Two Drink Minimum

A Layman’s Guide To Marketing Metrics

If you have led a sheltered life, the phrase, "Two Drink Minimum" was to be found on the doors of Adult Entertainment establishments in the USA. Of course, I had to look this up. It is a pretty good representation of the attitude of the other business departments to those in Marketing. Those guys who spent their time in an unaccountable, hedonistic party.

This cartoon dates back to 1992, around the time I started going to Silicon Valley, and nothing like that happens now, of course. Marketing is now a professional and respected business function, whereby money going in one end of the pipe delivers profitable business via a measurable delta through a funnel within which every stage is monitored to at least two decimal places.

Kinda.

Let’s drill down into it a little. I understand a lot of you reading this will consider yourselves to be be fully conversant with marketing systems, analytics and metrics. Many of you will have talked to investors, managers and stakeholders and reported KPIs monitoring performance and business model. Even so, please bear with me. Because from what I can see the message is still not getting through.

Let us take as an example a business with a marketing mix which includes events such as trade shows and conferences, print advertising, some collateral, and of course a full digital stack including SEM, PPC, Social Media, CRM, Paid Content, display, sponsorship, eCommerce and analytics. Imagine yourself as the Head of Marketing for this business, with a board meeting approaching and the onus on you to justify your existence and budget.

OTS

The first metric you might feel inclined to put in your spreadsheet is, “Opportunities To See” (OTS). It is your headline figure. It gives a quantitative indication of the reach of your message. It needs to be a big number. Big numbers impress people. So when you tell the assembled members of the board you have generated a Hundred million OTS, you can expect them to be impressed. They may well be. Right up until some pesky nerd, probably the CFO, enquires, “what does that actually mean?”

You will then have to explain it doesn’t actually mean very much. You will have to admit an OTS on, say, Facebook, may not even have been actually eyeballed by anyone. An OTS on your Google Ad network does not mean the same as one generated by an individual walking past your stand at a trade show or reading an article in a magazine in which you have advertised. You will explain it is a number which is only really relevant in comparison with previous year’s and future targets. You will know as you say it even this is not exactly true either. It is perfectly possible, in fact admirable, to reduce your OTS and increase CPM, conversions, acquisition and revenue.

CTR

Then there is your Click Through Rate (CTR). This is supposed to be a statistical indication of the quality of your content. A message which your audience relates to will generate a higher CTR than one which is irrelevant. Editorial content might get a CTR of 20%, while banner ads might only get 0.01%. A timely, relevant message means a high CTR.

Except it doesn’t. You may be getting clicks from people looking for jobs, or potential suppliers, or criminals. You get the picture. An unwary CMO could base their entire Search Engine Management (SEM) strategy on CTR from content published in July and then find the number was based on college leavers looking to send in their CVs after you got a mention on a news site.

So if the headline numbers and ratios on your spreadsheets are, shall we say, vague, how does the accountability look when you get down to the tough stuff, like campaign ROI or IRR on your marketing budget?

It is tough enough for a CMO to stand in front of the Board and explain himself, but what if you are a potential investor, talking to the CMO?

I once had a very successful business angel investor tell me, in all seriousness, that as long as my Customer Lifetime Value (CLV or CLTV) was one penny higher than my Customer Acquisition Cost (CAC), then I would have a scalable business in which he would invest. I was not actually asking him to invest, but as is so often the case with Angels, this did not impinge on his urge to proclaim. So I replied this was equivalent to advising a man thrashing about in a rough sea that avoiding inhalation of water was the key to preventing drowning. As far as it goes, the statement is entirely accurate, but it is the type of advice which is utterly useless and serves only to throw light on the imbecility of the person exhorting it.

CLV may, in some cases, be calculated with some degree of accuracy, over a specific period, such as in the business model of services for day traders or online daters, which are, of course, the same thing from a marketing perspective. Likewise, a pure play digital business may be able to calculate its CAC with some degree of accuracy over a specific period. However, I wouldn’t trust either calculation to a pound or dollar, let alone two decimal places. In online dating for example, a three month Lifetime horizon may be usual, but I have seen outliers of two years and more. Bear in mind the numbers are usually being put forward by someone with a very clear agenda. If you have sufficient belief in such calculations to invest on the basis of a marginal difference between these ratios, you won’t be investing for long.

All this may have given you the impression I do not believe in the accountability of digital marketing or the efficacy of the Metrics or Key Performance Indicators commonly used in our industry. Not so. Rather, I believe data and ratios are simply tools.

If you only have a hammer, everything looks like a nail

Leonardo Da Vinci could combine paint and brush to create works of art admired and wondered at for centuries. The same tools in my hands would create an unsightly mess on the floor.

The effectiveness and accountability of marketing systems has improved dramatically over the 40 or so years I have been in the industry. The problem is over-reliance on these numbers and ratios by managers, recruiters, clients and investors who do not really understand their significance. A little learning is a dangerous thing and the bugbear of the marketing industry since the sixties is, everyone knows what makes good marketing. I have worked for several businesses where the CMO is the spouse or sibling of the CEO. What talented families!

There are a great many talented people working in marketing. There are obviously some absolute shysters as well. That is people. I would say in my 40 years in the industry it has become far more accountable and professional. Standards and returns have improved exponentially. The reason marketers find it difficult to do their jobs is the same reason clients sometimes find it hard to accept the results. An increased availability of stats and tools can just muddy the waters.

Expectation Management

Large Marketing Software Vendors cannot help but manipulate statistics to support their claims.

An example. If a new feature in some performance marketing software builds CTR from 10 clicks to 20, that is unarguably a 100% increase. It will, arguably, result in zero additional revenue for the client. If the CTR was previously 0.01% and it increases to 0.02%, with a conversion rate of 1% it will still need another 5,000 OTS, generating 100 clicks to deliver any additional revenue.

Do we blame them? How can we? A scorpion does what a scorpion does. Do we blame our managers and clients for being influenced by these claims, while not understanding statistics in general and marketing in particular? You could try, but I don’t think it will help. The availability of marketing tech which allows previously unheard of levels of targeting and accountability is a good thing, but it is only another set of tools which needs to be used responsibly, to inform, educate and facilitate.

Mark Liberman, a US data scientist, discussing how individuals misinterpret statistics, estimates, "Out of the roughly 300 million Americans, I doubt that as many as 500 thousand grasp these ideas to any practical extent, and 50,000 might be a better estimate."

As with every aspect of life, it comes down to people, not systems or tools. Any system is only as good as the people operating it. How would you assess the future prospect of a marketing plan? Do you simply accept the numbers or do you ask yourself about the credibility of the person presenting them? Do you trust this person? Have they done what they say they will in the past? Can they show you examples of how they have delivered in the past? Are they over promising and under delivering? Can they explain to you in terms you understand what they are doing and why?

In short, do you believe in what you are being offered and who is offering it to you, or are they telling you what you want to hear, so you go for the Two Drink Minimum?