore Media Metrics, an attribution technology company.

So, what problem are you solving with Encore?

We solve 2 problems for agencies and brands alike.  First, we provide advanced attribution and measurement, enabling them to see across channels and beyond the last click to measure performance of paid, owned and earned media.  While most marketers are aware of the need for attribution, very few are doing it.  Second, we allow them to offload the tedious, manual work of reporting and measurement, which is a loss-leader for most agencies.  They need good metrics, but it’s hard to justify the cost of large teams needed to manage all aspects of reporting.  We offer a cost-effective way to produce the insights they need to optimize budgets and maximize campaign ROI.  So to sum it up, we provide better reports and deeper insights in a way that saves them time and money.

I believe we’re hitting the market at a great time and that this will be the year Attribution goes mainstream for a few reasons.  First, paid search is maturing and expanding digital budgets will have to be deployed elsewhere (display, social, mobile, etc).  There are only so many searches every day and most companies have optimized their ppc campaigns.  The low hanging fruit in search has been picked; further gains will be in much smaller increments and will require buying short-tail terms that start conversations rather close them (hence the need for keyword attribution).  This is supported by the fact that Display will grow faster than search in 2011 and is expected to outpace it for coming years. Search is still the big dog, but display and other brand-building media are nipping at its heels.  If you believe Eric Schmidt’s prediction of a $200 billion global display market, we’re still very early in this game. Other factors driving Attribution are the increasing focus on accountability, the upgrading of web architecture (e.g. adoption of universal tags) and the emergence of affordable attribution solutions – such as ours.  These factors are converging to make 2011 a very exciting year for those of us in the attribution space.

What’s your view on the competitive set and where you’ve been and how would you say you differentiate?

To understand how we’re positioned, you must first understand how the Attribution marketplace is segmented. For starters, there are two different approaches to attribution: operational attribution and statistical or algorithmic modeling. Each approach has its place and I believe they are more complementary than competitive. Statistical modeling analyzes vast amounts of data to look for correlations that indicate how media channels (display, search, email, affiliate, etc.) work together to drive results. Modeling allows you to see which channels feed each other, and which mix should yield the best overall ROI.

In contrast, operational attribution creates detailed records for each visitor that enable you to see which ads were seen and clicked on, how the visitor found your site, what pages they viewed and what actions they took. You can then query the data to analyze engagement paths and assess the performance of each channel, vendor, keyword and placement. We believe operational attribution is the foundation for advanced analytics as it’s based on actual visitor data (vs. a black box) and provides much more granular insights into performance of all types of media. Once you have operational attribution, you can then do advanced modeling of that data to glean additional insights. But, operational attribution will provide 80-90% of the insight you need to optimize your spend.

Within the Operational segment, you then have to look at the extent of attribution: lower-funnel (click-based) vs. full-funnel (clicks and impressions). While click-based attribution is better than nothing, it doesn’t answer the question: “which media buys are creating demand?” The lower-funnel approach relies on clicks, which may be great for search, but insufficient for measuring the impact of display media. If you want a true picture of which ads are creating demand and which placements are satisfying demand, you need a full-funnel solution.

Now to the original question: how are we positioned vs. our competitors? While I can’t speak for our competitors, I can say we differentiate in a few ways: 1) we incorporate attribution from social media (even in the absence of referring clicks), allowing us to provide attribution for paid, owned and earned media, 2) we have a flexible approach that is designed to accommodate varying needs of agencies and brands (no long-term commitments, pay for what you use, etc.), and 3) we are affordable for most marketers. If a client spends between $50,000 and $5 million per month in online media, they can afford our solution.

Is scale of ad spend critical to Encore’s services – attribution, media mix modeling?

If you’re asking is Attribution is only suited for the biggest advertisers, the answer is no. It really doesn’t matter how much you spend; you still need to look across channels and beyond the last click to optimize your mix. Even if you’re only spending $50,000 a month, a small incremental investment can yield a dramatic improvement in Return on Spend. Any advertiser who is buying more than just search is going to benefit from Attribution.

What’s your view on the “view‑through conversion”?

View-throughs are good for ad networks seeking to optimize their media placement, but they are limited in what they offer advertisers.  If you are buying display media from 5-6 vendors, you’re likely to get some view-throughs from each buy.  While view-throughs tell you if an ad was seen they don’t tell you which ads were the most effective (and cost-effective) in creating demand, or how each media buy influenced results from paid or natural search.  You can’t analyze recency or frequency and you can’t tell the order in which ads were viewed.  You need more details to truly understand which placements created demand, the role they played in the engagement path, and how to attribute credit within the channel.  Yes, you need a full-funnel attribution solution.

What’s the difference between attribution modeling and media‑mix modeling?

In the context of measuring the impact of digital media, they’re effectively the same thing.  But for most marketers, media‑mix modeling encompasses all channels, including TV, print, radio and other traditional media.  Within that context, operational attribution should play an important role in providing the inputs that go into such a model.  We can provide a much more accurate and richer set of data inputs that will enable the global media mix model to produce more relevant and insightful outputs.  As mentioned earlier, it shouldn’t be “either / or” when evaluating operational vs. algorithmic attribution.  They can work in concert quite well.

What do you see out there as the most difficult channel to provide the sort of service you’re providing today?

Within digital media, Social is definitely the hardest to measure.  First, referring clicks are not good indicators as very few actually click-through from social sites to the brand’s web site (see “Connecting the Dots”).  But beyond clicks, how do you attribute credit back to people who are watching your You Tube channel, viewing comments on your Facebook page or reading a blog about you?  It’s hard because you can’t cookie browsers on 3^rd party social media sites.  While Facebook now allows marketers to set cookies via iframes on company pages, very few are doing it.

Some try to do social attribution via correlation or looking at directional trends, where a social mentions drove a spike in traffic and a lift in conversions.  But this approach is, in technical terms, “squishy.”  For most, social attribution is a future goal more than a near term objective.

But since you asked, I should mention that we offer a unique solution to the social media attribution problem. We use a patent-pending tool that allows us to identify which visitors or purchasers have engaged with the brand in social media, regardless of whether or not they clicked through to the site.   Through this, we can draw a direct line between online conversions and the social interactions that preceded them.  We think it’s pretty cool and we’re seeing a lot of interest from brands, agencies and media vendors.

Do you see social media attribution as an opportunity?

It’s definitely something we see as a differentiator but it should be viewed as part of our solution for two reasons: 1) social should be integrated with other channels from a measurement perspective, and 2) it’s hard to make a ton of money on social media measurement.  A brand may spend $500-$1,000 to measure social interaction, but they’re not likely to spend more on the tool than they do on their social media marketing efforts.  You also don’t want to be a one-trick pony in the digital landscape.  Things move too quickly and one player (e.g. Google) can make render your product obsolete overnight.  So we see it as a differentiator and a conversation starter more than a standalone offering.

What is Encore’s target market?

We serve brands and agencies who are seeking to create demand and/or drive sales through paid, owned and earned digital media.  While we can accommodate budgets as low as $50k per month, our sweet spot is campaigns with budgets of $100,000 to $2 million per month.

In general, Attribution tends to be more appropriate for considered purchases, e.g. financial, auto, travel, health care, luxury goods and anything B-to-B.  The longer the sales cycle and the bigger the ticket, the more you need Attribution.

We work with brands, agencies and trading desks of all sizes, even those with internal ad ops teams.  Even if they have a bench, they still need better tools to produce the insights their planners and customers demand.

How does pricing work? Do you charge on according to media spend or is it a per seat?

We price our solution as a technology (vs. a flat % of media spend) that is tiered based on the scope and scale of the campaign.  In general, we charge a fixed fee that covers the planning, production and client services, along with a cpm-based fee that covers the cost of data capture, storage and analysis.  The fee as a percentage of the media budget will vary significantly.  If you’re buying premium placement media at $10cpm, our fees are tiny.  If on the other hand you’re going for scale (e.g. $2cpm), the fee will be slightly higher as a percentage of spend.  But in either scenario, we’re very affordable and the ROI is hard to beat.

What sort of milestones would you like the company to have accomplished?

My primary goal for 2011 is for Encore to become widely known as a leading provider of measurement, attribution and reporting services.  If there is a discussion about Attribution, I want us to be one of the solutions that are always mentioned.  Our value proposition (better reports, deeper insights, affordable and adaptable) is hard to beat, and we look forward to proving it to leading brands and agencies.

Follow Steve Latham (@stevelatham), Encore Media Metrics (@EncoreMetrics) and AdExchanger.com (@adexchanger) on Twitter.

The What, Why and How of Online Media Attribution
[if you like presentations, view "Attribution 101" on slideshare]

Anyone who has ever bought (or sold) display ads is painfully aware of the need for new metrics for online media.  While “last-click wins” may work for paid search, it fails miserably in measuring the impact of display and other media at the top of the funnel.  Hence, the need for full-funnel Attribution, which allocates credit for “assists” in the customer engagement cycle.

By attributing credit to contributing impressions and clicks that precede subsequent visits and conversions, marketers can have a much more accurate and holistic view into the performance of each channel and vendor.  While most interactive marketers are familiar with Attribution, many are still trying to understand what it is and how it works.

The Need for New Metrics

While digital is the most measurable medium, the “one-size fits all” approach to online media measurement needs to be re-evaluated.  While click-through rates (CTRs), cost per click (CPC), direct conversion rates and cost per action (CPA) may be applicable for search and other “bottom-of-the-funnel” media, these metrics are not appropriate or insightful for measuring performance at the top of the funnel, where demand is created.

Display ads can be very effective in achieving their objectives (driving awareness) without any clicks or direct conversions.  A recent Media Math study showed that 80% of post-impression conversions are the result of viewing display ads without clicking and only 20% of conversions are the result of a click.  In other words, for every conversion that follows a click on a display ad, there are four (4) post-impression conversions without clicks.  The upshot: we need better tools and methodologies for measuring the performance of media at the top of the funnel.  This is where attribution comes into the picture.

Defining Attribution

Attribution is the art and science of allocating credit to all interactions that play a supporting role in the customer engagement process.  In other words, it’s the act of giving credit for assists.  Rather than viewing results from each digital channel in its own silo (a la traditional web analytics platforms), Attribution requires you to take a holistic approach to analyzing how each touch-point contributes to the overall goal (visits, conversions, etc.).

With the resurgence of display advertising, Attribution is becoming increasingly important for optimizing media budgets.  As shown in the Google trends chart below show, searches for “online attribution” have increased 150% over the past 36 months.

Approaches to Attribution

Generally speaking, there are two types of Attribution: Operational and Algorithmic / Media Mix Modeling.

• Operational attribution consists of creating detailed records of every impression, click, visit and action for each visitor to your site, regardless of the source or channel (e.g. display, paid search, natural search, direct navigation, email, social, affiliate, etc.).  Data is then organized and reported in such a way that visitor paths and media placements can be effectively (and efficiently) analyzed.  By understanding which paid, owned and earned media placements are driving the most effective engagement, you can optimize spend and marketing efforts to boost ROI.
• Media-Mix / Algorithmic Modeling consists of analyzing impression data, search data, email data and web log files to statistically correlate patterns and trends to fine tune campaigns.  This “black box” approach is useful but it depends entirely on the hard-coded assumptions and calculations in the model.

We believe operational attribution is the foundation for advanced measurement and analysis of media.  The operational approach of giving credit for assists is intuitive, logical and easy to understand.  Once the operational attribution model is defined, algorithmic modeling can be used to further optimize the media mix.

Channel Level Attribution

Channel level attribution addresses the relative roles of each media channel in driving traffic and conversions.  Attribution requires an algorithm that attributes partial credit to display impressions and clicks that precede visits and conversions.  The weighting of impressions relative to clicks will vary based on the type of ad, format, placement and other issues.  For example, highly-targeted rich media placements should have higher weighting than Run-of-network animated .gifs.  Weightings should be customizable for each vendor and placement.

The channel attribution report below shows the relative impact (last click vs. attributed) of each channel: direct navigation, natural search, referring sites, email, paid search, display advertising and 3^rd party email.  As shown, attributable credit for display ads may be 50-400% higher than a last-click report would show. It should also be noted that paid search generally sees a net increase in attributable actions as short-tail keywords often play contributing roles in the customer engagement process.

After attributing credit for actions for each channel, spend data can be imported to show the adjusted cost per action for each channel, as shown below. As illustrated, we typically see a 30-80% decrease in attributable cost per action (CPA) for Display, and a slight drop in CPA for paid search (resulting from keyword assists)

Vendor Level Attribution

Looking beyond channel level, we use the same approach to assess the performance of each media buy.  Shown below is a sample report showing the cost per action for each media vendor, both last-click and attributable.  As shown, some media buys can appear to be very poor performers on a last-click basis, but are in fact very effective for creating demand that is subsequently satisfied through other channels.

Keyword Attribution

Short-tail keywords (category terms, product terms, etc.) often play “assist” roles in the customer engagement process.  Just as it’s important to know which display ads precede visits and conversions, assist keywords should also be identified.  In many cases, assist keywords may perform poorly on a last-click basis, but perform very well in an attribution report.

The Business Case for Attribution

Attribution is more than just a buzzword – it is an essential part of campaign measurement and a requirement for optimizing media spend.  As illustrated below, moving “loser” budgets to the “winning” vendors can produce a dramatic improvement in revenue and return on spend.

Beyond the improvement in media efficiency and ROS, the economic benefits also accrue to:

• Media planners: save wasted time and energy trying to replace ostensibly “bad” buys that are actually quite effective
• Ad Ops and analytics teams who are tasked with aggregating silos of data into massive .xls workbooks (attribution vendors will do this for you)
• Media vendors whose ads are actually engaging customers and creating demand that is satisfied through other channels.

As an industry, we have to do better.  We can’t use yesterday’s tools to measure tomorrow’s media. Attribution should no longer be an aspirational goal, but rather a key part of your 2011 digital marketing strategy.  The economic returns are compelling and there are numerous vendors (including us!) who would be happy to assist you in taking a more holistic approach to digital media measurement and optimization.

As always, comments are encouraged.  And please feel free to share!

@stevelatham

Earlier this year we completed the sale of our former agency, Spur Interactive, to DMN3, an established leader in direct marketing and advertising (read the release).  With the transition of Spur’s agency team and accounts, we formed Encore Media Metrics leveraging our proven platform, capabilities and experience to solve a new problem for online marketers.

Addressing the large, unmet need for campaign measurement, attribution and reporting, Encore provides advanced insights while reducing the cost and complexity of media measurement.  In addition to our proven solution for measuring video ads, display ads, search, email, etc., we also offer a patent-pending social media attribution tool, enabling us to provide full-funnel attribution for paid, owned and earned media.

Encore works with Brands, Agencies and Publishers to help advertisers measure the performance of display, search, email, affiliate and other paid and owned media.  Unlike traditional platforms that attribute credit to the last click, we measure the impact of media at the top of the funnel where demand is created.  Our holistic approach to measuring all digital touchpoints allows clients to see which ads were seen and/or clicked on before coming to the site, often through non-paid channels such as natural search, direct navigation or referring sites.  By looking across channels and beyond the last click we enable client to accurately determine what is working (and what is not), arming them with the data needed to optimize spend and maximize ROI from marketing dollars.

While Encore is a new entity, our solution is not.  Since 2007 we’ve been developing our platform and methodologies of looking beyond the last click to measure online media for big brands and emerging challengers alike.  Now that we’ve exited the agency business, we are working with leading agencies, brands and media vendors to provide campaign measurement, attribution and reporting as an on-demand service.

If Attribution is on your radar, I’d invite you to learn more about our Attribution solution and our full-service approach to digital media measurement.  To schedule a demo please contact us

We hope to hear from you soon!

Steve Latham
@stevelatham

Attribution is quickly becoming a hot-topic among brands, agencies, publishers, networks and DSPs.  Fueled by the resurgence in Display Advertising, there is a new pressure to measure the impact of video, rich media and banner ads in a way that is appropriate and insightful.  While we all intuitively realize that traditional metrics for measuring online ad performance (click-through rates, cost per click, direct conversion rates, direct cost per conversion, etc.) may work well for search, but not for media at the top of the funnel.  To properly measuring performance of display media, we need a new approach.  And while everyone agrees Attribution is the answer, not everyone agrees on how to go about it.

While most think Attribution is only for those with big budgets, there are many affordable ways to attribute credit to each media channel while learning how to optimize your digital media mix.   In the presentation below, we define attribution, discuss the differences between Operational Attribution and Media Mix Modeling, and provide some tips on how you can determine what is working and what is not, even without an Attribution solution.

The following presentation “Media Attribution and Measurement” was recently presented at the 2011 Online Marketing Summit.  It was written for marketers of all levels, but preferably those who are scratching their heads trying to answer the following questions:

1. What is Attribution?
2. How do we do it?
3. What should I expect to find?

Media Attribution and Measurement – OMS 2011  

View more presentations from Steve Latham

I hope you find this to be informative and insightful.  If you like it, share it!

Steve Latham, Founder and ceo
@stevelatham

Attribution101 – the Encore Blog was created to share perspectives, case studies and insights into digital media strategy and measurement (you can’t succeed in either without the other). The Attributon101 is the official blog of Encore Media Metrics, a leading provider of campaign measurement, attribution and reporting services.

While may be in a “wonky” business, we come from a different perspective than most practitioners in web analytics and online marketing metrics.  As reformed digital agency principals and Big 4 consultants (meet our team), we’re using both sides of our brains to help brands, agencies and publishers make sense of campaign results, optimize media spend and maximize ROI from their marketing efforts.  We hope you find our content insightful and intriguing, and that you’ll feel free to share with others.

Thanks for stopping by!

The Encore Team

Throughout 2010, I had the pleasure of speaking to audiences in Washington DC, Atlanta, Austin, Dallas, San Diego, San Jose (California and Costa Rica!) and Houston on one of my favorite topics: measuring results from online marketing.  While I’ve been speaking about measuring impact and quantifying ROI for years, it was clear that marketers are increasingly shifting their focus to measurement and accountability.

When I asked attendees what they were hoping to gain from the session, one DC marketer said only half-jokingly “to justify my existence”.  I remembered it because it was funny, but also because it’s true.  Marketing budgets are still very tight, and every dollar that is spent has to be justified.  Consequently, there is an increasing focus on measuring results and demonstrating an acceptable ROI.  This not only requires  knowledge and tools, but also the ability to translate online metrics into business results that are understood by the c-level.

My presentation Closing the Gap on ROI Measurement addresses these issues in today’s context, where results matter.  The contents include:

• How “above the line” and “below the line” are merging – digital goes through the line
• Challenges faced by marketers today
• How to translate online metrics into business results
• Roadmap for Measurement Success
• Online Surveys
• Attribution Analysis
• ROI Methodology
• Case Studies to demonstrate each concept

As always, comments are welcome.  And feel free to share!

Steve Latham
@stevelatham

As marketing dollars have become more scarce, the importance of measuring ROI and building a business case to support investment has become paramount.  For those seeking to better understand this subject, here’s a “simple” methodology for quantifying value.  In this case, we’ll look at ROS (return on spend = expected revenue divided by cost of online media) and ROI (expected net present value divided by total investment) from online campaigns.  If you find it to be of value, or if you have additional questions, please comment below.

Steps to Calculating Value

1. Determine the Value metric (Revenue, Margin, NPV) of a customer.
Some companies look at value of a transaction, annual revenue per customer or lifetime value (profit) of a customer.  Some assign higher values for new customers vs. a new sale to an existing customer. You need to determine what is best for your organization (hint: choose the metric that is most used by your executives).  For this example, let’s assume your average sale is $1,000 and that the lifetime value of a customer is $5,000.

2.  Assign conversion rates to approximate close rates.
Let’s assume 3% of site visitors request more information (inquiries) and that 30% of inquiries complete a purchase.  If you’ve done online campaigns before, you should have a basis for inquiry rates.  Hopefully your VP-Sales know how many leads convert to a transaction. If 3% of visitors become leads, and 30% of leads are closed, 0.9% of visitors will become customers.

3. Determine what your cost or investment will be.
Let’s assume you will spend $10,000 in online advertising (display, search, email, etc.) this month.

4. Do the math to calculate ROS and ROI:
Assuming your efforts drive 2,000 incremental visitors to your site (cost: $5 each) you should see 60 new leads (3% conversion rate) and 18 new customers (30% close rate) worth $18,000 in revenue or $1.80 direct ROS ($1.80 in revenue for every $1 spent).

The Net Present Value of the 18 customers is $90,000 ($5,000 each) yielding a Return On Investment of 900%.

If you present these types of results to your CFO, you’ll quickly find a lot of interest (and dollars) in online marketing.

Another Metric: Value per Engagement
Another way to measure results is calculating value per engagement (visit, inquiry, etc.).  In the example above, each visit is worth $9 in revenue ($18,000 divided by 2,000 visits), whereas each inquiry is worth $300 ($18k divided by 60), compared to a cost per visit of $5 and a cost per inquiry of $166.67.

Remember Your Margins
While revenue is an easy metric to measure, margins are much more important.  Assuming your gross margin is 60%, you are making profit as long as your cost per visit is less than $5.40 or cost per inquiry is less than $180.

Caveat Emptor!
Please use good judgment when applying these methodologies to your own business. Again, these are not a panacea for every situation.  But hopefully, they will give you some building blocks for quantifying the impact of your interactive marketing program.  If you have specific questions, please leave them here.  I can’t promise I’ll know the answer, but I’ll do my best to help you figure it out.  Happy number crunching!

Please feel free to COMMENT, SHARE with others and SUBSCRIBE to our blog. We look forward to your feedback!

Steve Latham, founder and ceo

 
@stevelatham