Whether or not you’ve seen the "Moneyball” movie or read Michael Lewis’ terrific book, you surely know the basic premise: a small-budget team beats the big boys by analyzing the data that really matters, rather than relying on the established stats the others continue to use. Billy Beane, Paul DePodesta and others used new measures like Wins Above Replacement and OPS to find price/value players and win more games than the pundits expected from low-spending teams. Beane and his upstart protégés effectively applied Apple’s “Think Different” maxim and shook up a sedentary world.
A growing number of smart marketers are applying the same Moneyball principles to their customer acquisition media spending. Moneyball’s gurus boiled baseball down to Runs Created -- that is, if you score more runs than the other team, you win. And when you win more games, you gain “market share,” rising in the standings. It’s just as simple in marketing -- essentially substituting Sales Created for Runs Created. Use the right tools to analyze your spending and you’ll find the combination that will result in more business and more market share for less.
This is where performance marketing comes in. Instead of acronyms like OPS, we have eCPM, eCPA and eCPL. We even have MVP. Ignore these measures and you might virtually sign an overweight, over-the-hill pitcher to a long, expensive contract.
Channel your inner stats geek for a moment and let’s examine these measures.
What is eCPM? It’s a bottom-up measure that shows what your media spending is really worth. The calculation starts with performance programs, where you pay for results only, generally on a Cost per Lead (CPL) basis. Effective CPM is figured by dividing the amount you’re willing to pay for a qualified lead by the ad impressions. As an example, let’s say you run a dedicated email to 100,000 and yield 125 qualified leads, paying $20 per lead. The total spending is $2,500. And that’s an eCPM of $25. Why is that measure important? It sets a standard for what you should be willing to pay that list owner on a straight CPM basis.
This kind of bottom up thinking leads to fair pricing for direct-focused media – it can be considered a base price in negotiations. And there’s always an argument that branding value adds to that base CPM, it’s certainly valid to add a set dollar amount to the eCPM.
How about eCPA? Same basic concept, but now we look at the real bottom-line results: how many of the leads turned into actual sales? And how much revenue did the average sale generate? How many “runs” did the media create? This can be harder to calculate because the data may not be as easy to get. But it is getting better: There are end-to-end systems now that make it simpler to link the source of sales to the original media action. The flip side is eCPL, where you can examine how paid (CPM) media converts into prospects. This is simply fixed media cost over number of leads or actions generated.
Let’s not forget MVP. In the performance world, an MVP is a Most Valuable Prospect -- that one-in-a-thousand prospect who should make you jump through hoops when she raises her hand.
When dealing in the realm of eCPM, keep the MVP in mind -- simply because not all leads are equal. If you set a value for a qualified prospect, certain prospects should be worth more, because they can be heavy users or high margin players. Qualified prospects at the top of your screening criteria are the “free agents” who should give you the best return on your nurturing cost -- even if you spend more than average to acquire them. A Moneyball approach overweights the factors you care about, and may ignore factors your industry generally seeks.
What about media relationships? Using these metrics helps identify media that might not be considered otherwise, just like Beane’s Oakland As traded for players nobody else seemed to want. The metrics also help rationalize pricing and potentially build longer-term relations with the media you currently use. In either case, the medium gets an opportunity to prove itself. And you both get to agree on a formula for a fair price.
Want to win the game unfairly? Take a swing at some of these new ways to pitch data.