As business people, we like to know what we’re getting for our money. If we invest in social media or some other type of marketing activity, we’d like to know how many sales we’re getting for that investment. This helps us understand whether or not the tactic is working and whether it’s worth the cost. However, when evaluating different marketing tactics, we need to be careful about comparing and relating measurements to avoid trying to compare apples and oranges.
Measuring the Right Thing
The biggest challenge to understanding the ROI of various tactics, is making sure you’re looking at the right numbers and measuring the right outcomes. For example, if you’re running an AdWords campaign, you’ll know how many impressions you’re getting, how effective each keyword is, how many clicks you’re getting and what you’re average cost per click is. But if you don’t know how many conversions (sales) you’re getting from those clicks, you don’t know whether or not that traffic is making you any money. In the case of AdWords, it’s very important to understand how many actual sales you’re receiving from the clicks you’re paying for and what your cost per conversion is.
Looking at the Whole
When you’re looking at how many overall sales you have this year versus last, and are trying to understand why sales are down, you need to look at all of your marketing tactics, and what you know about how effective each tactic is. You’ll also need to look at general market trends to understand if there are outside effects influencing your sales (like a recession).
Identifying Returns
By understanding how each marketing tactic is performing, you’ll be able to better understand whether or not your investments in those tactics are worth it. For example, if you’re spending $10,000 in overall marketing, and receiving $100,000 in sales, that might seem like a pretty good investment. But if your $10,000 in marketing is only giving you $1,000 out of that $100,000, that’s not a very good investment at all — it’s actually costing you a lot of money!
Correlation
While it is possible to look for correlation between two numbers by looking at trends over time, you need to be careful about comparing two numbers at one point in time. By looking at trends, you may see that when you’re running promotions on Facebook, you have a jump in sales. If this happens every time, and is consistent, you may have a valid correlation between what you’re doing on Faceobok and an increase in sales (if you’re not measuring in a more direct manner). But, if you look at the number of sales for March, and it’s down, it’s difficult to say the cause without more investigation. Without more data, blaming Facebook (or whatever promotin you’re running) may give cause you to make a decision that either doesn’t help you in the future, or actually hurts you.
Strategy vs Tactics
Also be careful about blaming a strategy for not working without taking a look at the tactics that make up that strategy. AdWords is a tactic. Facebook is a tactic. A Strategy is figuring out what tactics and actions you need to take in order to reach a specific goal. If a strategy is created to reach a certain goal, but some of the tactics aren’t performing well, you need to improve those tactics, not necessarily completely abandon the strategy. Any good strategy evolves over time and also has measurement and analysis periodically to see what changes need to be made.
Thoughts?
(photo by post406, on Flickr)