Twelve performance indicators that marketers should measureby
When faced with demands to justify the money invested and to quantify the return on investment, marketers must not try to hide or suggest that its performance cannot be meaningfully measured suggests Nicholas Watkis.
By Nicholas Watkis, Contract Marketing Service
Marketers are constantly changing the definition of marketing. However, the definition of marketing by the Chartered Institute of Marketing (CIM), has yet to be bettered. The CIM defines marketing as "the management process that anticipates and satisfies customer demand profitably," thus encompassing the generation of profit with customer satisfaction. By this definition, it is clear that the purpose of 'marketing' in any business, is the generation of profitable revenue. It therefore follows by this definition, that the sales function is the executive arm of marketing, and therefore should be managed as a single business area.
However, in many businesses, sales and marketing are regarded as separate business functions and managed accordingly. While this arrangement may be regarded as illogical in the light of the CIM's definition, it is a fact of life with which many marketers have to accept. In addition, the division of sales from marketing in a business organisation often brings political pressures which are counter productive, especially when vying for budgets and justifying expenditure.
When faced with demands to justify the money invested and to quantify the return on investment, marketers must not try to hide under the premise that marketing is an art not a science, and suggest that its performance cannot be meaningfully measured. Where marketing is a separate organisation from sales, it is for marketers to demonstrate to senior management not only the importance of their activity in the support of sales, but also the need for the sales and marketing function to be closely aligned and ideally under a single management structure.
The marketer's role in this situation is to provide direction and support for the selling function, by developing and monitoring marketing plans to support the marketing objectives of the corporate business plan. To achieve this, marketers must demonstrate their supporting role for the sales function by identifying market opportunities and potential target customers as well as providing assistance in gaining and retaining customers. Marketers should also be responsible for measuring actual sales and revenue performance against the planned objectives of marketing plan as well as monitoring the use marketing resources to support the sales organisation.
Targeting sales through analysis of markets and demand is a responsibility of marketing. It is also the marketer's responsibility to support the sales organisation by market preparation through advertising and promotion, and maintaining a company and product awareness by the market through advertising, promotion, public relations, and the use of customer relationship management. Marketers have also a prime responsibility for developing effective pricing strategies that produce sustainable profitable revenue.
The work done by marketers is directly and indirectly fundamental to the success of the sales function. When it comes to verifying their contribution to the business and justifying the investment in marketing, marketers must look at their contribution to the whole of the business getting and retaining activities and not consider themselves to be a separate business function from sales.
Reporting on business performance must therefore be across the whole of 'sales and marketing'. The only measurements which have true value are those which are quantifiable which are usually of inputs and output; such as costs, investments and revenue. In order to achieve, these marketers need to list all the activities that provide direct and indirect support to sales and customer satisfaction, as well as quantify separately all the costs involved in providing both direct and indirect support.
Marketers must provide a detailed analysis of the contribution that 'sales and marketing' make to the gaining and retaining of business. This should include an analysis of all sales made by: product, customer group, customer market, market sector, market segment, geographical area. In addition it should identify the source of sales including web-produced, direct sales, agents, etc.
Marketers should report on the general performance of business getting activities in terms of:
- Orders: number, average value, total value
- Enquiry/quotation conversion rate
- Quotation/order conversion rate
- Analysis of lost orders
- Order/delivery time
- Invoice to payment time
- Total marketing cost per order
- Operating profit
- Net profit/unit sale
- Stock turn
- Growth in customers
Where marketers do not have senior executive responsibility for generating revenue, they must be the providers of all the quantified 'sales and marketing' information on a continuous and regular basis to the senior decision makers. Reporting data for the sake of it is counter productive and wasteful. Always the marketer must ask 'what do we need to know? Who needs to know? For what purpose is the information required and in what form will it be needed?'
Marketers must ensure that those decision makers have suitable performance indicators in order to enable informed decisions to be made.
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Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a fellow of the Chartered Institute of Marketing and a Certified Management Consultant of the Institute of Business Consultancy.
© N.C. Watkis, Contract Marketing Service, specialists in measuring marketing performance and return on marketing investment.