Wednesday, August 23, 2006

Decker (again): Only 3 ways to drive revenue

Sorry if you're sick of Sam Decker. I think he's well worth your attention, though, so listen up. In number 5 of his Marketing Bullseye series at Decker Marketing, Sam reminds us of a fundamental truth for online merchants, be you selling widgets or financial products (we're all retailers, after all). And that truth is this -- there are only three ways to drive revenue:

  1. Get more customers [acquisition]
  2. Get more from each customer [increase size of average order]
  3. Get customers to frequent {I would say purchase} more often [increase lifetime value of individual customers].

Sam goes on to detail steps you should take to execute on these sources of revenue, ending with this: 'Track progress against the goals.'

Ahh, the devil's in the details. How do you track progress against those goals? Online, this is where a robust web analytics package, coupled with a robust, well thought out online measurement strategy comes into play. A well implemented analytics package will make it easy for you to adopt the discipline of setting goals and measuring against them for each of the three sources of revenue.

It's been my experience, though, that banks and financial services companies struggle to see themselves as retailers, even though this is precisely what they need to do to be successful selling products online. If you're in this boat - you're hindering your own success.

So, how do you track progress against goals for each of the three sources of revenue?

First Things First
First of all, you need to have a way to track sales of individual products. This is a stumbling point for a lot of banks and financial services companies, as there is usually no revenue directly associated with an online sale. Even at the most advanced companies, it is rare that a financial product, such as a loan or credit card is approved, closed, and funded online, making the tracking of actual revenue a little less intuitive when implementing web analytics.

Most companies only get the customer as far as submitting an application online, taking the approval and closing process offline. Some may give an approval online, while others stop at simply allowing the customer to download an application so they can mail it or bring it to a branch. The point is, though, it doesn't matter. You can attribute revenue to any of these activities, and this is what you have to do.

In the case of a bank that accepts applications online, do an offline analysis that tells you what a submitted application is worth to the company. Use Sam's workback waterfall, which I 'borrowed' here, to figure out what what % of apps are approved, what % of approved are closed, and what the average value of a close is to the company in either total dollars or first year revenue. Then work backwards to figure out how much each submitted application is worth, and apply that value to each "sale" in your web analytics package. Do this at the product level, not at a global level. A mortgage is worth something wildly different than a credit card, and you don't want to blend those values or you'll end up with data that is a lot less actionable.

Treat the sale process the same way a retailer does: record key business events in the sale process. At the individual product level, record at least product views, application starts, product add-ons (you do cross-sell, don't you?), application submits, and product value ($$). A robust analytics package will allow you to roll individual product data up into multiple levels of product families/categories that map to your particular business.

Second Things Second
So now that you've got a strategy for reporting on product sales, including revenue, you need a strategy for reporting on your marketing efforts. Most of the top-tier analytics companies treat marketing programs in a similar way, allowing you to assign an identification code to each individual marketing piece so you can track the performance of the individual campaign or offer, as well as see rolled-up views of various groups of IDs. For example you can see all creative versions in a particular offer, all offers in a particular campaign, and all campaigns in a particular channel (such as email or banners).

So now you've got the fundamentals in place: marketing tracking, and product sales tracking. You are now armed to measure your execution on Sam's plan for driving revenue from the three sources available to you. So, how do you do that? Glad you asked -- this part is actually really easy.

Get More Customers
The key word here is customers. You don't want traffic, you want customers. How do you know if your marketing campaigns are delivering customers, not just traffic? Remember the 'business events' recorded during the sales process? Topline analytics packages will allow you to correlate those businesses events to your marketing IDs, making it possible for you to see not only which efforts drive the best response, but which efforts drive the most product sales. Analytics packages typically let you break out new buyers from returning buyers, too. New buyers=more new customers.

Get More from Each Customer
This is why it is important to calculate product revenue at the individual product level, not as a global average as we discussed above. Just as you can correlate product sales to individual marketing efforts, so too can you correlate revenue. Want more from each customer? Try increasing the average value of each sale. How do you do this?

Try cross-selling additional items in your product application process. "Want a credit card with that?" "How about signing up for Online Banking while you're at it?" Or try targeting higher value products (HELOCs vs. Credit Cards). Don't just drive new customers, driver new, higher value customers.

If you want more from each customer, you have to sell more. To sell more you have to think, act, and measure like a merchant.

Get Customers to Frequent/Purchase More Often
This is simply a matter of getting existing customers to buy again, see Get More Customers above, but look at repeat buyers instead of new buyers. Additionally, many analytics packages will allow you to see sales cycle data on individual products, or groups of products. If your goal is to increase purchase frequency, you would seek to see an increased number of buyers with a decreased number of days between purchases.

This is all pretty straight-forward, really. The hardest part is knowing how to set up your analytics package in such a way that your ongoing measurement and analysis is easy and intuitive. That's why it's important to find and work with an experienced analytics consultant during your implementation. That, perhaps, is the hardest task of all. Many vendors provide analytics consultants (strategic consultants, business consultants, whatever they call them), but not all consultants are created equal.

I'm eager to hear about your adventures in Analytics. Please send me your comments and stories.

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