ROI of Analytics: Explaining the Business Value of Measurement

ROI of Analytics: Explaining the Business Value of Measurement

Michael LobananalyticsLeave a Comment

As an industry, we take it for granted that analytics is a critical part of building and growing a successful business. With all of the intense discussion around big data, artificial intelligence and the advance of analytics tools, it seems obvious to us that having an annual analytics budget just makes sense.

And yet, when it comes time to secure funding for next year’s analytics budget, we often get unexpected push back and resistance. That’s because we struggle to explain and demonstrate the business value and the return on investment (ROI) of analytics. And when senior executives don’t have a clear understanding of the business value of analytics, the budget goes to higher priority areas where the business value is clear and demonstrable.

Questioning the Business Value of Data Analytics

Executive leadership is right to question the business value of measurement. When budgets are tight and the growing expectation is to “do more with less,” we find ourselves in a bit of a quandary.

According to the Digital Analytics Association, “44% of analytics teams spend more than half their time accessing and preparing data rather than doing actual analysis.” So why should a business invest more budget in data analytics if less than 50% of an analyst’s time is going to doing the actual business value of analyzing the data and improving the value of the business?

The following are five of the most important business drivers where you can easily demonstrate the ROI of your analytics efforts. If your executive team is asking for proof of the business improvement, here’s where you’ll find all the proof you need.

Analytics Business Value #1: Acquire More of the RIGHT Customers

Without the support of rich data and robust analytics tools, businesses are left to measure the most cursory top line and bottom line impact of any marketing effort. These are questions such as:

  • How many customers have we acquired?

  • How much do these customers purchase?

  • What is our overall profitability?

Absent robust analytics, the most basic measurements are guiding the business decision-making – and often not in the right direction. This leads to focusing on the lowest cost per customer acquisition instead of stopping and asking if the customers we are acquiring are, in fact, the right customers to begin with.

The ROI of acquiring more of the right customers means that even with a higher cost per acquisition:

  • The repeat purchase rates are higher.

  • The customer churn rates are lower.

  • The overall lifetime value of the right customers will generally outperform customers acquired at the lowest possible price.

Analytics Business Value #2: Marketing Attribution and Media Mix Modeling

When you combine the right analysts with powerful data analytics tools, you solve the John Wanamaker problem. Wanamaker was the department-store magnate, who once said, “Half the money I spend on advertising is wasted; the trouble is, I don't know which half.” At least in the area of digital marketing combined with powerful analytics tools and professionals, the data will illuminate the ideal marketing mix ratio by allowing you to test a combination of marketing options that produce the maximum results for the minimum investment.

Effective marketing attribution and media mix modeling reduces significant advertising spend and that business value can be measured and attributed to both data analytics and the analysts doing the work.

Analytics Business Value #3: More Revenue from Current Customers

Acquiring a new customer can cost 5 times more than retaining an existing customer. In addition to validating that industry accepted stat with your own data, your analytics will support you to more effectively upsell, cross-sell, and increase the frequency of purchases. The data, when properly analyzed, will support a better understanding of what your current customers need as well as understanding what other customers purchased.

Analytics Business Value #4: Growth From A/B Testing

Analytics, when properly deployed, deliver incredible value in their ability to isolate variables and test assumptions from the top of the funnel activities all the way to the point of conversion.

Sean Lee is the Vice President of Digital Marketing and eCommerce at Pure Romance and one of my clients. In speaking with him about how best to explain the business value of measurement, he put it this way:

“Analytics are incredibly valuable to any marketing organization. I view them as an absolute necessity. In today’s digitally native eCommerce environment, marketing leaders must have a disciplined analytics tracking program in place to measure the impact of their marketing choices as well as their spend allocation. Investing in analytics is the foundation for both running statistically significant A/B tests to increase website conversion, and for running top of funnel A/B tests on advertising vehicles. Without proper analytics in place, you are essentially flying blind and will undoubtedly get left behind by those who use the data to continually improve and better connect with their customers.”Sean Lee, Vice President of Digital Marketing and eCommerce at Pure Romance

Analytics Business Value #5: Moving at the Speed of Business

Analytics also leverage data to do things faster. By using machine learning and pattern recognition, we can begin to drive repeat purchases faster without the manual analysis. Today, speed is often the difference between closing the sale and losing the sale. There is both demonstrable opportunity cost for business lag (without analytics) and increased purchase frequency by removing any barriers to completing the current transaction.

When you add the speed component to the other four, data analytics properly mined and automated creates a powerful efficiency for the business. The business value of speed can be measured and demonstrated and will support your desire to retain and even grow your analytics budget for the next fiscal year. It’s time to turn our own analytics rigor towards the business value of why we measure things in the first place.