Spur Interactive

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 (follow me on Twitter)

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Since the economy took a nose dive (with the biggest drop starting in October 2008) pundits have debated how it will impact advertising / marketing and the digital marketing sector in particular.  Some in my industry were brazen enough to proclaim we (digital marketers) would not be adversely affected by the recession as media dollars would shift to where to those channels where results and ROI were most apparent. I was hopeful this would play out.  In theory it sounded good! But reality is a different matter.

First, it’s very apparent that digital is not immune to economic downturns. While there are instances where some brands are following through and spending more online (at expense of traditional media), most have scaled back on display and other “advertising” channels, focusing on media that rings the register (e.g. search) and social media.  Generally speaking, when the pie shrinks, everyone’s piece gets smaller. And while some small shifts did take place, they were overshadowed by the rapid deterioration in results from online campaigns. Q4′08 and Q1′09 were tough times for DR-centric online marketers – when consumers stop buying it’s hard to keep your clients happy (even if you are outperforming other media).

We also learned Digital is often at a disadvantage because big advertisers can’t just cancel their contractual media commitments to traditional vendors. The downside to having an on/off button with your media is that when budgets have to be cut, it often represents one of the few areas where spend can immediately be paused. It’s not a good business practice, but by now we know that marketers don’t always do what is best for their brand (job preservation will always prevail over doing what’s right for the company).

However, I’ve always felt this recession would offer a silver lining for interactive and it’s starting to come true. Budget shifts are taking place, and even though it may take 6-12 months for the mix to change, we’ll see a higher allocation to digital in 2-3 years than we would have if not for the downturn. It’s hard to make big changes when things are status quo. One of the benefits of a recession is it forces brands to take drastic action, that is often required to make meaningful change.

This is the thesis behind my article “Silver Lining for Interactive“.  I believe my predictions will hold true and that the near term setbacks are going to be a blessing in the long term.

As always, I would love to hear what other marketers (traditional and digital) think, and how they view the changes that have taken place since 10/08. I hope to hear back from a few of you!

Steve Latham
http://twitter.com/stevelatham

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Online Media Funnel

Last week I spoke at the Online Marketing Summit’s tour stop in Houston on Demand Generation.  I was scheduled to speak in Dallas and Austin as well, but an unexpected foot injury / surgery sidelined me from travel.

At OMS I unveiled a new presentation that addresses the #1 objective of most marketers: generating leads, sales and other measurable results from online media.  The presentation “Online Demand Generation: Strategy and Metrics” is embedded below for your viewing pleasure; you can also find it on slideshare.  I started by defining “demand generation” (broader and more upscale than “lead gen”), the components of a demand generation program and various roles of online media. I also introduced engagement paths and the importance of defining the right metrics for success.

Also included is a practical methodology for measuring ROI and indexing performance against the market.  As a bonus, I also included my view of the 10 worst and best practices for managing campaigns (would really like your feedback on these!)

I hope you’ll take this information and use the insights to take your business or agency to the next level. And as always, comments are welcome!

Steve Latham
http://twitter.com/stevelatham

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I often hear marketers quip “our audiences (seniors) are not online”.  The presumption is that seniors are too old to use the computer and they would somehow get lost while navigating the Web.  (Really?)  At the same time, I am always hearing about how someone’s 92 year old grandmother is an email fanatic and a Facebook junkie.  I tend to believe this is becoming the norm vs. the exception.

MediaPost recently reported the results of a Pew Internet Research study that clearly debunks they myth that senior citizens are not online.  Surveys show that the graying of the Internet is a powerful trend. View the article!

According to the Pew stats, there are 20 million internet users over the age of 65.  And almost 80% of them use email.  The top 3 uses of the Web are:

1. Email
2. Search
3. Researching Health information

Below is a nifty chart provided by eMarketer.  As you can see, recent retirees are using the Web en masse, and their elders are not far behind.

Surprised? Baffled? Or do you already know this? For more exciting stats view the entire report.

And Grandma if you are reading this, I love you!

Comments are welcome!

Steve Latham
http://twitter.com/stevelatham

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Last week I had the pleasure of speaking at the Online Marketing Summit’s annual conference in San  Diego.  In my presentation Online S&M (Strategy and Metrics) I focused on 3 things:

1. The need for an integrated, strategic plan (one-off efforts often fail)
2. A foundational approach to Interactive in troubling times (focus on tactics with highest ROI including site usability, analytics, search and email)
3. How to measure and assess performance (results, ROI). This includes a new approach to measuring your results against the Google index for your search terms (must read!).

While there were no standing O’s and cell phone waving, I received some great feedback and was quoted in B to B magazine.  If you couldn’t make OMS, or if you missed my presentation you can find it on Slideshare.

Feel free to share with others.  And please comment below!

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If you are reading this, you’re probably expecting to another pundit to start bashing display ads.  Sorry to disappoint you but I’m actually going to defend the proverbial step-child of online media (while 3rd party email as the proverbial adopted child).  If you are a step (as I am) or adopted (as my sister is) don’t take it personally.  This is just a metaphor…

Now back to my rant… with the meltdown in the economy and paralysis that has gripped consumers, display ads are taking a beating due to their perceived lack of effectiveness. According to AdWeek, “Forrester Research expects display ads to come under the scrutiny of tight-fisted marketers uncertain of their effectiveness.”  IMHO, the experts are taking a myopic view of the value of display.

I am not proposing that you invest heavily in display as your first buy.  Your first online ad dollars should go to paid search; that’s where you’ll get the biggest bang for you buck.  But if you are in a limited category or geographic area, Search alone may not help you make your revenue goals.  There are only so many searches every day.  And these days there are fewer than there used to be.

This is where Display ads can work very well.  As we’ve seen firsthand, adding display to your mix, after optimizing paid search, is an effective way to increase awareness and create demand that eventually results in more site traffic, leads and sales.  But unlike Search, you probably won’t see the direct link via click-thrus and conversions.  Just as billboards (though we may hate them) create awareness, so do banner ads (when properly targeted.  While Display ads may create awareness, they usually produce poor click-thru rates and even lousier conversion rates.  Most often, the impact of a good display campaign will show up in the form of a lift in branded searches, SEM click-thru rates and direct visits.  So you have to take a holistic view. Here is a chart (from a 1/09 client report) that demonstrates this concept:

For this campaign we quickly learned that search impressions were very limited. So to supplement search we started running display ads (4 weeks ago).  While some ads had decent CTRs, most of the increase in traffic came from Direct navigation, branded search and paid search.  As shown, the increase in impressions had a direct impact on site traffic. As long as conversion rates hold up, we’ll continue to invest in display. And given that Display Ad prices are falling faster than Wal-Mart closeout prices, this should become an even more attractive opportunity over time.

Caveat Emptor!  While Display does have a place in the mix, you have to make smart buys.  You need to target (demo, geo, behavioral, contextual, etc.), cap frequency and daily impressions, specify where they will (and will NOT) be served and have a good ad serving / web analytics system for reporting.  If not planned and executed well, it can be a waste of time and money.  But if done correctly, you can expand your category, increase awareness and preference, and extend ROI from your scarce marketing budget.

If you’d like to discuss or debate, comment below, contact me or look me up on Facebook or Twitter.

Peace!

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Since it’s a new year, it’s a great time to think about our goals, both business and personal.  Our professional success is impacted not only by what happens at work, but how we manage our personal lives are well.  The more organized and on track we are in our personal lives, the more effective we can be at work.

Most are aware that people who write down and review their goals are much more likely to be successful than those who do not. But if you’re like me, it’s probably been a while since you did it.

Last year I decided to write down my goals, review them regularly, and track my accomplishments.  While 2008 was a pretty tough year (thanks recession!), I feel it was one of my most productive and fulfilling years to date.  I achieved most of my goals for 2008, and the gratification that came from it helped me deal with many unexpected challenges.  I believe my focus on goals, combined with frequent review and assessment, made a big difference for me in 2008.

If you’d like to do the same, feel free to use my Goal Setting Template (click to download via google docs – select “choose other application” for .doc version).  The categories are organized based on what made sense to me.  But everyone is different so feel free to edit as you see fit.

In addition to defining your goals, you should also define the steps required to achieve each goal.  Goals are great but you need an action plan.  For each goal you can add the steps for achieving it.

Next, you’ll also see some activity logs you can use to track how often you review your goals as well as your progress in achieving them. Each time you review your goals record the date.  Each time you achieve a goal mark it down.  Track your progress against each goal throughout the year.

Print and keep your goals and activity logs and keep them handy. I keep mine by my bed so I can review them each morning.

Writing down your goals is an important first step.  Of equal importance is that you review them frequently. It’s easy to get caught up in the day-to-day; if you review your goals at least once a week, you can rise above the daily hassles and keep your eye on the prize.

I hope this is helpful and that you see great results in 2009.  Feel free to share with others and let me know what you think!

Best wishes for 2009!

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Yesterday I had the pleasure of speaking at a luncheon hosted by AAF Houston and the Houston Interactive Marketing Association.  The theme was “what you need to know NOW”. These are challenging times for all businesses and now, more than ever, we need to focus our marketing efforts (and dollars) on those initiatives that produce the best results.

My presentation is below for your viewing pleasure.  The main takeaways are as follows:

1. Media consumption and media fragmentation are making digital channels more and more important for all companies.

2. As marketers we have to create content that consumers WANT to consume, and allow them to engage us when and how they choose.

3. There are numerous examples of savvy brands using digital media to reach and engage customers in a cost-effective way.

4. Despite a complex and overwhelming set of digital media options, there are some tried and true tactics that will provide the foundation for online marketing success.

5. Social media is becoming increasingly important, but you should have a plan before you dive in.

View my presentation on slideshare:

Digital Success in Troubling Times – Steve Latham – Spur Interactive

Thanks again to AAF and HiMA for allowing me to share my thoughts. If you have thoughts, comments or questions, I’d love to hear from you! Also feel free to Join me on facebook or Follow me on Twitter.

Thanks for reading my blog!

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When I talk to marketers these days, one of the most frequently cited needs I hear about is the ability to measure (and make sense of) results from online campaigns. More specifically, the gap in most organizations is their ability to trace results (e.g. engagement, leads or sales) back to individual ads, email blasts or search phrases that drove the desired results. They have data but it often doesn’t make sense. While many have figured out how to use tools such as Google Analytics for measuring conversions and attributing those to the ad unit (e.g. display ad or search phrase) that preceded the conversion, the results often do not make sense, or are contradictory to what their media plan said should happen.

If you are in this category, don’t despair – you are in good company. My personal research indicates that 94.59% of marketers are struggling with the same issues. I believe the challenge of measuring results that make sense is two-fold: 1) shortcomings of cookie-based tracking, and 2) the fallacy of last-click analysis, which I refer to as the “Wingman effect”.

Crumbling Cookies

As consumers become smarter, savvier online users, they are becoming more deliberate and less impulsive in their decision process. With so many more options at their fingertips they can easily do research and comparison shopping before buying that new camera or requesting information on your services. For big purchases, they often confer with others, e.g. sending a link to that new road bike to their friend or spouse to get their input). Another issue is the growing trend of “surf at work, buy at home”, where they do research on one computer and take action on another. Since we rely on cookies to track actions for each individual, these issues impact our ability to measure results. Here’s an example:

The example above illustrates how multiple visits and machines reduce the effectiveness of cookie-based tracking. The increasing use of cookie-cleaning tools adds to the dilemma. If, as widely reported, 40% of 3^rd party cookies are either not accepted or deleted within 30 days, we’re blind to what impacts a significant portion of our results. Consequently, it’s difficult to take an accurate measure of which media buys are performing, and which are not.

So with that we conclude the first part of this subject. In my next post I will introduce the Wingman and give new hope to display media salespeople. But for the mean time, please tell me what you think! If you found this to be of value, please comment below.

Later!

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So you want to make money from a Facebook App…

At the recent Barcamp Houston event, I attended a session titled “Facebook App Brainstorming Session”.  I had been thinking about how Facebook Apps could be used from a marketing standpoint, and was excited by the prospect of discussing it with others.  Unfortunately, the guy leading the session was mainly interested in telling the audience about the idea he had for an app.  Being a strong Type A personality, I interrupted the impromptu focus group and asked if anyone wanted to have a more general discussion about Facebook Apps.  Since most of the people in the room also thought that was the subject of the session we were in (kudos to the organizer for drawing a crowd!) a lot of hands were raised.  Convinced I could have a discussion w/ more than a mirror, I left the room and scheduled my own session [if you don't know how Barcamp works, the attendees decide what to discuss - you just find an open slot and put your subject and name on the board].

We had about 30 people show up for our brainstorming session. i kicked it off by posing 2 questions:

1. Can you actually make (real) money from a Facebook App?

2. Can a Facebook App be used for marketing purposes?

Unfortunately, no one in the room had actually developed a Facebook App. However, there were some smart people in the room and we had a great discussion.  Here are the takeaways:

Question 1: Can you make real $$$? While it’s theoretically possible to earn some income from cpm-based ad revenue sharing, we agreed it’s hard to make real money from an App.  Don’t get me wrong – Fun Space formerly known as Fun Wall is cool, but I use it mostly as a video viewer than an App.  Michael Dalesandro had the right app at the right time with Where I’ve Been, but those examples are rare.  Like the domain squatters of 1997, they showed that first movers can sometimes win.  Earlier this year I had dinner w/ the guys (nice kids from Austin) who created the Vampire and Zombie Apps.  They admitted they had just recently started to see some income from the millions of underworld fights they created, but recognized it wasn’t going to last long.  The nights of the Vampire were fading and that they needed to come up with something new, pronto.

This week Techcrunch reported that to date, a mere $8 million has been paid by Facebook to App developers around the world – not much considering the (hundreds of) billions of page views Facebook has had.  However, the article also reports there are some app developers who are making real money (six and seven figures each month) from their apps.  But these aren’t from the traditional cpm revenue shares – read the article to learn more.

Okay, so you CAN make money with a Facebook App.  And new members LOVE APPS! Who wouldn’t want to receive a cupcake???  Well, as much as virtual cupcakes enrich our lives, the novelty eventually wears off and they become a nuisance.  If you’re like me (and at least 499 others in the Facebook group “Stop Sending me damn application requests or I’ll go ape shit on your ass“), you’ve probably removed most of the apps you added when you joined Facebook.

The implications are twofold: 1) Apps have limited lives, and 2) you might want to shoot for the over 30 crowd, as that seems to be where the growth in Facebook members is occurring (ask a 22-year old which apps they are adding these days, but be careful!).

Question #2: Can Apps be used as a marketing vehicle? As above, the answer is “yes, but…” which means it’s possible, but becoming harder and harder.  First, as mentioned, the adoption of apps seems to be inversely correlated to time spent as a member (starts off high, goes down fast).  Second, more and more people are figuring out what all that privacy talk is all about.  I you know that a server knows who you are and is tracking how often you visit “Hot or Not” to see what others think of you, it may be a little settling.

But like all things, there are exceptions. The Causes App has been very successful for many… causes.  Another example is Dell, which jumped on the Green bandwagon (scoring a perfect landing before rumors surfaced of being too young to compete) with its Regeneration contest. The eco-centric campaign relied heavily (and benefited greatly) on the Facebook Graffiti application.  I saw the case study at Ad-Tech and was pretty impressed with how Dell whipped a bunch of environmentally-friendly propeller heads into a graffiti frenzy to promote its contest.  BTW – my entry “Dude you’re getting a Tree!” was not selected as a finalist.

The lesson: why create an app when you can leverage an existing app that is already being used by millions?  This was another one of the pearls that came from our Barcamp discussion.

Charitable Donation?
While there are a few Facebook apps that make money, and others that serve as effective marketing vehicles, those are few and far between.  I’m hopeful that all other apps were conceived, built and distributed with an altruistic, “share-the-fun” objective.  If on the other hand they were built for a commercial purpose, hopefully the owners are business-savvy enough to deduct the cost of building them as a charitable donation to society.

Comments?  Questions?  Let’s hear from you!

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