Tuning Up Your Marketing Metrics and Measures: What They Are and Why They Matter
If you want to demonstrate the importance of Marketing to the rest of the organization you need to be able to quantify Marketing’s value to the business. A recent study by Ernst & Young found that only 13% of the CFOs said that the agendas of Finance and Marketing were completely aligned on the issue of measurement methodologies. An essential part of alignment is working from an agreed set of definitions. A recent conversation with several Marketing professionals during a client Marketing dashboard requirements discussion revealed that it is possible many marketers need to understand the nuances associated with measurement. As we were discussing their measurement playbook, they used the terms measures and metrics interchangeably. I asked, “How do you distinguish measures from metrics?” One of the managers countered, “They’re the same, right?”
Well, no, not exactly. While there is an overlap between measures and metrics, what distinguishes them is important. By definition they are different.
Measure How Fast You Are Driving Right Now
Measure, when used as a noun, refers to a unit. It can be a unit of quantity or quality. Note the word unit, measures describe one element. They are concrete. Speed, distance, height, weight, page views, content shares, number of qualified opportunities, number of customers, and number of deals closed, are examples of measures. Some measures are more valuable than others. Some measures can be changed while others cannot. For example, our height is a measure that we cannot change, much to my personal dismay. Weight, on the other hand, is a measure we can change. In Marketing, the number of qualified opportunities is a measure we can change. One potentially easy way to change it is by modifying the criteria. If you reduce the “gate” the number will go up. Deciding whether a measure is appropriate and then whether to invest in changing it depends on the business result you are trying to impact.
Metrics: What is Your Dealer’s Financing Offer?
In a performance-focused environment, organizations use performance metrics to monitor progress against business outcomes and to the effectiveness and efficiency of business processes. Metrics are tied to business performance. A metric when used as a noun is a mathematical function. A metric is typically derived from a calculation that incorporates two or more measures. For example, momentum is calculated by multiplying the mass of the object (a measure) times its velocity (another measure).
A good metric is one that be used as a standard of measurement. To establish a metric as a standard you will need some kind of measurement baseline. When a metric serves as a standard, it provides you with a quantifiable way to compare performance, either to previous results or against another entity. In the business world, this could be a competitor or a company you desire to emulate.
Ideally this comparison enables you to make a decision. For example, blood pressure is a function of your systolic blood pressure and your diastolic blood pressure. The American Heart Association provides guidelines against which you can compare your blood pressure to determine your degree of risk. In business, we may use a metric such as category growth rate. This metric requires at least two measures across a specific time frame: your growth rate and the growth rate of the category. Customer Lifetime Value is another example of a metric that incorporates three measures: frequency of purchase, duration of loyalty, and gross profit.
Why Metrics and Measurements Matter
Clearly, business decision makers need measures, metrics, and KPIs (Key Performance Indicators). Measures constitute metrics. KPIs are a type of metric that is considered essential to measuring, monitoring and improving business performance. KPIs are not a business result. Revenue, for example, is a measure, not a KPI. Revenue is the result of what you do.
KPIs provide both insight and direction for performance. It should help you understand what caused the result and facilitate action. A way to determine whether your metric is merely a metric or it is actually a KPI is how willing you are to make a significant investment to make the metric change, for example how much if anything would you be willing to invest to make the metric double? If you would be willing to make an investment to see a change in the “sum” of the metric, you more than likely have a KPI.
Think of KPIs as your vital signs. If something goes amiss, you will need to examine your metrics and the associated measures to be able to diagnose the problem and make a course correction. And, like vital signs, there are only a handful that truly matter.
Shared C-Suite Call to Action
A shared understanding of terminology will go a long way towards ensuring productive budgeting and performance setting conversations, as well as throughout the year when results are reviewed and plans are revised if necessary. CMOs, when considering Marketing’s measures, metrics and KPIs, keep the CFO and CEO in mind. CEOs and CFOs are focusing on strategic investments that drive growth. Marketing’s measures, metrics and KPIs should be in lock step. CEOs and CFOs, be clear about the business outcomes you expect Marketing to drive. Work with your Marketing leadership to define the KPIs that are most relevant so the Marketing team will know what data, measures, and metrics to select.
This article originally appeared in VisionEdge Marketing.