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Analytics: The Best Friend Business Leaders Need, but Few Have

Here are some numbers that should shock you:

Organizations plan to increase spending on marketing analytics by 66 percent over the next three years, according to the February 2013 CMO Survey. Yet only 30 percent of organizations are using marketing analytics data, down from 37 percent the previous year.

Other studies have found a similar trend. Some 77 percent of marketers surveyed by Adobe believe data on customer purchase histories can improve marketing ROI. But only 21 percent actually use that data.

Why don’t we take our marketing budgets and light a match to them? We shouldn’t do anything in business without understanding the return on investment. Without analytics, you have no idea what your true ROI is. You don’t know what’s working, you don’t know what’s failing, and you don’t know why. Instead, you’re running a business on assumptions and intuition.

Here we are in 2014 with myriad digital technologies that enable us to measure practically everything we do, and yet the classic quote attributed to John Wanamaker is still ringing true: "Half the money I spend on advertising is wasted; the trouble is I don't know which half." It’s ridiculous that we can say this today.

Used well, marketing analytics can be the foundation for an organization’s success. Here’s how you can drive growth through analytics, and some advice for incorporating analytics into your business.

Analytics’ Starring Role

Analytics allows you to peer deep inside your business and find answers that accelerate growth. For instance, analytics can provide insight into the performance of marketing campaigns, including which offers are driving the most clicks, what leads are becoming customers, and how campaigns stack up against one another. These are some of the most common results you can realize from using analytics, and they are crucial to improving decision-making.

But perhaps the greatest value analytics can provide is the ability to uncover new opportunities to drive profit. Organizations can use analytics like X-ray vision, finding ways to maximize their contribution margin. Once they identify those opportunities, they can drill deeper to understand the return each opportunity will deliver.

For instance, analytics let you fine-tune your customer acquisition strategy. You can continually measure and analyze your advertising channels and campaigns to identify where and how to focus your spend for maximum return. Perhaps you’ll find one ad campaign performs better on Channel A than Channel B, while no campaign is delivering significant results on Channel C. With this information, you can decide to redirect your ad expenditure from the poorly performing Channel C to the profitable Channel A. This decision sounds obvious, but you can’t make it without analytics.

Taken to another level, analytics can also give you information about how to increase average order value, or the average value of all purchases. Most organizations simply follow common approaches to increase average order value, such as product bundling, tiered discounting and free shipping at certain purchase levels.

Typically, however, there is a specific kind of customer who is willing to add to their cart. If you ask a customer to add even a dollar more than she wants to, you can prevent her from adding anything additional at all. After testing various offers, you can determine which offer will compel which customer to maximize the contents of their cart, helping you to maximize bottom-line profits.

Analytics can also provide other information about customers’ buying behavior, such as which ad campaign attracted them to your site, what offers motivated them to click through, which products and services grabbed their attention, and so on. This information reveals insight into your customers’ needs and desires, letting you better tailor your ads to drive repeat purchases.

As a result, analytics can help you increase customer lifetime value, rather than merely relying on the immediate ROI of your initial offer. This is crucial for fast-growing companies. Every customer has a life cycle. He might not turn a profit for you on the first purchase, but he might become profitable after his second or third purchase. Over the lifecycle of your customers, the channel may be lucrative and critical to your business. By focusing on this long-term view, you can accelerate your ability to grow.

In short, marketing analytics can give you crucial insight into understanding which inputs result in the greatest business advantage — now and over time. The lift you achieve from one channel or campaign might not be worth the investment if you find there are more lucrative opportunities elsewhere. A campaign might not generate repeat purchases immediately, but it might in the future. You can continually make these trade-offs to propel you closer to driving maximum contribution margin.

Analytical Guidelines

Most organizations are capitalizing on few, if any, of the benefits described above. But a strong dedication to analytics can accelerate you toward your business objectives. Here are some ways you can lean on analytics to drive business growth.

1. Relish data. Considering that we’re all dealing with information overload, you might be shocked by what I’m about to recommend. But that’s just it. You should track and analyze all information available, because you don’t know when a certain data point will be valuable to you. What seems unimportant today could be the vital clue you need to overcome a hurdle or find a lucrative new target next week.

2. Identify profit drivers. Every company has a set of factors that creates the biggest impact on their profitability. Identify them. Keep the list minimized to a handful of factors to maintain a clear and concise profit-building model. Focus your organization on fueling these leverage points with the help of analytics to generate the highest output using the most efficient input.

3. Reward curiosity. Ask questions. Stay inquisitive. Look under the hood. It sounds simple, but is it really? As an entrepreneur or manager, are you interested in unearthing the unsettling and disconcerting, and then fixing it? Or are you more interested in the status quo — the “not broken so you're not fixing it” route? The root of analytic success rests in employees’ confidence that their investigations will be embraced and their findings accepted.

4. Embrace math and logic. Analytics can return surprising answers. Logical models and the confines of mathematics let you scientifically validate which levers should be thrown when. Finding and training people who are mathematically inclinedis vital to automating analytics and making them available to the management team as a whole.

5. Remain nimble. At the same time, an agile mind is required to balance conclusions drawn from even the best analytical data set. For instance, if your only goal was to minimize ad spend and maximize the subsequent ROI, you might miss opportunities that cost more to acquire, but return better yields over time. Consider trade-offs like this to improve decision-making.

6. Forecast results first. Understand the trade-offs before negotiating advertising costs. For instance, determine whether a particular ad cost at a certain customer acquisition volume will result in a desired contribution margin. This helps you negotiate an ideal cost that will make the campaign worthwhile. It also lets you compare other channels and outcomes to help you prioritize spend.

7. Look ahead. Many organizations don’t focus as closely on lifetime value when they formulate their advertising strategies. Rather, they develop their campaigns to deliver immediate benefit to their bottom line. Instead, focus on repeat purchases and lifetime value to make better decisions about which strategies and channels are worthwhile over the long term to avoid dismissing lucrative opportunities too quickly and drive a lasting revenue flow.

8. Share findings. Organize your marketing analytics data in a central place where team members can continually contribute their findings and results. Have team members review data regularly to stay up-to-date on one another’s progress and outcomes, identify opportunities and discover new ideas. Make analytics the focus of your organization’s collective brain power.

9. Invest in bright, thoughtful people. Analytics is tough stuff. Bright minds and great IT people need only apply. Finding variables is challenging enough, but relating each to an action and reaction - well, that can be downright bewildering. Make it easy on yourself by finding smart, inquisitive people with the left-side-brain wiring needed for logic and math, but who can tap the right side for magic and creativity.

Don’t run your marketing department like John Wanamaker. You need to know what’s working, what’s not, and why. That’s possible by adopting the best practices around analytics that I’ve talked about here.

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