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Set Your Measurement Right for Revenue Forecasting

Yes, you can ace the “How can we hit this number?” question. 


One of the trickiest questions that marketers face from the CFO is whether Marketing can deliver a specific revenue target – and what the paid media breakdown looks like to get there. Answer that right, and you help prove the effectiveness of the marketing program overall, boosting Marketing’s place in the C-suite and positioning it for further budgeting. Answer inaccurately, and you’re stuck in the unenviable position three months down of explaining why revenue predictions didn’t turn out as anticipated. 


Fortunately, the two rules below will help marketers have better-informed and more accurate revenue forecasting – by setting up the right measurement approaches in advance. Having them in place will help ensure sharper revenue forecasting for a truly informed, data-driven discussion that can prove marketing’s worth as a calibrated driver of revenue. 

 

Measure for diminishing returns  

When it comes to forecasting the best routes to future revenue, it’s not enough to know what channels have performed well in the past. That’s because even if a channel has performed well historically, this doesn’t necessarily mean investing more into that channel will drive benefits going forward. The reason is saturation: At a certain point, you’ve maxed out on the relevant audience in a given channel, and spending more in that outlet won’t continue to drive more conversions and revenue.  


To account for these diminishing returns, it’s important to measure not just the overall conversions over the course of a campaign, but also the incremental changes at regular intervals. By drilling down on these specifics hidden within the campaign averages, you’ll be able to forecast and plan far more precisely. Knowing when conversions begin to taper off will help you not just invest the right amount in a given outlet—but also to pull out before those investments become less worthwhile. 


Once you’ve set up the ability to pinpoint outlet saturation over time, you’ll also be in place to shift budget more effectively right now. Look to hit revenue targets by de-funding the already-saturated outlets and move budget to outlets with the most promising horizons.  

 

Look to the long funnel  

Marketers know that top-funnel efforts are crucial revenue drivers. But upper-funnel impact can get overlooked in measurement – often because many analytics tools focus on a limited number of bottom-funnel impacts. This creates serious blind spots when it comes to revenue projections, causing marketers to ignore the critical influence of higher-funnel marketing on lower-funnel success.  


For instance, say that TV ads are a strong influencer of search traffic. If that’s the case (which it often is), then spending more in search is unlikely to move the revenue needle on its own – you need to include upper-level advertising like TV to drive search traffic. If your forecasting models are built primarily on bottom-funnel impacts, however, then your forward-looking statements won’t take the importance of TV into account – and you’ll neglect to include TV spend in forward-looking plans. 


To avoid blind spots like these and capture the full influence of marketing, be sure to bring in media forecasting tools and approaches – such as marketing mix modeling – that go far beyond last click alone. 

 

To be sure, setting up measurement that follows these steps is no easy task. But with the right data science in play, it’s also fully doable. To see the approach in action, you can watch me explain how we apply these methods at LiftLab below: 




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