Forget proxy performance KPIs. It’s time to focus on revenue again

Data-driven thinkingis written by members of the media community and contains fresh insights into the digital revolution in media.

Today’s column is written by Michael Morris, co-founder of Hyperlocology.

The digitization of advertising has unleashed a torrent of easily measurable statistics for marketers to measure performance. This has led to a category of partner software that helps brands and retailers understand how their campaigns are performing across each channel by evaluating KPIs such as clicks, cost per acquisition, and conversion rates.

These KPIs have their place in the marketing strategy. But digital marketing has become too focused on proxy KPIs instead of the metric that matters most: revenue.

The search for digital KPIs has led marketers to make strategic mistakes. They seek out conversions that don’t generate additional revenue, preserve outdated strategies by focusing on metrics rather than processes, and cut costs when it would be more useful to focus on revenue gains.

Drive out bad conversions

Many marketing teams measure their success based on numerical metrics such as CPA, CPL, ROI, and ROAS. As a result, marketers’ efforts have become more focused on gaining attribution (through various lower funnel tactics) for online conversions to meet often inflated KPI goals.

These indirect measures do not capture additional revenue. Instead, they attempt to capture the impact of a specific form of marketing that lends itself to final touch attribution.

For example, consider a retailer with five locations in a designated market area (DMA). The retailer pays a marketing agency to calibrate advertising in this DMA. If the agency is struggling to achieve its main KPI – increasing sales attributed to advertising – it can artificially increase this number by retargeting former clients or looking for lower-funnel conversions that are likely to produce without marketing. The agency then seems to have done its job of strengthening marketing performance, but the brand does not benefit from incremental income.

The independent variable in performance analytics should be a real test of marketing quality – like creative, daily parts, even product or service offerings – and not just budget allocation and audience targeting manipulation that focuses on soft targets such as repeat customers.

Preserve outdated policies

Focusing on performance KPIs also allows ineffective strategies to persist.

For example, agencies have historically charged clients based on the number of full-time employees needed to handle an assignment. As long as the agency meets its metrics, the client can continue to pay for their agency engagement. But the status quo can be woefully inefficient, as automation can now tackle many tasks that agencies once had to hire full-time employees to handle.

Automation can help by allowing marketers to set up more granular campaigns. For example, it can help brick-and-mortar marketers set up campaigns by location, which would otherwise be impossible depending on the headcount required. Setting up these more granular campaigns automatically generates stronger results and saves human talent time that would otherwise be wasted searching for digital vanity metrics.

Thus, one of two improvements should occur in marketing relationships: either the price of labor should come down, or the agency should reinvest this free human time in improving creative, identifying new market opportunities or other tasks that require human ingenuity.

If marketers are myopic and evaluate marketing strategy based solely on performance KPIs, they risk missing out on these opportunities for efficiency and productivity gains. It is not enough to consult the metrics on a dashboard. Marketers need to look at the human processes driving these metrics.

Prioritize efficiency over progress

Finally, even though marketers use performance KPIs to drive real business process improvements, these metrics often incentivize efficiency at the expense of growing the business and enriching relationships with existing customers. .

Consider a performance marketing strategy that involves driving more conversions on Instagram while lowering the cost per acquisition. Apparently, this strategy can work well. More conversions happen, and the advertiser spends less to get them, generating a higher ROI. But that often happens because technology providers or agencies have gotten better at jumping ahead of conversions that would have happened without advertising.

This focus on efficiency creates a vicious circle. Advertisers learn to expect unreasonable CPAs. Agencies and vendors are under pressure to meet these expectations, so they opt for the easy wins. The marketing dollars keep pouring in, but the advertiser is getting more efficient at advertising on Instagram without really growing their business, and the agency will eventually hit a ceiling when it comes to effectively targeting leads. easy.

To guard against this chain of error, marketers should check their marketing measurement program to ensure that it does not allow distortion through the pursuit of hollow wins. They need to nurture customer relationships throughout the funnel rather than relying on bottom-of-funnel tactics that often give the appearance of efficiency while brand value quietly declines.

Follow Hyperlocology (@Hyperlocology) and Ad Exchange (@adexchanger) on Twitter.

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