"You can't manage what you don't measure" is a saying that will never go out of style. It's timeless. In 100 years, it will still be applicable and relevant. Measurement forces us to be clear and specific and to crisply define our terms. It is the great clarifier in a world of ambiguous and imprecise language.

A new book from professors out of the Universities of Pennsylvania and Virginia is all about metrics, marketing metrics to be exact. The book is titled Marketing Metrics: 50+ Metrics Every Executive Should Master and authored by Paul W. Farris, Neil T. Bendle, Phillip E. Pfeifer, and David J. Reibstein. It is a type of cookbook with recipes for helping marketing managers or executives to design a scorecard, evaluate their business, or better assess market, competitive, and company trends.

According to the authors, the objective of the book is to take a step "toward clarifying the language, construction, and meaning of many of our important metrics." Given the drive toward making marketing more quantitative, analytical, and accountable, this book is an important work. As the authors point out, marketing is one of the least understood and least measurable functions at many companies. Frankly, marketing often doesn't get a lot of respect and is seen as "soft," especially compared with operations, sales, finance and accounting.

The book's 11 chapters consist of an introduction, nine chapters on particular metric categories, such as pricing or promotion, and a final chapter on how to conduct a marketing metrics X-ray. It is not a book you would read at one sitting or as you might a novel, but it's a great reference book for when you are thinking about metrics and what to measure.

The chapters are titled as follows:

  1. Introduction
  2. Share of Hearts, Minds, and Markets
  3. Margins and Profits
  4. Product and Portfolio Management
  5. Customer Profitability
  6. Sales Force and Channel Management
  7. Pricing Strategy
  8. Promotion
  9. Advertising Media and Web Metrics
  10. Marketing and Finance
  11. The Marketing Metrics X-Ray

Rather than go through all 50+ metrics, I'd like to review some of the key definitions and complications, along with some key metrics from chapters 2-10.

Defining Your Terms

Most languages, and especially business buzzwords (e.g., empowerment, alignment, synergy), are not as precise as they could be and are often open to numerous interpretations. As such, it's important to define some terms up front. The authors clarify a number of questions/terms in their introduction.

What is a metric?

The authors write that a "metric is a measuring system that quantifies a trend, dynamic or characteristic." In all disciplines, metrics encourage rigor and objectivity and facilitate understanding and collaboration.

Why do you need metrics?

The authors write that "numerical fluency" is a critical skill for every business leader today. Business metrics and measurement are essential to effectively evaluating plans, variances, and performance. Managers must be able to select, calculate, and explain key business metrics.

What about marketing metric opportunities?

It's not out of turn to say that marketing has often been regarded as more art than science. It has often been seen as a haven for the more right-brain creative types than say the "quants" out of finance or operational planning. As most of us in the business world know, there is no "easy money" in the overall budget for marketing. Marketers must know how to quantify the value of their offerings, customers, campaigns, and a host of other marketing-related activities.

The language of the boardroom is quantitative and measurement-centric. Although gut, intuition, and instinct are important traits of the executive, there still needs to be some measurement to be able to describe a situation in enough detail to use those traits.

How do you choose the right numbers?

As the authors write, the "numeric imperative" is not without its challenges. Finding a single metric "silver bullet" is not likely, and as we all know from working in companies, the data required is often estimated, incomplete, or simply unavailable.

The authors recommend that marketers use a "portfolio or dashboard" of metrics and create triangulated strategies and solutions. This recommendation is aligned with what many companies are trying to do: create real-time dashboards so they can effectively steer the business and make mid-course adjustments.

For each metric, the authors generally cover the following areas:

  • Definition of the metric
  • Purpose of the metric
  • Data sources, complications, and cautions
  • Construction of the metric
  • Related metrics and concepts

Chapter 2: Share of Hearts, Minds, and Markets

The ultimate metric in this chapter is market share. Almost all marketers and executives are familiar with their market share at some level. Like most metrics, the devil is often in the details. In evaluating market share, it's important to ask the following questions:

  • How do you define the competitive universe and/or market?
  • What time frame are you using?
  • Which units are used?
  • Is the actual market growing or shrinking?

Questions addressed in this chapter include these:

  • What are my market and brand penetration?
  • What are prospects purchase intentions?
  • What is a customer's willingness to recommend?

A metric example:

Chapter 3: Margins and Profits

As the authors write, if the purpose of a business is to create a customer, the sustainability and growth of that business is dependent on making a margin on those customers. At a high level, we know that one definition of margin is the difference between a product's price and its cost. It's not that simple, however. Margins come in many shapes and sizes with gross margins, operating margins, net margins, and various permutations of those three.

Questions addressed in this chapter include these:

  • What are my channel margins?
  • What are my variable and fixed costs?
  • What is my breakeven sales level?

The authors also discuss "contribution margin" on sales and call it "one of the most useful marketing concepts."

Margins can be a signal for the dominance of a particular company in its industry as well as its business model (e.g., software, pharmaceuticals, etc. vs. airlines, retail, etc.). However, low margins with high turnover (e.g., asset or inventory turns) are a model that can drive significant revenue, as illustrated by Wal-Mart and Home Depot.

A metric example:

Chapter 4: Product and Portfolio Management

This chapter is all about understanding how a product or service fits customers' needs. The authors describe numerous metrics used in product strategy and planning.

Questions addressed in this chapter include these:

  • What volumes can marketers expect from a new product?
  • Is brand equity increasing or decreasing?
  • What are customers willing to sacrifice to obtain what they want?

Companies that emphasize a new product and/or portfolio mix may be looking for increased margins (e.g., sell more margin-rich offerings), competitive advantage (e.g., different solution mix than competitors), or which offerings are feasible to launch.

A metric example:

Chapter 5: Customer Profitability

In this chapter, the authors cover metrics that measure the performance of individual customer relationships. Think of the various options around customer lifetime value metrics, along with the numerous inputs. The authors also outline metrics around acquiring new customers, as well as those to measure the retention and profit from existing customers.

Questions addressed in this chapter include these:

  • What is the average acquisition cost for a new customer?
  • What is the average cost to retain a current customer?
  • What is a prospects lifetime value?

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ABOUT THE AUTHOR

image of Michael Perla

Michael Perla is Sr. director & life sciences people leader, Business Value Services, at Salesforce.

LinkedIn: Michael Perla