Measuring Marketing

John Davis

• Publisher: De Gruyter
• Year: 2017
• ISBN:
  9781501507229
• Edition: 1
• Topic: Business
• Subtopic: Marketing Research
• Index: Business

The demands of a more dynamic, globalized business world have led to sophisticated methods for quantifying marketing success. This informative guide defines and explains the use of more than 110 key marketing metrics for the success of your business. In eleven focused sections, this resource makes otherwise complex topics understandable. Written for marketing professionals accountable for measurable results as well as senior executives who need a firm understanding of marketing's impact on a business or product line, it clearly explains the metrics that you can use to measure marketing.

Along the way, you'll be introduced to a variety of important analytical tools, from brand, customer, and sales metrics to advertising, price, and distributions metrics. And with the addition of new examples and metrics—including significant updates to the online/digital/social area— Measuring Marketing, Third Edition will put you in a better position to excel at this difficult endeavor.

Part 1: Corporate Financial Metrics

Marketers have an array of challenges, responsibilities, demands, and expectations to perform their jobs successfully. They have a strategic role in today’s most successful organizations, helping to guide their companies toward achieving long-term strategic objectives. Therefore, the days of marketing being defined as creativity, advertising, and public relations are gone in today’s VUCA (volatility, uncertainty, complexity, and ambiguity), globalizing business world. Success is predicated by being astute detectors of trends and marketing influences, quickly synthesizing volumes of data, responding to rapidly changing markets and their underlying dynamics, building complex business and customer relationships, and doing all of this profitably. Marketing plans must align with corporate strategy, providing detailed insights about customer needs, how these needs will be addressed, and the probable impact to the company if the plan succeeds.

Financial measures provide solid indications of overall corporate success and the results from marketing investments in customer understanding, solutions development, business model evolution, and the commercialization of promising new ideas. Marketers must therefore pay close attention to corporate-level measures and have a clear understanding of how marketing contributes to the firm’s overall success, such as the connection between their pricing strategy and the impact on revenue under different assumptions and alternative scenarios, thereby demonstrating the financial implications of their marketing choices.

The financial measures described within this section are familiar to any business professional not living under a rock. Nevertheless, these measures provide marketers with a sensible review of key financial performance and the impact their marketing efforts have on overall company performance. This section discusses:

1.Revenue

2.Gross profit

3.Value-to-volume ratio

4.Net profit

5.Earnings-based value

6.Return on sales

7.Return on assets

8.Return on equity

Chapter 1
Revenue

Measurement Need

Companies need to measure the money received from the production and sale of products and services during a specified period of time.

Solutioni

Revenue is the total income from the sale of products and services, as represented by the following:

$R=P\times Q_t$

Where

R = revenue

P = price of products or services

Qt = quantity in time period t

Price refers to the actual price received for all products and services sold, not a budgeted or projected price. In a product-based business, quantity is simply the number of units sold. In a service-based business, revenue may be calculated by multiplying the hours worked by the billable hourly rate. Or, revenue may be calculated based on an agreed fixed fee for a contracted amount of time. Strategy consulting firms, for example, typically charge fixed fees in combination.

Since services can have more complicated revenue and cost models, we illustrate by assuming a client has hired a consulting firm for strategy work and has allocated $2 million for a six month engagement with the output expected to be specific recommendations and implementation plans for how the client can more effectively grow its business (see Table 1.1).

Table 1.1: Cost Matrix

Team

Other

Assumptions:

–Team members: 6 full time + 1 50% time + 1 15% time = 6.65

–3 days per week at client

–26 week engagement (6 months)

–Travel: $600 per ticket

–Accommodation: $200 per day

–F&B: $100 per day

–Other (additional support costs, overhead): $100 per day

Totals

Revenues	$2,000,000
Costs	$ 797,470
Net	$1,202,530
% margin	60%

A 60% margin is quite healthy. Understanding the sources of the revenue and costs provides business leaders with an overall sense of the strength of their business.

Impact

Revenue is the first indicator, and often a lead driver, of performance measurement. Revenue is included in this book because it is comprised of two ingredients vital to marketing: price and quantity; in other words, how much and how many. Revenue is, of course, merely a starting point and marketers must resist the temptation to focus only on top-line growth, because the levers that determine their ultimate financial success are clearly impacted by the costs incurred to earn those revenues. Revenue must be evaluated in the context of the total performance of the business and, for comparison, the market and the business’s key competitors. Furthermore, understanding revenue ought to inspire mana...