Chapter 11:

Benchmarking

Measuring is in itself a mechanism of gathering data. So far we have helped you to set up your goal and helped you understand your objectives. You now have tools to work our your maximum cost per acquisition and figured how much you can spend per each click. Even if you would have the best measurements and metrics, without a benchmark it is impossible for you to know how you are doing. Next you need to figure out what the chances are you'll do what you want to do. There are two ways to do this.

  1. An internal benchmark. If you have historical data you should use it.
  2. Create your benchmarks from scratch. You start testing and measuring.

Before we get started on benchmarking, we'll refresh your memory on the tools and approach we are using to do our own benchmarks. Usually we use standard deviations to find non-standard behaviour, but we have created a simplified version that you can use with our traffic lights.

Using Percentiles To Determine Benchmarks #

The practical value of using percentiles is basically to determine when the data tells you that something is moving away from the average. If the number falls within the limits set, it's ok. If the number is outside the limits, you should take a closer look (whether its good or bad). It highlights things in your data that should be looked at.

Stop looking at just numbers, look for how much they deviate from the average.
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Compile all your performance data from your media campaigns into a single excel file. In this spreadsheet you should use look-ups to list key metrics from each campaign that you've done. The metrics could be to measure where they come from;

Impressions/sends & Clicks per campaign #

I could bore you to death about the maths behind this but essentially what you want a list of numbers and then use the percentile function in Excel to find the top and bottom 25%.

Check out how we've done this in the excel file here (standard Google campaigns). This is basically a data dump of a set of campaigns to determine our limits.

Meaning if you go above a certain cost level its time to cut the campaigns (on a campaign level in the example shown on the sheet don't spend more than €7100 and your cheapest campaigns are €533. If you hit green levels you need to find out what is working and keep doing it (while adjusting your operational limits to continuously optimise them).

The easiest way to determine where to start defining your success is with your own data. You might find external benchmarks such as published figures of industry conversion rates and other sources (like the 2% conversion rate we refer to). However published statistics don't take into account the vast array of variables that apply to your business. Instead they usually aggregate a wide range of customers. They are worth looking at to get a general idea but that is all they should be used for.

When it comes to improving your own key performance indicators you need a historical benchmark of numbers compared to your competition. Before we go into how to do it, first lets look at what to benchmark.

Where do they come from? #

All companies have three key channels when we are talking about marketing communications: Bought, earned and owned channels. The rule of thumb is that all channels behave in a similar way, they are measured in a similar way and their largest difference are their benchmarks compared. You should focus on where they come from, what they did, what it cost to get them there and how much you made from them. Cost and ROI metrics should always be across channel.

We've seen many times earned and owned channels bringing in a lot of traffic and the glory given to bought channels. Just to get on the same page, we'll go through the three next.

Bought channels #

If you have paid for media space or anything related, it is bought media.

Bought channels are usually the easiest to measure since you have a media agency or the media itself delivering you reports of your campaign. Bought channels include them all, search engine marketing (SEM, e.g. Google AdWords, Yahoo! Search Advertising), all display medias and networks (e.g. TradeDoubler, DoubleClick, MSN) and paid e-mail marketing (e.g. Bought address lists, external CRM campaigns) and some others like mobile marketing. The main point is that you have paid for the contacts.

Measuring bought channels is easy because the companies who sell the advertising or contacts make their living on giving out those numbers. It's important to make sure that you know what is being measured and that everything is measured correctly, since you're not usually doing it yourself.

If your media will not give you benchmark data on campaign performance, better start looking for a new media.

Owned channels #

If you have your people running a site or a service, it is owned media.

Owned channels are very much like bought channels, except that you have the ability to affect them. The people who are already visiting your channels are already known to you and you to them, so you should demand better performance from these channels. The same rules apply for people in your CRM, people who have willingly given their contact information to you, subscribers to your websites and other channels that you control.

You should know exactly how many impressions you have, how many SMS marketing messages you have sent and how many subscribers there are on your mailing list. This is your home base, these are the numbers you should know in and out and upside down.

A lot of companies, especially those which haven't yet broken to the big leagues forget to differentiate between their own channels and paid/earned channels. They suffer greatly with the confused data they get and are unable to demand more from their channel performance.

Earned channels #

If someone else is driving traffic towards you for free (as in beer), it is earned media.

Earned media is one of the best channels you can have. So much so, that some people in the industry call a part of earned channels "farmed" instead of earned. If someone mentions you or your company online, you have earned some online karma and people will follow these links more than they would any other channel.

Earned media is hard to measure as you are usually unable to access any statistics on how many people have seen the recommendation, you have no idea how to quantify the impressions, but what you can do is to quantify the results. If there's buzz about your new products on LinkedIn and Twitter, start following the trail from your site towards the originator.

One of the easiest way to earn more traffic to your site is optimising your site for search engines (SEO) allowing the robot crawlers index your site better allowing for more free traffic from search engines. This of course requires firstly that you have some interesting content on your site.

What do they do? #

Once you have figured out the benchmarks you have for where your customers and visitors come from you now need to know what they do. One of the first things you should look at is bounce rates. This will allow you to understand where you need to improve your content to make it more compelling for the visitor and help them to take action.

The fastest way to benchmark this metric is by looking at your entire website's average bounce rate and comparing individual pages to that average. Example: If your average bounce rate is 30%. We can calculate the operational limits using our simplified method (30x75%)-(30x25%) = 15. This means 30-15=15% (which in case bounce rate is green because the lower number the better) and 30+15 is red at 45%. So across bounce rate you could use the simplified method to come up with the following operational limits (in the case of an average bounce of 30);

<15% Green 15-45% Yellow 45%+> Red

You can quickly then categorise all of your website into the best performing pages and the worst performing ones based on the relevance of the people entering at those pages by looking at the bounce rates in this way.

This gives you your starting points to optimise your conversion rates.

Another metric that greatly impacts conversion rates is the click through ratio (CTR). If people aren't clicking through by default they're bouncing from your website or exiting. The best way to benchmark in-site CTRs is by tracking critical flows between pages. If you have a shopping cart for instance it's very important to measure the drop out between each step of the process. Start with the overall average exit rate of the cart and determine which pages are the worst in terms of being completed. Again the worst pages are the ones that lose the most people and are the starting points for your optimisation.

Aside from funnels exit rates can be benchmarked in the same way as bounce rates. A lower exit rate is always better. While exit rate isn't as useful (people always leave your site eventually) they are useful to also find 2nd and 3rd level pages that people have navigated to that perform worse or better than usual.

Time on page is also another interesting metric to benchmark (especially across content groups) to define things like the most read or most interesting topics. This is especially useful in bigger sites. If people on an average page spend 2 minutes why do people spend 10 minutes on another page? The metric can lead to changes in content strategy when you find something that works. Set your operational limits in the same way, pull the data into excel, find the average and then calculate your top and bottom limits.

How much does it cost? #

Our approach is very cost conscious. We believe in this day and age it has to be. Benchmarking the costs are critical. Cost per send, cost per click (or visit), cost per action or purchase, cost per mille – all of these metrics should be benchmarked across reach sources and more importantly across life cycle.

Find out where you're wasting money and focus on life cycles.
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You already know how to do the benchmarks. Take your average, calculate the operational limits and look for anomalies. Your goal with cost benchmarks is twofold.

  1. Find ways to save money, where your advertising is wasted and where your sites need to perform better.
  2. Find the best ways to reach people at certain parts of their life cycle. The main thing to figure out is when is it good to send an email versus doing PPC or media spend.

Prospecting a cold customer is in our experience best done in search engine marketing when the customer is looking for something you have whilst a loyal customer might be better reached by email or increasingly social media like Facebook.

What is the return? #

The final and possibly most important thing to benchmark and keep a close eye on is the customer performance. We suck because we tend to forget that the whole reason we're in business is to serve the people that buy our products and services.

We need to delight them constantly and there are a few metrics we can benchmark that help us understand the general feeling of our customers.

Churn is especially vital to start benchmarking as quickly as possible.

As shown in the metrics definitions churn is;

Number of customers with no response / number of customers = Churn ratio

Create your benchmark by defining the previous years churn ratio and try to improve on it month by month. The key thing to start following is when in the life cycle does Churn start to get worse. This is when you need to start improving your communications and offers to keep those customers loyal.

Churn is especially vital to start benchmarking as quickly as possible.
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Churn can actually help you to define what your customer segments are. It's more complicated but you could for instance work out the month on month Churn ratio for the previous year. What you want to figure out there is how many customers are still customers in each month 2-12 (how many last the entire year? And when did the majority defect?) This gives you a very good idea of the life cycle across each product or service range you're offering. If you see a big drop away of customers after 3 months you should plan better communications strategies in months 2,3 and 4 to keep more of them around. Churn then can be used to segment communications with those customers.

Churn is also related to profit per marketing channel. So if you know that a certain set of active customers that lasted the entire 12 months in your database came from Google Adwords and were contacted on average one a month by email you're in very good shape.

Profit per marketing channel can then be benchmarked - again very good to know that certain channels attract and retain customers whereas others should be used in different ways.

Gurus often talk about Social Media ROI and the effect of branding. This method Churn in combination with profit per marketing channel will show when using Social how effective it is long term.

If you liked this chapter, please recommend it to others.

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What's been said about the book?

"Data, data everywhere and yet all decisions from the gut!" That just about encapsulates why our marketing strategies are faith based, why our websites are barely functional ("the CEO loves purple!"), and why we are not making the types of profits we deserve. I love this book because Steve and Markus provide specific advice on how to unsuck our lives! Buy. Don't suck. Win.
Avinash Kaushik
Digital Marketing Evangelist - Google
Author - Web Analytics 2.0
In your face and a Must Read for beginner and expert analysts alike.
Jim Sterne
Founder - eMetrics Summit
Author - Social Media Metrics
Chairman - Digital Analytics Association

About the authors

We have a single goal together, to make our customers a billion euros in profit. This won't happen in one year, it might take five years, but we will not stop until we have generated a billion of provable profit for our customers.

We love meeting and talking to new people! Get in touch with us. Come have a pint with us! We are available for projects, especially in warm places with great fishing opportunities and/or great beer.

Steve Jackson
steve@blackbeak.com


+358 50 34 35 159
Markus Sandelin
markus@kingmuffin.com



+358 44 36 99 887