Win With Web Metrics: Ensure A Clear Line Of Sight To Net Income!

manyWe have more web metrics and data than there are stars in the universe (slight exaggeration!).

Yet we stink at informing decisions. Our reports are ignored. Sites & online marketing continue to suck.

A large part of the reason is that a large part of our job seems to consist of glorified data puking, hoping someone will be impressed. After all there is so much data in those reports!! #fail

This blog post encourages you see the forest, the much hyped big picture, and shares a framework that will help you ensure that every single moment of your day is spent on activity that will be:

    1. of value to your organization, hence appreciated and acted upon

    2. has a clear line of sight to the one thing that matters: profit

If you don't want your professional life to be frittered away then please come along this short journey.

First some context…

If you have seen one of my keynotes recently then you have heard my near evangelical fervor when it comes to trying to convince you to compute Economic Value.

If you have Web Analytics 2.0 then you already know who much attention is paid to this concept in the book (jump to page 159 for how to compute it for your website).

soccer match win plan

The reason for this emphasis is to help fix our miserable failure at at creating data driven organizations.

To steal your energy away from being just in the report / data production business.

To encourage you to do better than spend a lifetime implementing analytics tools, building data warehouses, chasing the next shiny object.

My recommendation has been:

1. Identify your Macro Conversion (focus on this a lot!).

2. Report revenue. Report like crazy on the 2% conversion rate.

3. Identify your Micro Conversions.

4. Compute the Economic Value (see page 159). Show your bosses and HiPPO's the complete value of your website.

That last one will get any organization to sit up and pay attention.

Why?

Because for the first time in their young and passionate life they'll see the complete value your website is adding to the business. And because my dear it will be a huge number that no one can ignore! You are going to tie your work to the bottom line!

Revenue = Good. Economic Value = God! [Also slight exaggeration :)]

Professor Ken Wong's Magic Potion

Prof. Wong is the award winning Commerce '77 Teaching Fellow in Marketing at Queen's School of Business (and an awesome speaker, you should hire him for your next event!).

He took the stage after my talk and said, I am paraphrasing here, "Avinash did not go far enough in his keynote. Economic value is important but the only thing that matters is Profit!"

That was awesome!

One of Prof. Wong's key points was how the success of our work, as Marketers, is measured based on a lot of things but not often enough based on perhaps the most important metric of them all: Net Income.

Prof. Wong covered a lot of key points (as a MBA with a minor in Marketing I wanted to take off my clothes and jump for joy when he said the 4P's of Marketing are killing Marketing!).

I wanted to share two of his slides that left a lasting impression on me.

They are particularly applicable in the web analytics context. In sharing my interpretation of them my hope is it will change a little bit how you think about your work and success.

The very first slide, "Profit: The Ultimate Client Need", shares the key elements that need to function for the outcome (ROI) that causes companies to remain in business.

ken wong roi flow chart

My interpretative points.

Net Income is driven by two important variables:

Unit Margins (how much you make on each X you sell or Y service you provide)

Unit Volumes (how many of X or Y you sell)

Margin times Volume gives you the golden metric Net Income!

[Keep this formula in mind, your life should be revolving around it else you are wasting everyone's time.]

Peel the onion back one more.

Unit Margins is in turn driven by two more variables:

Price (how much you charge for X product or Y service)

Cost (how much it costs you to make X or provide Y)

Price minus Cost equals Unit Margins.

Get it?

So if you want to have very high Margins you have two variables you can control. You can charge lots for your product or service (think of a Vertu phone).

You can also make it at the cheapest possible cost (no phone costs $100k, you make it for $300 and sell it for $100k).

You can of course also charge lots and lots and it costs you a lot to produce (think of a Tesla car). But give some thought to how you'll stay in business.

Continuing the onion peeling…

Unit Volumes, our other variable to have high Net Income, is driven by two variables:

Market Share (is your share 90% or 5%?)

Market Size (is that share of a market the size of Maldives or China?)

Both share and size are important.

You'll sell lots of X or Y if you have a high market share and the limit you'll hit is the size of the market (you can then play in the current size or grow the pie).

line of sight

Line of Sight.

Having a clear line of sight means that you are able to map every metric you report on (or better still torture with segmented analysis to find insights) every single day directly to the strategic objective of the company.

Prof. Wong is suggesting, rightly so, that that strategic objective is Net Income.

And you have only one of four things that you'll move through actions your company takes: Price. Cost. Market Share. Market Size.

Here's my crystallizing question for you. . . .

When you report the metric Page Views Per Visit which of the four are you solving for?

How about with Bounce Rate? Or Time on Site? Or % of New Visits? Or Visitor Loyalty? Or…..

Is there a direct line of sight between what you as a Marketer are being incented on, or you as an Analyst are spending time analyzing?

If not, are you surprised that no one loves you? Sorry… I mean… no one loves your work?

Here is a simple exercise you could go through: Pick out all the metrics you are reporting today (on your dashboards and top reports). Try to put them into one of the four important buckets from Prof. Wong's slide.

The clear line of sight exercise. . . .

web metrics line of sight framework

Were you able to cleanly bucket all metrics you currently report? Time on Site and Conversion Rate and Task Completion Rate and % Internal Site Search Exits and Cart Abandonment Rate and % of the Page Scrolled and % of Visitors Refreshing Pages and all the other sweet things.

Some of the metrics in the above paragraph are complete crap, you are wasting your time and everyone else's time with them. And you'll now discover that very quickly because you won't have a place where you can bucket them.

Other metrics will make you think harder. Where do you bucket Conversion Rate? Are you impacting Price or Cost?

What about Customer Satisfaction? Or Page Rank!

Not every metric will map cleanly, and that is ok. I had to think really really hard to bucket each of my metric in the above picture. Some of the metrics were controversial. But bucket I did.

If it turns out your web metric has no line of site then it might be time to kill.

If the work you do can't be mapped into Price, Cost, Market Share or Market Size then why are you doing it?

Before you dip your hands into Omniture or WebTrends or Surfaid, :), answer that question.

I know it seems like a lot of work for a "lowly" Analyst to do. It is. But without it there is little hope for your personal success (promotions / bonuses) or your company's success (higher Net Income).

"What Matters Most" Fishbone Analysis

As you look at the picture above it is amply clear that the metrics I have chosen in each of the four buckets are perhaps unique to me/my business.

The reason is simple… they are a reflection of the strategy my company is currently executing, i.e. our "world domination via an effective data driven online marketing plan".

This simple truth, that metrics should reflect current business strategy, is the reason I loved another slide from Prof. Wong's presentation.

It leveraged the same framework, but added "what matters most". . .

marketing what matters most sm

[Click on the image above for a higher resolution version.]

The focus is still on Net Income driven by, hopefully, improved Margins and Volume which in turn are driven by much beloved 4 levers of Price, Cost, Share and Size.

What is awesome about the "fish bone" above is that it drills down to the 14 specific strategies that most businesses will use to become great (or simply survive).

You Ms. Web Analyst now have a framework you can take to your Marketing Directors and CMO's to discuss which of the 14 strategies they are currently executing to drive the 4 beloved levers.

Ask any Web Analytics "Guru" or "Professional Speaker" or "I am so important you are paying me $5,000 an hour to give you generic advice Consultant" and they will always tell you that all good journeys in web analytics start with asking your bosses this question: What are the goals of the organization?

The advice is sound (and well worth $5k/hr). The problem is that we never get an answer from the customers of our data / our management. You are $5k x 8 hrs short and still none the wiser.

Get off the slow train to nowhere…. You now have a new BFF: Prof. Wong's "What Matters Most" slide!

Don't ask the generic "What are the goals" question. Ask "Of these 14 specific strategies which are we currently executing".

Once they tell you which ones (be patient, it might shock them that you are giving them something tough and specific to think about), you'll be in business.

The 5 strategies they pick from the right-most column will help guide you in terms of picking the right Key Performance Indicators / Web Success Metrics for your business.

And you know why a win now is guaranteed?

Because each metric you identify starts with a specific business strategy which has a direct line of sight to the 4 beloved levers which will have a impact on Net Income!!!

Minorly orgasmic right? [Trust me, you do this and you'll agree. :)]

Summary:

Recommendation #1: The Web Analytics Maturity Mandate!

For far too long we have been like toddlers… bumping into things, having a limited vision, working just what we know (which is little).

What I love about this approach is that it forces us to grow up. It forces us to understand what we are solving for: Net Income. It forces us to have a line of sight between our work and the ultimate goal: Net Income. It forces us to not live in our dungeon but rather take a well defined framework to enable the discussion that will yield wins all around.

No lip service to how important process is. This blog post shares what you specifically must do to succeed!

industrial evolution 1

Recommendation #2: Win With Web Metrics: Steps

Here are the specific steps I recommend you follow for optimal execution of the recommendations.

Step 1: Learn Finance 101 and the terms outlined in the slide titled "Profit The Ultimate Client Need".

Step 2: Don't pick any metrics, don't run reports, resist the charms of Google Analytics, Omniture Discover2 etc.

Step 3: Meet with your Management team (or the senior most Marketing person) and identify which strategies outlined in "What Matter's Most" the company is executing (/wants to execute).

Step 4: For each strategy identified in step 3 identify the Web Metrics / KPI's with a clear line of sight to the 4 beloved levers.

Step 5: Use the Web Analytics Measurement Framework as the foundation of all your reporting.

Step 6: Spend you work day on focused segmented analysis to identify actionable insights you can report using the Web Analytics Measurement Framework that will help drive data driven actions on "What Matters Most" so that your company will improve in the one thing that matters: Net Income.

Step 7: The happiness you'll get from leading a meaningful professional life will make you irresistible to the opposite sex which in turn will lead to happiness in your personal life! Enjoy it.

A simple but effective 7 step process.

:)

Good luck.

Ok now it's your turn.

Do you agree that a focus on Net Income and a focus on "what matters most" is key to success in web analytics? Can Web Analytics tie the work they do, the metrics they report, into Price, Volume, Market Share & Market Size? Or is our work simply not that important? In your job today how do you ensure line of site? Will you change anything based on the recommendations from Prof. Wong?

Please share your feedback / critique / ideas.

Thanks.

[UPDATE]

Zach Olsen, who blogs at By Data Be Driven, has taken the Clear Line of Sight framework outlined in this post and applied it to a medium sized eCommerce website. It is so wonderful, take a look:

zach olsen web analtyics framework sm

[Click on the image above for a higher resolution version.]

Zach's effort is awesome for these key reasons:

  • Really clear line of sight from Business Objective to Net Income.

  • Clean flow from What Matters Most to 4 beloved levers (Price, Cost, Share, Size).

  • (This one I love the most…) Identifying of Targets for each metric! You can't be serious about Web Analytics without doing this!

I hope you are as impressed by Zach's effort as I was.

He has also done something sweet for all of us… he has created a excel spreadsheet that you can download and customize for yourself, and hence get a jumpstart! You can download it at this blog, bottom of this post: Web Analytics Framework Example. Please download it!

My thanks to Zach for his effort and for his permission to share it here.

[/UPDATE]

PS:
Couple other related posts you might find interesting:

Comments

  1. 1

    Time to grow up people!

    Love, love, love, the "Web Analytics Maturity Mandate"!

    You make an excellent point tasking web analysts with identifying the current "Go To Market" strategies for your organization and using those strategies to guide the focus of your web analysis and the KPIs you delver to your HIPPO!

    It is high-time we members of Web Analytics Nation (might rename my blog this :) rise up out of the muck of visits, pageviews, and atos, to the respectability and accountability of deeper, data-driven, revenue-focused insights!

    Identifying which pages contribute most to conversion and how we can leverage those page builds and content strategies to increase conversions across the site.

    What are my most profitable sources of traffic and how can I maximize the profitability (market share?) of the highest performing and breathe life into the least performing?

    What are the roadblocks to conversion on our sites and how can we smooth out the usability of our pages and site architecture to guide our users to conversion?

    Another Great Post! Thanks Avinash!

  2. 2
    Simon Tu says:

    I am a long time reader of your blog Avinash and I continue to be amazed at how you consistently keep upping the game when it comes to educating the data world.

    This is a great post because shows why web analytics is in such a "mess" and what the solution is.

    In my company, multinational ecommerce in 80 countries, the entire focus is on reporting data out of Omniture. Yes we report conversions but we have done little to tie our reporting to Profit or What Matters Most.

    I am going to print this post out for our Director of Analytics & Optimization and recommend we make a fresh start.

    Thank you so much for going above and beyond what anyone else is doing.

    Simon.

  3. 3

    Avinash –
    I've been thinking about this lately, too and I believe I have a solid candidate for what matters most.

    Last week I posted thoughts on the production side of your equation. I took a cue from the 90/10 rule and asserted that building the ninja in your people is the way to to go. I used economics, not marketing to "show my math," so to speak: http://bit.ly/bW9R1n.

    BTW – I finally "picked another boss." Can't wait to start a new adventure. Thanks for all the inspiration! :)

  4. 4
    LaVonne says:

    Avinash,

    I have been quietly absorbing your posts for some time now. It's past time to say thank you for the best balance of inspiration and pragmatism about data I have seen anywhere, period.

    We are a startup that aims to help private company execs improve performance by benchmarking financial and operational data to peers. Presenting data in the most actionable form possible is core.

    When I first thought you were focusing "only" on web analytics I still found your posts to be relevant and incredibly valuable. And more recently your insistence that such metrics be connected to financial performance connects the dots.

    Again, fantastic insights. I can hardly wait for the next ones!

  5. 5
    P de Robert says:

    Totally agree in principle (I have an MBA too…)

    BUT what if your website is not e-commerce but informational?

    If you are not directly driving sales with your site, it becomes a lot harder to use Net income as your main driver, since there is no direct link.

    So if you are, say, a consulting firm, your website is possibly a lead generator, but you may not know whether your clients looked at your site unless you specifically ask them when they use the good old phone to call in.

    And unless you have a systematic sourcing record for your leads, and you integrate off-line/on-line, it's going to be a lot harder to do your job…

  6. 6
    Diego says:

    Nice closing Avinash :)

  7. 7

    Excellent insights as always. Grow up, indeed. Metrics are all well and good, but if they're not being used toward the thing that matters the most, it's as if they didn't exist at all.

  8. 8
    Brian Chiou says:

    Great post and it definitely has a familiar ring. Outcomes, Outcomes and Outcomes! At least the familiar ring is something good opposed to a vuvuzela :)

    Like P de Robert, there are plenty of sites I have worked on that are not the conventional e-commerce site. I have struggled to figure out the economic value of the website, but the attempt is appreciate much more than simply saying it is too difficult.

    The line "What are the goals of the organization?" is extremely important. Once you can figure out the goals for the site which may be difficult BUT should definitely be attainable you can then create that line of sight that will give you the power to reach those goals.

    For Market Size, I have attempted to use the Google Adwords keyword tool to help show the potential Market Size for a given product a business has. Do you believe that this is an approach I should avoid?

    Again, thanks for the great post!

  9. 9

    Pauline: You are absolutely right, things get a bit more complicated when you are running a non-ecommerce website.

    If you are a for profit, like Foviance, then the thing that does not change is that you still have to tie it to Net Income. It might require a hop, skip and jump, but you can do it.

    As you have mentioned in your comment Leads are the start of the process. What are we doing on our site to get more people who come to the site to give us Leads. Same map as "What Matters Most".

    Additionally some of the ideas in the offline impact blog post might also be ones that directly apply in this case:

    * Multichannel Analytics: Tracking Offline Conversions. 7 Best Practices

    Depending on the marketing strategies being used by the consulting company I would take the metrics from the blog success measurement post (contribute content, engage an audience by adding value, when they need consulting… bam! they are yours) – this improves market share – and if they engage in social media efforts – to improve market size – then the social media blog post has specific metrics they can measure (focus on amplification, conversation etc).

    * Social Media Analytics

    * Blog Metrics: Six Recommendations For Measuring Your Success

    Finally I had a post on measuring success of Government sites (the most non-profit of them all!) and it might have some ideas you can use:

    * Web Analytics Success Measurement For Government Websites

    I am sorry to share just a list of links for you to read and pick and choose.

    Sadly generic answers are the reasons measurement is in the soup it is, and I don't know enough about your consulting company and what its priorities and strategies are to be able to give a specific set of recommendations.

    I am confident that if you start with a clear understanding of "What Matters Most" from your Sr. Management then it is possible to find the KPI's (even for a non-profit) that tie to Net Income (in case of consulting companies) or Net Happiness (in case of governments).

    Hope this helps a bit.

    Brian: Goals!

    I understand that sadly it is the hardest conversation to have for two reasons:

    1. We the analysts don't have (or feel we don't have) enough responsibility / expertise to bring this type of focus.

    2. If that was not hard enough HiPPO's don't seem to know how best to use the web and don't bring the tough expectations to it.

    Bad cocktail. Hence the recommendations in this post, hopefully the frameworks will help.

    To your question… Yes Adwords is a good way to measure market size, I also like to use Insights for Search and Search Based Keyword Tool (only the latter has both organic and paid share). But tools like Compete/Hitwise in their search reports are also very good (as they have bing/yahoo in there as well). In all cases of course these will be just good proxies for search market share.

    -Avinash.

  10. 10
    Guy Hill says:

    >> Net income

    I call that the "CFO's perspective." Tracking systems are cool, but if the CFO can't see the delta in terms of dollars in the bank account, we're all outta work. : ]

    Cheers!
    [G

  11. 11
    Ken Wong says:

    I am the Ken referred to in the article. I must say "Avinash..this time you went too far! (at least in giving me credit for the "magic potion"…I just repackaged some basic economics and accounting). Regardless, as always, your own extensions and interpretations are BANG ON!

    That said, I like to connect all of this back to Avinash's (equally if not more awesome) talk that day by suggesting that, in addition to the connections of specific metrics to profitabilty, you also have an INCREDIBLE… as in absolutely awesome and never before possible… ability to EXPERIMENT!!!

    This is not a small thing or incremental improvement on an existing capability. Experimentation in REAL TIME is something we are very rarely able to do in business: on business matters, our inability to "control" conditions in the real world means we typically have to settle for "reliable" (i.e. consistent) measures when what we want is "valid" (i.e. projectable) measures.

    If you accept this, you now have the power to run sensitivity analysis leading to cost/benefit comparisons, leading to profit optimization, leading to…. be still my corporate heart!

    The power is yours!

  12. 12

    Hi Avinash, I had a question about the micro conversions. And this is more related to the website organization.

    Would you typically have all micro conversion calls to action also on the same page, or have multiple pages for the same persona so that with time we can lead them to different pages and further into the macro conversion.

    I understand there is probably not one answer, but I would appreciate if you could give me pointers about this design part.

    Thanks,

    -Deven

  13. 13

    Deven: Think of Micro Conversions as objectives you have created for your website, things you want it to deliver for your business. Initially at least don't think of Micro Conversions from a customer perspective.

    Once you have that sorted out then think of customer intent, as defined by sources they might come from or keywords/campaigns that bring them to your site.

    Once you have that then you can start to think in terms of….

    "Traffic X has intent Y when they come to our website. On the landing pages (or in their site experience) I will make sure their main intent is met and I'll also figure out how to pimp my micro-conversions tastefully so that the customer win's and I win too."

    :)

    The top half of this post talks about the importance of matching Customer Intent with Webpage Purpose:

    * Six Tips For Improving High Bounce / Low Conversion Web Pages

    Hope this helps.

    Avinash.

  14. 14

    "Yes we report conversions but we have done little to tie our reporting to Profit or What Matters Most."

    I agree with you. In fact this is usually the norm, rather than the exception. :(

    Thanks for the great article on "data" :)

  15. 15
    Ryan Jones says:

    Avinash,

    Great post.

    Really like that you are bringing business focus to analytics. In most companies the folks doing analytics have never had to really "deliver the quarter" on a real business. I guess this is part of the problem today.

    One additional thought I had on the models in this post…please encourage folks to simplify, simplify, simplify. While I like Zach's modeling example, it is still too complex for top management. Simplification whenever possible will be key in helping analysts talk to top management.

  16. 16
    Ned Kumar says:

    Avinash,

    As usual a post with advice worth executing. I totally embrace your line of sight theory. In fact, it really does not matter if you are profit or non-profit; or if you are looking at content, seo, sem, social media etc. – I think one should always have a line of sight to what they are doing to "Net XXX". As you mention above the XXX could be Income or it could be something else that drives your entity.

    Many people do have a line-of-sight for their metrics — unfortunately, that happens to be a micro line-of-sight to the next hill and not to the ultimate destination of where they want to be.

    Good post and enjoyed the read.

    Regards,
    Ned

  17. 17

    Ryan: It is about time that we got focused on the business, rather than tagging and reporting and javascript and screen resolution. I am grateful to Prof. Wong for inspiring this post, he deserves all the credit.

    With regards to Zach's model… think of it less as a dashboard and more as a process / a mandatory exercise in much needed communication. We almost never go through this process. Now we have a framework we can use that involves Analysts, Finance, Marketing and HiPPO's.

    After the exercise is done (and repeated at least every six months) we can craft an optimal dashboard. Perhaps one focused version for the Management team and another version (more drill down) for rest of the company.

    Makes sense?

    Avinash.

  18. 18
    Christopher Dittemore says:

    Avinash,

    Can you explain More Usage Occasions and More Occasions Per Usage?

    I have looked all over Google for the answer, but no luck..

    Thanks for the amazing post – it has opened my eyes to the necessary fundamentals to realize the power of Analytics.

    Christopher

  19. 19

    Christopher: Strategies in the "What Matters Most" slide come from Prof. Wong so I am interpreting here… but…. Think of those two marketing strategies in context of the big lever they are trying to move: Market Size.

    If you are able to influence More Usage Occasions then you can improve the size of your market. For example why only shave facial hair with the razor, why not also use it for chest hair or leg hair and both for men and women. Boom more occasions, bigger market size.

    If you are able to influence More Usage Per Occasion… get more people to drink sparkling water rather than coke during parties then you grab a bigger size. Right?

    Hope this helps.

    Avinash.

  20. 20
    Puneesh says:

    I tend to agree and disagree with you Avinash. Agreed on most of the points you mentioned but disagree on not giving importance to web analytics where it deserves the most. The websites that are more informative and knowledge sharing type, the analytics are worth spending a little more time. Thoughts??

  21. 21
    Ken Wong says:

    Re: Market Size…Avinash has it perfectly correct. More usage occasions is typified by the cranberry growers who have found a way to convince us that cranberry is, besides a food, a drink, an aroma, a soap ingredient etc. Think also about baking soda which is used more as a refridgerator deodorant, carpet cleaner, body spray etc than for the original baking purpose.This is a powerful strategy that can redefine the business arena.

    As for more usage per occasion, imagine what would happen with shampoo sales if everyone followed the directions on the bottle (lather, rinse and repeat)!!! This also aplies to non-profits who seek to uncrease their average donation, restaurants who seek to increase their average check per table, or retailers who seek to get customers to buy more per visit. Costco does this when they sell only mega-size containers and Crispy Creme donuts does it when they seek to sell only by the dozen.

    Hope that helps. Ken

  22. 22
    Ken Wong says:

    PS. I should add that sometimes a small change in the product can create a stream of new applications (usage occasions). For example, a database program can be transformed into a CRM system. And social networks may prove to be more valuable as a device for internal collaboration and communication (i.e. live the brand) than as a promotional tool.

  23. 23
    Alvin O says:

    This is an inspiring and comprehensive post! My initial reaction was to jump into the calculations by turning the ROI Flow Chart into a Calculation Sheet where I could plug in numbers to get my Net Income. However, after struggling it for a while, I think it is better to take it as a strategic reference materials instead (like Zach did). Let me know if you disagree…I can show you my spreadsheet.

    I agree with Ryan that some executives might be confused by it but as long as your touch points and campaigns are well organized, it could be an important strategic online marketing tool.

    I like the fact that Ken Wong tied in "Market Share" and "Market Size" strategies because they are very helpful in reporting on demand generation and user acquisitions.

  24. 24
    Sébastien Brodeur says:

    So simple, yet so efficient, back to basic. I will use this. Thank you!

  25. 25
    Mirosalv says:

    This article is the essence of web-analysis.

    Very often clients are not focused or don't know how to define their goals when actually net income is THE GOAL.

    We use a similar but slightly different method tailored especially for social media: We use SMEF (Social media efficiency factors or just SEF – social efficiency factor)to determine the value of different strategies to achieve the goal (and higher net income at the end).

    We published this method not long ago on our blog:

    http://escapestudio.net/blog/social-media-marketing-part-3-quantify-roi/

  26. 26
    coco donald says:

    Good post.

    Really like that you are bringing business focus to analytics. In most companies the folks doing analytics have never had to really "deliver the quarter" on a real business.

  27. 27
    Gemma says:

    Avinash:

    Plas Plas Plas Plas (spanish sound of clapping)

    I just loved this post. I'll print and frame it.

    Thank you for making me think, you are so actionable!!!!

    PS. I want to meet Prof. Wang!!!!

  28. 28
    Ken Wong says:

    Gemma:
    Consider this an open invitation for you (or others interested in more on businss strategy)to contact me. Email to WONGonMISSIONcritical.gmail.com

    Ken

  29. 29
    Angela Feng says:

    Avinash –

    I am a long time reader of your blog and I feel that this is another post that really blew me away. Also, thank you Zach for sharing your web analytics framework. It gives me another perspective on how to think about the current business.

    One question about your framework – under the "Cost Strategies", there is one strategy named "Increase CTR/CPA on Email", shouldn't it be a decrease since we would love to see more acquisitions from eblasts with less spending?.

    Please correct me if I am wrong.

    Thanks again!

    Angela

  30. 30

    Angela: I am glad you found the post to be of value. You are right about "Increase CTR/CPA on Email". There is one more issue about some of the entries in that column: They are "metrics based" rather than "marketing based".

    For my own personal use I had updated Zach's lovely ecommerce example effort and created a edited version. You are welcome to download that version of the spreadsheet: Digital Marketing Analytics Line Of Sight Framework

    (And do note how I had changed that row, as well as others, to reframe things.)

    Hope this helps,

    Avinash.

  31. 31
    John McDougle says:

    Avinash

    Another crystal clear piece of writing that takes analytics forward another step. Well done!

    I have one point to make. The second half of the equation, Volume makes no sense to my simple brain.

    Market share is a measure of volume or sales relative to competitors and size. It's the other way round. So, I disagree with your point 'You'll sell lots of X or Y if you have a high market share and the limit you'll hit is the size of the market.' If you sell lots, your market share goes up.

    Surely, although simplistic, the 'causes' of Volume are a combination of the number of visitors/leads/prospects, the number of conversions/sales percentage, as well as the average amount that is purchased times the number of purchases made.

    Your microconversions are the actions taken that cause this.

    Thanks for another great post

  32. 32

    John: In my interpretation I have conflated Market Share and Volume. Let me see if I can disambiguate.

    Independent of Market Share you have to work on Volume. You sell lots of stuff (that you can produce at a low cost and a high price) and you'll be all set when it comes to Net Income. You can work on Volume using many different strategies (more to the same customers, new customers, countries, whatever).

    Your share of the market is one of the things that helps volume (as might price for example). The market could remain fixed, say 100, and if we work to move our share form 2 to 4 we impact Volume.

    All four levers, Price – Volume – Share – Size, have interplays between each other. Like life it is a bit complicated. But I hope this helps add a smidgen of clarity.

    Thanks so much for the comment, and making us all think a bit harder.

    Avinash.

  33. 33
    Ken Wong says:

    John…Re: the confusion between share ad size

    Mathematically, every successful expansion of market size will lead to greater market share (since you are winning 100% of the new users and adding that to your presumably less than 100% of the existing market). However, the distinction between share and size is more a matter of the key to winning these two sources of volume.

    Share is generally calibrated relative to existing competitors, most of whom will be similar in kind to you. Thus Google Search competes against Yahoo and Bing and others for a share of the search market.

    By contrast, winning market size can mean wining accounts for competitors who, while different in kind, are competing to provide the same kind of functionality to an account. For example, search advertising can be said to compete again TV and print advertising and other forms of digital marketing. However, market size can also come form finding new functions for your product (think baking soda as a refrigerator deodorant or toothpaste…thing Velcro…think cranberry as going beyond food to be sold as a fragrance) Market size can also come from taking a product or service and offering it in an expanded geographic area.

    One other thing…in the battle for market share we know from research that the number one brand usually tops out at a 40% share. (This is a simple consequence of the fact that tastes are usually distributed across key dimensions in a more or less normal distribution. Thus, focusing your brand on the modal level of any dimension will not product a rating of 100% for all users and there is always the ability to win users closer to the endpoints of the distribution via a specialized product). Thus, it is inevitable that every product in an never ending search for growth will eventually turn to market size as the source of growth.

    Hope that helps…

    For more detail on the 40% share number see the book "The Rule of Three". For more information on market size, see the book "The Blue Ocean Strategy"

    Ken

  34. 34
    Tom Nixon says:

    Really helpful article – thanks so much.
    It's probably just me being a bit dumb, but could someone provide a short definition of the goals under the Market Share Strategies branch please? I feel I kind of know what's meant but would like to be more sure, before I talk to a client about this (tomorrow!) :)

    Marketing Segmentation
    Customer Value Chain
    Relative Spending/Effort

    Thank you!

  35. 35
    Ken Wong says:

    For Tom WIlson:…thi gets a little complicated because the battle for market share is arguably the most complex part of marketing. Starting from the bottom…

    Relative Spending/Effort: Ther is something called the "Findamental Theorem o Market share". It equates market share with the probability that someone buys from you. Though of in this way, that pobability os a fuction of two things – the QUANTITY of your marketing effort and the QUALITY of that effort. If we assume that Creative genius is randomly distributed (ie sometimes you have a great campaign, sometimes not…and there is lots of anecdotal evience to support that), then quantity of effort becomes the driving force. Thus the theorem suggests that your market share shoul be roughly equal to your "share of voice" (your spending as a percentage of spending by you and the competition). This is normally applied to advertising but you will often hear similar thoughts about "share of shelf" (if point-of-purchase decisions dominate) or "share of feet" (if th salesforce dominates)

    Customer Value Chain: every oranization exists for the purpose of transforming raw inouts into outputs. Every step of that transformation is a stage of adding value. Hence the basic value chain is procurement-processing-outbound logistics- marketing-customer service- etc. Sometimes we win share by adding value in ways the competition does not OR by or being more efficient (and thus lower priced) in providing the same value as the competition. S for example, AMAZON and Barnes and Noble are both booksellers but AMAZON creates value usuin a more efficient process (if all you want is a book) and Kindle provides a books content usin a different value chain than a printed book. Providing more quality at the same price OR the same quality at a lower price are the two formulas for better customer value and that is key to winning mrket share

    MARKET SEGMENTATION: this is an enormos topic bu think of it this way…ever hear the expression "horses for courses"?. Well segmentation basically says "not everyone wants the same combination of thigs". As a result, if two producers are vieing for a customer at th same price point, whoever reads that customer's tradeoffs best, wins. Example, we routinely tradeoff things like, say, fuel efficiency for speed in a car. One segment of customers wants more speed for the dollar while another segment may prefer more fuel effiiency and will give speed to get it. So as a producer, my choie of market segment has a massive impact on my poduct design and marketing etc.

    Segmentation can also relate to anything else that causes segments to behave differently.So, some segments may prefer to get ifomation over the web while others prefer more traditional media. Fo example, McKinsey just released a study that showed some demographic groups tend to trust marketing info from the web more than others. Knowing the mdia habits o you segment is therefore critical to iunderstandin where to spend your marketig dollars and thus your market share

    These three ae only a partial list. YTou should also see Loyalty Management (esp. Share of Wallet) and Awareness-Trial-Adoption for other concepts related to market share. Both can be studied at a conceptual OR statistical level.

    Hope that helps!

  36. 36
    Tom Nixon says:

    Ken, I really appreciate the clarification – many thanks! :)

  37. 37
    Tom says:

    Truly valuable, thanks for sharing

  38. 38
    Maarten says:

    Dear Avinash,

    Thank you very much for this wonderful post! One question that I would like to ask.

    Do you prefer the framework you describe here instead of the one you posted earlier: Web Analytics 101: Definitions: Goals, Metrics, KPIs, Dimensions, Targets?

    Or are they interchangeable?

    Thanks in advance for your answer.

  39. 39

    Maarten: Great question. The two frameworks are not interchangeable.

    Think of the Line of Sight Framework as a strategic approach to rethinking digital marketing. It would typically be used by CMO's and VP's of Digital. It lacks deep detail, it is support to solve for the big picture. The goal is to change Marketing and bring accountability to it.

    Think of the Web Analytics Measurement Model as a tactical approach to ensuring that the end to end measurement is optimally structured. It would typically be used by the VP's of Digital and the Director of Analytics (or the Analyst if that is all there is). The goal to to focus the Analytical team on the highest priorities (and be explicit with them about what to ignore – no more data puking!).

    Each solves for something unique, but different.

    -Avinash.

  40. 40
    Max says:

    What a wonderful post. It really changed my way of viewing choosing web KPIs mostly on favor of those metrics that really help me impact my bottom line which is what really matters. Congrats on such a great post.

    There is something I can't seem to understand.

    The slide "Profit: The Ultimate Client Need" says; "Market Share" TIMES "Market Size" gives as a result "Unit Volumes". Is this right?. Any combination I tried does not gives me as a result the "Unit Volumes". Let's say I sell 10 Unit Volumes and I know my Market Share is 10% so I may think to do "Market Size" (let's say 100 units) MINUS "Market Share" (Let's say 10%) and I come to my 10 "Unit Volume" number. I would appreciate any help to clarify this.

    Thanks for sharing your knowledge.

    • 41

      Max: I'm sorry but I'm not totally clear on your computation.

      But if it helps… think of the volume of products you are able to sell being a function of the share of the market (say 10%) and the size of the market (100,000 units). You do one times the other and you get the volume you are able to sell

      -Avinash.

Trackbacks

  1. [...]
    Inspired by Avinash’s last post on ensuring a clear line of site with web metrics, I took a stab at creating a web analytics framework for a medium sized eCommerce site. This theoretical site is using the following marketing channels: paid search (brand and non-brand keywords), comparison shopping engines, affiliates, email, display advertising and social media (Facebook and Twitter).
    [...]

  2. [...]
    Avanish Kaushik blows web analytics out of the water with this post. Yes, web analytics are important, but even more important to most companies? Profits. He takes us step by step to finding a clear line between website analytics and the bottom line. As the Google Analytics evangelist, you would think he would be saying that web analytics are the end of the line, but no, he points out the fact that many metrics available are meaningless in terms of profits. I won't go through the math here, but read Avanish's blog to find the connection between your profits and web metrics.
    [...]

  3. [...]
    Mitch for Alistair: Alistair (literally) wrote the book on web monitoring, but Avinash Kaushik – the Analytics Evangelist for Google and author of both Web Analytics – An Hour A Day and Web Analytics 2.0 – had one of the most fascinating Blog posts earlier this week on what all of this data, monitoring and optimization should mean in terms of bottom-line revenue. As with everything Kaushik posts, it’s timely, super relevant and, above all else, entertaining. So, now you’re monitoring everything online… but is it making you cash?
    [...]

  4. [...]
    Analízate.

    Primero, ¿tienes unos objetivos claros?

    Si no los tienes, comienza por este artículo para intentar definirlos, y que la mayor parte de la empresa los comparta.

    Segundo, planifica tu tiempo. Dedica un 20% a buscar hipótesis, y un 80% de lograr que se validen.

    Ese 80% incluye convencer a tu jefe por todos los medios, que hay que evolucionar, implementar una cultura del cambio. Esto se consigue con cuadros de mando impactantes, que van al grano en lo económico, que urgen a actuar. Se consigue ligándote a los programadores. Se consigue haciendo tú mismo los cambios.
    [...]

  5. [...]
    While the industry has been working on getting to this nirvana for years (and I have been screaming at what feel like brick walls about it), I think that Avinash Kaushik just drove a stake through the heart of the issue in writing the single best guide to embracing this concept in his recent post Win With Web Metrics: Ensure A Clear Line Of Sight To Net Income!. In this he gives some very specific (and very kickass) advice on getting this done. It is an absolute must-read. And while I normally talk about cash flow [from operations], net income is more or less saying the same thing.
    [...]

  6. [...]
    Speaking of Avinash Kaushik – and fitting analytics into an overall framework – look at his recent post about establishing a “web metrics line of sight.” Aligning web analytics with overall business metrics is where it’s at. Otherwise, you’re just making pretty graphs.
    [...]

  7. [...]
    Excellent tips for the budding online marketer. Some in-depth ideas for measuring progress of your efforts. Achieving the standard set forth in this post will be a major effort on my part. However, it looks pretty darn worth it.
    [...]

  8. [...]
    Win with Web Metrics: Ensure a Clear Line of Sight to Net Income
    Web measurement guru, Avinash Kaushik, preaches with evangelical fervor on the need for businesses to compute the economic value of their web presences. Web interactions should be bucketed into price, cost, market share or market size which have a clear line of sight to net income. If you can’t find that line of sight then maybe it’s not a very important metric.
    [...]

  9. [...]
    Win With Web Metrics – Industry genius, Avinash Kaushik, explains the links between web metrics and your bottom-line net profit.
    [...]

  10. [...]
    Avinash Kaushik in his terrific Occam’s Razor blog (and in his books) argues that we must use the creation of economic value as the ultimate objective when evaluating any of our activities, but recognizes the complexity of doing so when some of those activities have an indirect impact. In a recent post, “Ensure a Clear Line of Site to Net Income,” Avinash provides an explanation of what he calls “macro conversion” and “micro conversions.” To paraphrase his excellent article, it is crucial for us to understand how the small things we do ultimately relate to our larger goals. At Open-First we call this analysis “goal decomposition” and apply this discipline to understand the ROI of marketing activities that have long term results.
    [...]

  11. [...]
    Sorry to be the wet blanket, social media gurus, but at some point all that success you’re having engaging audiences and kicking ass online will mean that eventually, reporting will fall on your plate as well. That means corporate reporting using social media metrics correlated to real-deal KPIs like revenue, orders, leads, referrals, phone calls, and including some kind of calculation for overall ROI.

    For the most part, tagging success events or goals in web analytics packages is relatively easy and results are near real-time. However, if you aren’t able to rely on point of sale tracking to get components of ROI into your analytics package, there are a number of ways to reconcile that data after the fact (VLOOKUP, Pivot Tables, etc.).
    [...]

  12. [...]
    If I’m not a full-time analytics analyst, how much time should I spend on data analysis?

    Line of site model. Look at; Price Strategies. Cost Strategies. Market Share Strategies. Market Size Strategies. Then figure out the KPI for those strategies. Email him for the cool presentation handout.
    [...]

  13. [...]
    Profitability may be a tougher nut for us to crack, and it may involve some operational aspects and types of metrics we have a harder time getting out of the suite of tools we have available, but if you just ask yourself what it takes to make an incremental dollar, you’re well on your way to understanding profitability. Avinash has also written a great post to give you a ton of ideas about mapping your web data and behavior to net income, which is very similar to cash flow.
    [...]

  14. [...]
    Second was when I saw what Zach Olsen did to Avinash’s & Ken Wongs’ net income framework. Zach took the framework & distilled it down to actul KPIs that an e-commerce store can use. Few of the times during the pitches to customers we had done similar excercise but I must admit that , not as good as what Avinash, Ken Wongs or Zach did. After a learning about this framework, during one of the pitch we created following diagram , which is different version of the net income approach for the e-commerce store and wondered which all areas we can influence upon.
    [...]

  15. [...]
    To tie it all together, you can’t start out by asking yourself what metrics do I use? What strategy do I use? It is all about knowing what the client wants from you and then structuring a model around that. By building frameworks and models, you can structure your thinking around the real purpose of a campaign and align it with the ultimate goals of the company. Two frameworks that Avinash built are the Digital Marketing & Measurement Model and the Clear Line of Sight Model. They can be viewed and shared by clicking on the links.
    [...]

  16. [...]
    Fifteen years of working with many organizations (it is an impressive list) has taught us most organizations have not yet achieved a point where marketing analytics is like financial reporting: simplified; fairly universal; with a clear line of sight to business financial statements and tied to specific goals and objectives. If everyone had a simple marketing analytics framework that made reporting simple, then everyone in the organization could help steer the organization in the right direction at maximum speed.
    [...]

  17. […]
    Net income – strategies – metrics: How to plan and asses how you're meeting goals with the Price, Cost, Share & Size Model (From this post)
    […]

  18. […]
    Here’s a few of my favourite learnings from the module: Getting started with analytics: a simple process More: Read Avinash’s blog post: Win with web metrics
    […]

  19. […]
    (For explanation of use : here)
    Gone to make a strategy of my own, best of luck with yours!
    […]

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