Measurement of marketing programs is complex and tedious. By definition, it requires well-defined and quantifiable objectives that should be inextricably linked to an organization’s higher-level business and operational goals. With this type of framework in place, marketers and executive managers can accomplish two things:

In measuring the effectiveness of marketing, there isn’t a one-size-fits-all approach or a common denominator for measurement. However, marketers still need to be accountable and define a set of meaningful metrics to guide and fine-tune their efforts across a mix of tactical programs. A one or two-page marketing “dashboard” using measures comparable to those identified below is a useful reporting tool and offers several advantages:

A multitude of baseline metrics such as awareness, preference, conversion rates, market share etc. can be used to evaluate marketing program results. In promotional advertising and direct mail campaigns, typical metrics include media or list cost per thousand (CPM), Gross Rating Points (reach times frequency), leads generated, perceived brand differentiation, purchase intent as a percentage of leads, conversion ratio (leads to sales percentage) and the cost per sales conversion. And, as noted by Delahaye, a Division of Bacon’s, reach and frequency analysis also can be applied to Public Relations campaigns and in conjunction with other variables such as placement within the media, length, headline usage, dominance, exclusivity, visual elements, tone and on-message coverage. Web-based marketing programs are extremely quantifiable and measurement of page hits, visitor registrations, downloads, search engine rankings and online purchases can provide a minimum basis for evaluation.

For brand-building initiatives, pre- and post-campaign survey research is often the best way to provide a quantitative basis to measure brand strength and changes over time. Strong brands typically command a price premium, a variable that can be estimated with a small survey or through sales and lost order analysis and then applied appropriately to revenue for ROI analysis. Customer loyalty, which can be determined through an analysis of repeat business as a percent of sales, also can be a good indicator of brand performance.

While these are adequate tools for marketers to measure the direct results of their efforts, they do not provide an estimate of the return on marketing investment (ROMI) for a given marketing program, a relatively straightforward calculation. ROMI can be estimated by analyzing the incremental revenue and profit generated by an individual marketing program and then factoring in the program’s direct and indirect costs.

For example, suppose an organization has an operational goal to expand its customer base by 10% in 2005. The ROMI for this initiative can be estimated by periodically tracking net new customers during the year, historical or current average sales revenue per customer, marketing program costs and gross margin. If there were 15 net new customers, average sales of $1,000 per customer, $2,000 in program costs and a 30% gross margin, a simplified ROMI estimate could be calculated by:

(15 new customers • $1,000 average revenue per customer • 30% gross margin) / $2,000 program costs

ROMI = 2.5

It’s important to understand that this model does not capture the long term and residual benefits of branding and advertising programs, among others. In addition, the revenue contribution associated with different types of marketing activities is not reflected in the ROI value.

Ideally, marketers should be able to calculate program results, state them in financial terms, and then connect the results of their efforts to the long-term financial impact on the organization. In this near perfect world, marketers would evaluate the broader impact their efforts from two perspectives:

Measurement of marketing performance is already moving in this direction and several large corporations, including GE, Microsoft and Dell, are able to evaluate its impact on cash flow acceleration, risk reduction and the cost of capital. Other organizations are implementing similar processes and this trend supports the fact that effective marketing truly is an investment, not just another expense.