Reading first-quarter reports from a variety of companies, not surprisingly, everything was focused on the “macro” numbers. The totals. Total sales and revenue, total costs, total number of employees, total ROI. That’s what the analysts and shareholders say they want to see. Don’t bother them with “micro” details: These just get in the way of the “big picture” and anyway, it is about time for lunch.
There is no question that the big picture is important. But all macros are the sum of lots of little micros; and especially, the health of data-driven marketing businesses is determined by the optimization of each of these micro details. When they are summed together, they produce averages. And it is no secret that average is the most dangerous word in all of marketing — especially our data-driven kind.
Imagine 10 men sitting at a bar having a beer. The net worth of five of them is $250,000 and the net worth of the other five is $350,000. It is easy to calculate that $300,000 is the average net worth of the men in the bar. But now another thirsty fellow comes into the bar and orders a beer. His name is Bill Gates and his net worth is measured in billions. Now what’s the average net worth of the men in the bar?
It is perhaps a silly example, but if you are a marketing professional, you know that in working to define the income range of your target audience, the distorted figure you get when Mr. Gates’s net worth is averaged with those of the other men in the bar, it makes the “average” totally useless from a marketing point of view.
Like so many other things in today’s increasingly digital world, fortunately fewer and fewer marketing professionals are talking about average when they have a cornucopia of metrics that invite us to look at each specific person. The end of average is upon us, and we shall not be sorry to see it go.
And yet, even when we operate at a micro level, valuing each action or combination of actions, we can sometimes overlook the proverbial forest for the trees.
Especially if we have a big success, one of the easiest things in the world is to become complacent about it. That’s the direct opposite of “optimization.” Let’s call it lazy minimization.
Recently, a client, working to develop just how much marketing money he could afford to spend in each available medium and the optimum mix, challenged one of the golden rules I had laid down for the use of the Allowable Cost per Order (ACPO) model — never spend more than the ACPO.
The ACPO Methodology is explained in detail in the e-book “Profiting from the Magic of MarketingMetrics,” available from Target Marketing. For a free, short “How to Calculate the ACPO” presentation, just email “ACPO, Please” to firstname.lastname@example.org.
Turning away from his computer screen, he posed a very simple question, one that I should have asked myself years ago: “If you never spend more than the ACPO, are you optimizing your profit, or are you just playing it safe?”
While there is certainly nothing wrong with being “safe,” it is hardly the way to drive maximum growth.
When we ranged the different media cells from the lowest cost per order (CPO) to the highest and concentrated on the effect on the cumulative profit, we received a compelling message that our historic focus on not allowing the ACPO to be exceeded was detrimental to profit. I’m still kicking myself for not having asked and answered that question years ago.
It’s all in the numbers. Had we eliminated all CPO cells higher than the ACPO of $265, we would have had 707 fewer sales and, therefore, less market share — a shortfall of 35 percent. But we would have spent $248,313 — a savings of $323,337, or 43 percent. That had always struck me as the best strategy.
But in asking the “optimum profit” question, my colleague had opened the door to a whole new way of seeing. Because, as you can easily see in the illustration, the optimum cumulative profit of $429,508 comes with the 13th cell at a CPO of $441, compared to the ACPO of $265. If optimum profit is really the name of the game, which it usually should be, then cutting off at the ACPO would be the wrong strategy.
We see this kind of aggressive thinking more and more and it is exciting. What we see less of, especially in SMBs, is a willingness to grasp the fact that however well things are going today, they could be improved if only management would abandon complacency with the “good” and focus on making it “better.” If only they would insist on getting inside the big macro numbers and look at the micros.
In today’s world, if the aggressive collection and use of the right micro data isn’t part of the core business case of an entrepreneurial company, something vital is missing.