Introduction – Part 1 (How do you measure digital marketing?)

 

It’s a new world out there – we have gone from a physical store to an eCommerce, from printing ads in newspapers to paying for searchwords, from not being able to measure our marketing to being able to measure everything – and it’s confusing.

I think that the transition from traditional marketing to digital marketing is the most important change for business in a very long time, right up there with globalisation and digitalisation.

It is the best tool you have to expand your business, see what works and quantify that – if you have enough data you should be able to predict the effects of raising your budget (to a certain degree).

First off, as I said, it is complicated and that is one of the reasons many companies outsource the digital marketing, letting agencies handle Facebook, AdWords, Bing etc. And I don’t have a problem with that, you can’t have all knowledge inhouse – especially if you don’t spend enough on marketing to justify a fulltime employee with a very specific skillset.

BUT what I do have a problem with is that the measurement of the success often comes from the same agency – the reporting, the knowledge of what is a good result, of what you should do. This is something all companies should have inhouse, because it very much differs from company to company. And it is in the best interest for the agency to present a result as good as possible, with as little effort as possible – I’m not saying that they are tricking their clients, but it’s not a good move to pay someone for their service and let them tell you if they have done a good job or not.

And it is also a matter of knowledge. When I worked as Head of Analytics at a previous employer we had an agency that did some AdWords campaigns for us. We had a specific campaign to push products from a certain brand. The return on ad spend was incredible, something like 1500% and they presented the result with impressions, CPC, spending, transactions and everything looked great. But we didn’t se a raise of 1500% in revenue on that brand, we saw barely any change at all from our usual run-rate.

And when I looked at the actual search-phrases used to drive that traffic it was only those who contained our company name that had driven the sales, and those sales was of another brand and had nothing to do with our campaign.

Now, I don’t think our agency was deliberate trying to trick us, I think it was just down to lack of knowledge, and to be honest, lack of time. An agency gets paid either a % of spending or a fixed rate – since they are consultants that number translates to how many hours they can spend on your account.

Getting a lower fee, when using marketing agencies is basically nothing more than getting less hours for the same budget – it will most likely decrease your quality.

The importance of understanding

But iamdatadriven, why is it so important, what difference does it make if I trust my agency, we are happy with their result, even if it could be a little bit better we can’t afford to invest in a Head of Analytics or BI consultants.

Let’s just make an easy example

You start up a company in January and invest 100$ in marketing and after that you re-invest 10% of the revenue back into marketing each month.

If you have a ROAS (Return on ad spend) of 1,4 you would in 12 months have a revenue from marketing of 1 077$

If you have a ROAS (Return on ad spend) of 2,1 you would in 12 months have a revenue from marketing of 31 924$

That is 29,6 times more revenue in a year.

But iamdatadriven, that is not a realistic example – I can’t increase my marketing budget by a factor of 58 in a year, that is not possible

No, you might not be able to. This was a hypothetical example for a new business, but it is a valid example for a small business or a newly started business. My point is simply that it matters a lot, let’s take some more examples, without re-investing a relative amount of the revenue. Just the difference if you have a constant spending each month, and the difference between a ROAS of 1,4 and 2,1.

If you are spending 1000$ / month, the difference is 8 400$ in revenue / year

If you are spending 5000$ / month, the difference is 42 000$ in revenue / year

If you are spending 20 000$ / month, the difference is 168 000$ in revenue / year

So, what is the point of this introduction, why have I written 800 words and not begun to talk about attribution, channels, risk calculation etc. I want you to understand how important it is that you measure your results, and I want you to understand that it is complicated.

Lastclick is not always what is important.

Your ROAS is extremely important, especially if your marketing budget is relative to the sales it generates (I highly recommend allocating a percentage of your revenue to re-invest in marketing, but that will be in another blog post).

How do you measure digital marketing?

Understanding what source is driving conversions & attribution models – Part 2 (How do you measure digital marketing?)