Forget Proxy Performance KPIs. Its Time To Focus On Revenue Again
Written by members of the media community, Data - Driven Thinking offers new insights into the digital revolution in media.
Today's column was written by Michael Morris, co-founder of Hyperlocology .
The digitization of advertising has unleashed a stream of easily measurable metrics that marketers can use to gauge effectiveness. This has given rise to a category of affiliate software that helps brands and retailers understand how effective their campaigns are in each channel by measuring key performance indicators like flocks, cost per acquisition, and conversion rates.
These KPIs have their place in the marketing strategy. But digital marketing focuses too much on proxy KPIs and no longer on the most important metric: profit.
The search for digital KPIs has led marketers to make strategic mistakes. They chase conversions that don't bring in revenue, maintain outdated strategies by focusing on metrics rather than processes, and cut costs when it would be more beneficial to focus on driving revenue.
Track bad conversions
Many marketing teams measure their success using numbers like CPA, CPL, ROI, and ROAS. As a result, marketers' efforts have been more focused on attributing online conversions (through various low-sequencing tactics) to achieve often inflated KPI goals.
These indirect indicators do not take additional income into account. Instead, they try to capture the impact of a particular form of marketing that can be attributed to the bottom line.
For example, consider a retailer with five stores in a defined market area (direct memory access). The marketer pays the marketing agency to calibrate the ads in this direct memory access. When an agency is struggling to meet its primary KPI — generating ad-related sales — they can artificially inflate that number by retargeting past customers or looking down the funnel for conversions that would likely have happened without marketing. So the agency appears to have accomplished its task of improving marketing performance, but the retailer is not generating any additional revenue.
The independent variable in the performance analysis should be a true test of the quality of the marketing — for example, the creative, everyday elements, even product or service offerings — and not just the budget allocation and audience manipulation that occurs. regular customer.
Retaining outdated policies
Focusing on key performance indicators also solidifies ineffective strategies.
For example, agencies have always billed their clients for the number of full-time employees needed to host a meeting. As long as the agency meets their criteria, the client can continue to pay for the agency relationship. But the status quo can be very inefficient, as automation can now handle many of the tasks that agencies used to have to hire full-time employees to do.
Automation can help by allowing marketers to optimize campaigns. For example, it can help ordinary marketers set up location-based campaigns that would otherwise be impossible depending on the number of people needed. Setting up these more granular campaigns automatically leads to more reliable results and saves staff time that would otherwise be wasted searching for digital vanity metrics.
Therefore, one of two improvements in the marketing relationship must occur: either labor costs must decrease, or the agency must reinvest this free human time into enhancing creativity, identifying new market opportunities, or other tasks that require human ingenuity.
When marketers are short-sighted and evaluate marketing strategies solely on performance metrics, they can miss these opportunities to improve efficiency and productivity. It is not enough to show the statistics on the dashboard. Marketers need to look at the human processes that drive these metrics.
Focus on efficiency, not progress
Finally, while marketers use KPIs to actually improve business processes, these KPIs often translate to greater efficiencies through business growth and improved relationships with existing customers.
Consider a performance marketing strategy that relies on getting more conversions on Instagram while reducing acquisition costs. In any case, this strategy can work. More conversions are achieved and the advertiser spends less money to get them, increasing the return on investment. However, this is often because technology providers or agencies have become more efficient at missing out on conversions that would have been achieved without ads.
This emphasis on efficiency creates a vicious circle. Advertisers learn to expect unreasonable costs per conversion. Agencies and suppliers are forced to meet these expectations, so they choose "Easy Wins". The marketing dollars will keep flowing, but the advertiser will only become more efficient with Instagram ads without actually growing their business, and the agency will eventually hit a ceiling when it comes to effectively targeting leads.
To prevent this chain of errors, marketers should review their marketing measurement program to ensure it isn't being skewed by the pursuit of empty profits. You need to build customer relationships across the funnel, rather than relying on bottom-of-the-funnel tactics that often appear effective but inadvertently undermine brand equity.
Follow Hyperlocology ( @Hyperlocology ) and AdExchanger ( @adexchanger ) on Twitter.
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