Friday, November 7, 2008

Cognos Papers Propose Sales and Marketing Metrics

I’ve always felt that defining a standard set of marketing measures is like prescribing medicine without first examining the patient. But people love those sorts of lists, and they offer a starting point for a more tailored analysis. So I guess they have some value.

Based on that somewhat crotchety premise, I’ll call your attention to a pair of papers from Cognos on “Delivering the reports, plans, & metrics Sales needs” and “Delivering reports, plans, and metrics for better Marketing” (idiosyncratic capitalization in the original). These are widely available on the Internet; you can find both easily if you run this search at IT Toolbox.

Since the whole point of standard measures is to be broadly applicable, I suppose it’s a compliment to say that the measures in this paper are reasonable if not particularly exciting. One point they do illustrate is the difference between marketing and sales, which are often conflated into a single entity but are in fact quite distinct. Let’s look at the metric categories for each:

- Sales: sales results; customer/product profitability; sales tactics; sales pipeline; and sales plan variance.

- Marketing: market opportunities; competitive positioning; product life cycle management; pricing; and demand generation.

It’s surely a cliché, but these measures suggest that marketing is strategic while sales is almost exclusively tactical. That’s a bit blunt but it sounds about right to me.

Given my admittedly parochial focus on demand generation these days (see, I couldn’t avoid noticing that Cognos gave demand generation just one of its five marketing slots. That seems a bit underweighted, given that it probably accounts for the bulk of most marketing budgets. But I do have to agree that strategically, marketing should be spending its time on those other topics too.

The papers list specific measures within each category. It’s going to as boring to type these as you’ll find it to read them, but I guess it’s worth the trouble to have them readily available for future reference. So here goes:

Sales metrics:

Sales results
- new customer sales
- sales growth
- sales orders

Customer/product profitability
- average customer profit, lifetime profit and net profit
- net sales
- gross profit
- customer acquisition and retention cost
- sales revenue
- units sold

Sales tactics
- average selling price
- direct cost (of sales efforts)
- discount
- sales calls and sales rep days
- sales orders
- units quoted

Sales pipeline
- pipeline ratio (they don’t define this; I’m not sure what they mean. Maybe distribution by sales stage)
- pipeline revenue
- sales orders and conversions
- cancelled order count
- active and inactive customers
- inquiries
- new customers and lost business

Sales plan variance
- sales order variance
- sales plan variance
- sales growth rate variance
- units ordered and sold variance

You’ll notice a bit of overlap across groups, and I’m not sure why “Sales plan variance” is a separate area: I would expect to measure variances against plan for everything. The list is also missing a few common measures such as profit margin (which shows the net impact of decisions regarding product mix, pricing and discounts), actual vs. potential sales (hard to measure but critical), lead-to-customer conversion rates, and win ratios in competitive deals.

Marketing metrics:

Market opportunities
- company share
- market growth
- market revenue
- profit
- sales

Competitive positioning
- competitor growth
- competitor price change
- competitor share
- competitor sales
- market growth
- market revenue and profit
- sales

Product life cycle management
- new products developed
- new product growth, share, & profit
- new competitor product sales & growth
- market growth
- brand equity score
- new product share of revenue

- price change
- sales
- price segment share and growth
- discount ($)
- discount spread (%)
- list price, net price, & average price
- price elasticity factor
- price segment sales and value
Demand generation
- marketing campaigns (#)
- marketing spend
- marketing spend per lead
- qualified leads (#)
- promotions ROI
- baseline and incremental sales

If these weren’t two separate papers, I’d say the author had gotten tired by the time she wrote this one. We see even more redundancy (sales appears in three of the five lists) and “brand equity score” sticks out like a moose at a Sarah Palin rally. (Now there’s a joke that will age quickly.) It’s interesting that the competitive measures provide some of the relative performance information that was lacking in the sales metrics, and that reporting on profit addresses to some degree my earlier question about margins. Is the author implicitly suggesting that sales shouldn’t be held accountable for such things? I disagree. On the other hand, measures of customer value or quality are all assigned to sales. I think marketing is primarily responsible for that one.

Well, that’s interesting: I hadn’t really planned to criticize these measures when I sat down to write this, but now that I look more closely, I do have some objections. It honestly doesn’t seem fair to be harsh, since any list can be criticized. Maybe I’m just crotchety after all. In any event, you can add this list to your personal inventory of metrics to consider for your own business. Maybe something in it will prove useful.

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