Marketing-GaugePerformance-driven marketers must have a good set of metrics to track, report and manage their effectiveness. They are aware of the benefits of key metrics that provide business executives with insight into likely financial outcomes so they can manage business decisions and expectations. Proactively managing forecasts builds great credibility for marketing and delivers consistently on objectives.

Success is determined by knowing which metrics to select, which approach to use for forecasting, and how to use those metrics in managing performance. Thus, there are three key steps to establish or improve your forecasting metrics:

1. Choose meaningful and predictable metrics

Forecasting metrics are part of a monthly business process that intends to keep the management team informed of expected outcomes in upcoming months. For choosing the right metrics for foracsting, consider, if they:

  • Are most closely aligned to sales and/or revenue;
  • Have consistent influence on financial outcomes over time;
  • Are reasonably predictable with the data available;
  • Have clear definitions and meaning to all stakeholders;
  • Are within marketing’s ability to impact and manage.

2. Establish your approach for accurate forecasting

In most situations, accuracy is the goal for forecasting, which may differ from a common practice of “low-balling” estimates in order to consistently exceed goals. When managing performance, low projections should trigger corrective actions. Therefore, underestimating forecasts could lead to marketing adjustments that are unnecessary and ultimately hurt the credibility of the marketing organization.

Deciding on the approach to forecast key metrics will be based on the data available, the analytic skills available and the precision required. The data used can include marketing activities (e.g., advertising levels, direct marketing contacts, events), customer actions (e.g., responses, engagement, leads or opportunities), product info (e.g., pricing, offers, new product launches) and/or external influences (market trends or competitive activity).

There are three general types of approaches to consider that range in sophistication from basic to more advanced:

  1. A very basic approach to forecasting is to apply historical rates of conversions between tracked metrics and sales or financial outcomes.
  2. For marketers that engage directly with prospects and customers to generate leads and sales, predictive scoring is an approach that can improve forecast accuracy. This approach uses contact-specific data, such as profiles or purchase history, to project the probability of converting to a sale and/or the expected value per sale.
  3. Advanced statistical techniques can be used to develop forecasting models that are very predictive of sales and/or revenue outcomes. These models are created using many data points that include detailed marketing activity, changes in market conditions, product and pricing changes, and competitive activity.

Keep in mind that the number of periods to report should be determined by the needs of the business and the predictive accuracy of your metrics -which is dependent on your approach. As a starting point, if your metrics are not very accurate over a three month period, you need to find different metrics, change your forecasting approach, or shorten the forecast period.

3. Report and use forecast metrics

When reporting your forecast metrics, it is important to have a process to understand, assess and act on the information to manage performance. The reports should show comparisons of the forecast vs. goals and the forecasted vs. actual outcomes. The process will outline how to diagnose the gaps and take corrective actions as outlined below:

  • Forecast vs. Goal: The forecast metrics each need a comparison to some goal to indicate whether that forecast is on track or above/below a specific target. When the forecast is below the goal, it alerts the marketing team to take corrective actions to improve results, which is a primary purpose of forecasting. Over time, the business needs and experience will shape the process for when alerts should trigger actions.
  • Actual vs. Forecast: Each period, the forecast is updated and the most recent period is replaced with actual results. Standard practice seems to be to discard the previous forecast as it is replaced with a more current version. But there is significant value in comparing actuals to prior forecasts to 1) improve your forecasting accuracy and 2) provide full disclosure of your forecast changes to stakeholders.

Jon Miller, VP of Marketing for Marketo, provides a great example of how he maintains a forecast history. Jon’s presentation to his executives includes his prior forecasts along with his latest forecast as shown in the diagram below. Stakeholders can look back to see how the forecasts have been revised monthly and also look forward to see the most current view of expected outcomes.

3fold

Metrics are used to communicate the status and course of business performance and alert the business as to when performance is off track. Once you establish and begin reporting on metrics you must be prepared to diagnose and explain deviations from your goals and prior forecasts. The first step should be to check on a broader set of metrics to identify underlying problem areas. Drill down analyses and research may be necessary to explain the cause which may be driven by changes to the marketing strategy, changes in effectiveness, new competitive actions or shifting market trends.

Here are some additional guidelines to create effective dashboards:

  • Get the right information to the right stakeholders: Provide executives with high level business outcome metrics, while providing their direct reports with the metrics they need to manage to influence those business outcomes.
  • Provide few meaningful metrics: Too many metrics will be more distracting than valuable, so prioritize to maintain focus.
  • Ensure consistent interpretation: All recipients of the report should know if the metrics reported are to be viewed as positive, negative or neutral.
  • Quantify the impact of deviations: Provide a context to compare the gaps across metrics, since a 10% shortfall for one metric may have a completely different impact on the business than a 10% shortfall on another metric. When metrics vary from the target, calculate the impact on the business in current and future periods.
  • Be prepared with an action plan: Before your forecast metrics are reported and show a shortfall, establish the process to diagnose the underlying drivers and have then an action plan ready with strategies and tactics that are best suited to improve the outcome of specific metrics.

Marketers that forecast metrics, either for executive management or their own use, are better positioned to manage and deliver on business results. Reporting only on current performance metrics will tell you what has happened but offer no opportunity to change those outcomes. The extra effort of forecasting metrics gives you the best estimate of future results at a time when you can still influence outcomes. Forecast metrics are a key step in moving from a reporting dashboard to a performance management dashboard that helps to improve marketing effectiveness. (Source: www.lenskold.com)

By MediaBUZZ