Evaluating Marketing Performance

The Importance of Evaluating Marketing Performance

Evaluating marketing performance guides future marketing initiatives and helps a company achieve its goals.

Learning Objectives

Review the importance of performance evaluation from a marketing perspective

Key Takeaways

Key Points

  • Ideally, marketing performance measurement should be a logical extension of the planning and budgeting exercise that happens before a company’s fiscal year.
  • Marketing performance metrics or key performance indicators (KPIs) are useful not only for marketing professionals but also for non-marketing executives.
  • Determining what areas of the marketing mix to modify, as well as whether company goods, services, and ideas meet customer and stakeholder needs, are some of the primary reasons why companies evaluate the marketing performance.

Key Terms

  • bottom line: The final balance; the amount of money or profit left after everything has been tallied.
  • key performance indicators: considered industry jargon for a type of performance measurement, KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged.
  • return on investment: Return on investment (ROI) is one way of considering profits in relation to capital invested.

Why Evaluate the Performance of Marketing

The intangible benefits of marketing – improving and enhancing brand awareness; educating customers and prospects about product benefits; and strengthening stakeholder relationships – make measuring its financial impact a perplexing and challenging process. Ideally, marketing performance measurement should be a logical extension of the planning and budgeting exercise that happens before a company’s fiscal year. The goals that are set should be both measurable and applicable to every marketing role within an organization. Companies employ various methodologies to measure marketing performance and ensure they meet those performance goals.

Pages of a business report with a calculator and pair of reading glasses sitting on top.

Business Report: Evaluating marketing performance helps companies plan and budget for the next fiscal year.

Importance of Marketing Performance Metrics

Marketing performance metrics or key performance indicators (KPIs) are useful not only for marketing professionals, but also for non-marketing executives. From the chief executive officer to the vice president of sales, the senior management team needs marketing KPIs to gauge how marketing activities and spending impact the company’s bottom line. This is particularly important since companies are prone to reduce marketing budgets during economic downturns, downsizing, and mergers.

As marketers face more and more pressure to show a return on investment (ROI) on their activities, marketing performance metrics help measure the degree to which marketing spending contributes to profits. It also highlights how marketing contributes to, and complements, initiatives in other areas of the organization, such as sales and customer service.

Other reasons why companies evaluate marketing performance include:

  • Monitoring marketing’s progress towards its annual goals
  • Determining what areas of the marketing mix – product, price, place, and promotion – need modification or improvement to increase some aspect of performance
  • Assessing whether company goods, services, and ideas meet customer and stakeholder needs

Establishing marketing performance metrics is integral to helping brands satisfy customers, establishing a clear company image, being proactive in the market, and fully incorporating marketing into the company’s overall business strategy.

Marketing Performance Metrics

Marketing metrics are numeric data that allow marketers to evaluate their performance against organizational goals.

Learning Objectives

Summarize how marketing metrics impacts company operations and goals

Key Takeaways

Key Points

  • Marketing metrics have different elements of measurement, including net sales billed, number of product or design registrations, and brand surveys to measure brand awareness.
  • By monitoring and analyzing marketing performance metrics, brands can increase their competitive intelligence, assess their market strengths and weaknesses, and make calculated budgetary decisions across the marketing mix.
  • Return on marketing investment (ROMI),marketing return on investment (ROI) and return-on-marketing-objective (ROMO) are examples of marketing performance metrics used by major brands to prioritize and allocate marketing investments.

Key Terms

  • analytics: the discovery and communication of meaningful patterns in data, which rely on the simultaneous application of statistics, computer programming, and operations research to quantify performance.
  • contribution margin: cost-volume-profit analysis, a form of management accounting; the marginal profit per unit sale

Marketing Performance Metrics

As companies seek to run leaner and more efficient businesses, more marketing professionals are tasked to demonstrate how marketing generates revenue and contributes to companies’ business goals. Marketing metrics provide frameworks that public relations specialists, brand managers and marketing directors can use to evaluate marketing performance, as well as back their marketing plans and strategies.

A screenshot of a marketing metrics program on a computer.

Analytical Tools: Quantitative metrics and analysis help marketers make more accurate decisions and predict risks associated with decisions.

The numeric data allow marketers to not only justify their efforts, but also highlight the direct relationship between marketing and larger organizational goals. Marketing metrics have different elements of measurement, including net sales billed, number of product or design registrations, and brand surveys to measure brand awareness. By collecting and analyzing marketing metrics, brands can build their marketing performance in the following ways:

  • Increasing competitive intelligence and anticipating competitor reactions to new marketing strategies
  • More accurately assessing company marketing assets such as brand equity and its level of effectiveness among target audiences
  • Building a knowledge base of current and historic data that help drive marketing mix decisions and steer the company through rapidly changing market conditions

Entities such as the Marketing Accountability Standards Board have developed formal processes for connecting marketing activities to the financial performance of organizations. Moreover, industry experts have developed various metrics – notably, return on marketing investment (ROMI) – to help marketers measure the performance of activities across the marketing mix. The purpose of metrics such as ROMI is to measure the degree to which marketing spending contributes to profits.

How ROMI Works

Return on marketing investment is one of the most difficult organizational aspects to measure. ROMI, a relatively new metric, is marketing contribution attributable to marketing (net of marketing spending), divided by the marketing “invested” or risked. ROMI is based on the calculation:

[Incremental Revenue Attributable to Marketing * Contribution Margin (%) – Marketing Spending] / Marketing Spending ($)

There are two forms of the ROMI metric: short-term ROMI and long-term ROMI. Short-term ROMI measures revenue such as market share, contribution margin or other desired outputs for every marketing dollar spent. This metric is best used to determine marketing effectiveness and steer investments from less productive to more productive activities.

In a similar way, long-term ROMI can be used to determine other less tangible aspects of marketing effectiveness such as increased brand awareness or consumer motives. However, long-term ROMI is often criticized as a “silo-in-the-making”. Long-term ROMI creates a challenge for brands unfamiliar with using business analytics together with marketing analytics to determine resource allocation decisions. Despite this challenge, long-term ROMI can be a sophisticated measure for prioritizing investments and allocating marketing and other resources within an established framework.

Other Marketing Performance Metrics

Marketing return on investment (ROI) is another term that refers to measuring company sales and profits. Author Rex Briggs also introduced the term “ROMO” for return-on-marketing-objective. This reflects the idea that marketing campaigns may have a range of objectives, where the return is not immediate sales or profits. For example, a marketing campaign may aim to change the perception of a brand. Nevertheless, in most cases, a simple determination of revenue per dollar spent for each marketing activity can be sufficient to help make important decisions to improve the entire marketing mix.

Methods for Evaluating Marketing Performance

KPIs, ROMI, and Accountable Marketing are all metrics that are used to track marketing performance.

Learning Objectives

Illustrate the purpose and characteristics of marketing performance evaluation methods

Key Takeaways

Key Points

  • When evaluating marketing performance, companies should measure marketing outcomes from the consumers ‘ points of view, include all marketing activities, measure across a continuous time period, and meet statistical and technical criteria required of all measurement systems.
  • To accurately measure the effectiveness of marketing activities, KPIs must be integrated within the business and management of the company.
  • To ensure meaningful comparisons among activities, companies should employ a common scale, and measurement error must be quantified so that managers can react to changes in conditions.

Key Terms

  • Advertising Research Foundation: The ARF is an association where practitioners from every avenue of advertising—agency, academia, marketer, media, and research—gather to exchange ideas and research strategies.
  • return on investment: Return on investment (ROI) is one way of considering profits in relation to capital invested.
  • key performance indicators: considered industry jargon for a type of performance measurement, KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged.

Evaluating Marketing Performance

Organizations use various methods to evaluate marketing key performance indicators (KPIs) or metrics. Marketing Performance Measurement, Marketing Performance Management, Marketing Return on Investment (ROI), Return on Marketing Investment (ROMI), and Accountable Marketing are all metrics that companies use to connect marketing performance to the financial performance of the organization.

A diagram that shows how companies (for example, YouTube, LinkedIn, Twitter, and Facebook) execute marketing strategies (responsibility, analytics, creativity, processes, guidelines, measurement, policy, support, monitoring, objectives, and business needs).

Marketing Performance: Using an established methodology to evaluate marketing effectiveness helps companies measure performance and assess business needs.

In order for marketing KPIs to be integrated within the business and management of the enterprise, and ensure consistency and reliability across the marketing mix, they must meet these minimum requirements:

  • Measure marketing outcomes from the consumers’ points of view
  • Include all marketing activities
  • Be repeated over time
  • Meet statistical and technical criteria required of all measurement systems

Consistency is Key

Marketing materials can be designed to inform, portray products and services attractively, and influence purchasing behavior. The methods for evaluating the performance of, and responses to, these materials range from simple calculations measuring return on investment, to tallying the number of visits to a website. Since marketing campaigns are typically integrated across all channels (e.g., print, email, and social media), these channels are measured together to understand the overall effect on target markets.

To ensure meaningful comparisons among activities, brands, markets, and time periods, organizations may employ a common scale to analyze performance metrics. Using different measurements to evaluate different communications activities, competitors, and markets does not allow direct comparison and results in lost synergies. Companies using formalized methodologies continually gather and monitor marketing data to understand where the marketing plan is strong and where it needs improvement. Long-term observation also brings true insight about unanticipated changes and “red flags” in the data.

All measurement systems should take into account accuracy, repeatability, reproducibility, bias, data shifts, and data drifts. Measurement error must be quantified so that managers can react to changes in conditions, but not to changes due to measurement variation. Independent organizations such as the Advertising Research Foundation evaluate the validity of commonly used measurement systems to produce standards and best practices for evaluating marketing and advertising data.