Larger organizations are evaluating direct selling models in search of growth, inspired by newly launched e-commerce businesses disrupting the market. Both B2B and B2C organizations recognize the potential benefits of a direct relationship with their customers including better control of their brands’ and products’ positioning, the allure of incremental revenue at a higher margin, increased brand loyalty, and most importantly, accumulation of first party data (see “What Marketing Leaders Need to Know About Selling Direct to Consumer”). All this potential, however, is complicated by a lack of understanding of different methodologies to optimize costs and evaluate success. How can larger organizations successfully manage the e-commerce business model when it is very different from the traditional approach? The answer: DTC-style performance marketing.
We define performance marketing as a strategic approach to continuous optimization at every stage of the purchase funnel. This means that all resources supporting digital commerce use specific operating objectives, and are complemented by relevant KPIs, to make day-to-day optimization decisions, which altogether tie directly to singular business objectives. Digital marketing leaders responsible for digital commerce can use this approach to drive an improvement in marketing cost optimization as well as to increase total revenue generation from their commerce enabled sites.
Objective Setting At Each Stage of the Funnel
Digital marketing leaders responsible for digital commerce should already be well-versed in the concept of the purchase funnel (awareness, engagement, consideration, conversion). Yet, many digital marketing leaders focus on awareness or conversion exclusively and fail to look at the opportunities between steps to nurture customers and prospects. The result is potential overspend of performance media while building awareness and an analysis of site performance which will not tell the complete story or identify key opportunities.
Establish objectives for each stage of the purchase funnel to ensure you are measuring step-by-step progress and optimizing accordingly. To determine the objective at each stage, identify the desired outcome and use this outcome to set the proper foundation for subsequent metrics that need to be tracked, as well as what KPIs to establish in order to accurately measure performance against the objectives.
Select Two KPIs That Complement Objectives to Measure Performance
Digital marketing leaders responsible for digital commerce often have numerous metrics being tracked on a daily, weekly, and monthly basis. Some of these metrics include critical business success measures such as average-order-value (AOV), total site conversion rate (CVR), and consumer lifetime value (LTV) on a rolling 12-month basis (see “How to Calculate Customer Costs to Identify Your Most Valuable Customer Segments”). These are just several of the many potential success measures that digital marketing leaders must choose from and which often leave them overwhelmed.
Based on Gartner’s hierarchy of digital commerce metrics there are four tiers of metrics and different stakeholders at each tier. Ideally these metrics should help business leaders at all levels of management assess business performance for a given timeframe (see “Use Gartner’s Hierarchy of Digital Commerce Metrics to Assess and Optimize Results”). Nevertheless, each of the metrics mentioned above are completely dependent on much more tactical activity within each stage of the purchase funnel.
To optimize performance, marketing leaders responsible for digital commerce should identify their strategic, operational and tactical levers through which they can drive revenue growth. By focusing the measurement at each stage on two KPIs, as opposed to many other competing metrics, digital marketing leaders can more easily recognize where outstanding performance exists and cut unnecessary spend, driving cost optimization decision making at the top of the funnel and increased revenue realization through the bottom of the funnel.