Small Business Analytics and Metrics: How and What Do you Measure Up?

Small Business Analytics and Metrics:How and What Do you Measure Up?

Al Bessin, Principal, Bessin ConsultingGeoff Wolf, EVP Marketing , J.Schmid

Jude Hoffner, Principal, Hoffner Marketing

Overview

• The Challenge• Types of Data• A Customer-Centric View• Equalizing the Playing Field• A Basis for Comparison – Break Even and Contribution• Tips and Limitations

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The Challenge

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The Basic Business Proposition

• Don’t lose site of priorities

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Classic View

• Marketing grouped around transaction channels• Planned, budgeted and measured independently

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Spend Justification

• Catalog and internet marketing analyzed independently

• Different criteria applied• Customer behavior ignored

…a gross overstatement of program performance

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Holistic Marketing Analysis Model

• Consider all channels together• Find common metrics to permit comparison

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Types of Data

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Categories of Metrics―Pre-Sale

• Website– Bounce Rate– Visitors– Page Visits– Entry and Exit Pages/Abandonment– Conversion Funnel

• Call Center– Calls Handled– Abandonment Rate– Talk Times– Upsells– Conversions

…what can be associated with customer records?

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Categories of Metrics – Buying

• Push Marketing– Direct Mail– Email– Targeted Remarketing

• Pull Marketing– Paid Search (branded, competitive)– Natural Search (branded, competitive)– Direct URL Entry– Affiliate Programs– Marketplaces– Comparative Shopping Engines

…associated with customer records

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The Channel Challenge• Consumer channel preferences are changing

– Website is a prominent element in the buying cycle• Enterprises remain organized around old models

– Direct Mail (or catalog) and Website Divisions– Call Center and Website Divisions– Should be Direct Division

• Consumers should see the enterprise, not individual channels

• Measurement and Analysis must look across the business

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Data Types

• Ephemeral Behavioral Metrics– Useful for understanding interaction of different media– Not retainable at the customer level

• Persistent Transactional Metrics– Tied to the sale– Assignable at the customer level

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The Problem

• Behavioral science is inherently “soft science”• There is no perfect quantitative answer

1. Use the 80:20 rule2. Be aware of opportunity cost

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The Solution

• Collect Persistent Transactional data– Assignable to customer records– Quick view of channel and vehicle – Useful for predictive purposes

• Model response across channels• Adjust models with Ephemeral Behavioral trends• Validate models with testing

This achieves the quickest quantitative read on performance at a reasonable cost

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Data Elements

• Systems need to be set up to collect source data• Codes should be passed along with orders to identify

direct sources

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A Customer-Centric View

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A Customer-Centric View

• Customers see brands and products and what they represent• Channels can have synergy or be in conflict

To maximize your relationship with your customers– Look at the business from their perspective

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Customer Touch Points

Inducement

DecisionContact

TransactionFulfillment

DeliverySupport

Direct Mail MarketingInternet MarketingAdvertising

Call CenterWebsiteStore

Lifetime Value

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Customer-Centric Data

• Persistent Transactional data permit customer-centric analyses

• Imperfect, but:– Generally predictive– Allow better contact relevance– Normalize the multichannel view

Critical to use a clean and accurate database

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Equalizing the Playing Field

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The Challenge

• Ban siloing – one team, one company• Aggregated Demand = 160%

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Allocation Modeling

• Limitations as to what data can be collected that is customer-identifiable

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Developing Models

• Start with collection of response data

• Customer identifiable• Estimate behavior• Model• Test to validate• Refine model

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An Allocation Model

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Key Takeaways

• Collect the data―all transactions should carry source codes

• Develop an allocation model• Test the model, ongoing• Measure ROI the same way for all vehicles• Use source information to plan acquisition and

contact strategies

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Sometimes, “Simple” is Amazing

A Basis for Comparison

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Calculating Return on Investment

• Demand $s (Matched Marketing Database)• GM% (plug)• Variable Transaction Cost (plug)• Marketing Cost (plug)

(Demand x GM% - Transaction Cost)

Marketing Cost

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Breakeven Analysis - Defined

• “Incremental” Breakeven

The response rate at which the Order Contribution equals the Variable Marketing Expense

• Variable Marketing Expense includes only those costs which are truly variable (unlike a financial breakeven analysis)

For example: Do not allocate overhead such as CEO pay!

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Breakeven Analysis

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Tip:

• Transaction costs can be estimated by taking an annual P&L and dividing the variable expense by the number of orders taken !

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Adding Observed Values

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Marketing Contribution

• Marketing Contribution is the Order Contribution less Variable Marketing Expense

• When Marketing Contribution on a first order is negative, it is the Acquisition Cost

• This establishes thresholds for selecting prospecting sources

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Putting It To Work: 12 Month Contribution

• Measure the value of a customer in the 12 months after acquisition and compare to the acquisition cost

12 Month Order SalesLess: Cost of GoodsLess: Fulfillment ExpenseLess: 12 months of Marketing Expense

= 12 Month Value

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The End Result: Sample Dashboard

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Tips and Limitations

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Attributes of Metrics

• Simple indicators of performance• Timely “heads up” to changes• Trigger more detailed

investigation

Avoid Analysis Paralysis

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Frequency of Measurement

• Hourly• Intra-day variance

• Daily• Intra-week variance

• Weekly• Consistent time frame

• Monthly• Tie to monthly financials

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The Role of Metrics

• Management to numbers• Budget• Rolling forecast

• Promote vision• Warning of sign of other issues

• Example - gross margin

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Challenges

• Standards must be established for the individual business

• Information must be gathered from multiple systems

• Fewer significant metrics are better than more

• Information is dynamic• Never let metrics displace intuition

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Be certain you understand…

• What drives demand for your business

• Your cost to acquire new buyers• The value of buyers and how it

differs by source• The impact of other factors on

demand

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Final Takeaways

• Practical Attribution for Small Business• Statistics are not enough• Look High Level First • Test legacy • Look at Dependencies (example of chart that shows

orders timed with major marketing activities)• Internal benchmarking vs external• Why metrics must be tailored to the business –

attribution tuning

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Questions?

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