Accurately predicting consumer behavior based upon data was the promise of the digital revolution. Sure, that reality took a few more years to come to fruition than the futurists predicted.
But for today’s marketer, decisions that were once based upon gut instinct and intuition can now be confidently driven by data in the form of a marketing forecast.
At D6, we’ve been applying this type of disciplined, data-driven approach to our clients’ digital marketing needs for a while now, and we wanted to break down some of the insights and learnings we’ve gathered over the years.
So, what is a marketing forecast?
Simply put, a marketing forecast is an analysis that predicts the impact of various marketing initiatives on revenue, customer acquisition, and engagement.
Now that we understand what a marketing forecast is, let’s talk about some specific predictors we can arrive at through forecasting.
Marketing & Channel Forecasting ROI
What is it? Marketing ROI is the return you get from investing in a particular marketing activity. Essentially, it attempts to answer the question: For every $1 you spend on marketing, how much can you expect in return?
Why should I care? Being able to directly measure the impact on revenue of a specific media channel is a powerful way to evaluate and allocate media spend–allowing you to focus your money where it can have the most impact.
What do I need to get started? Marketing spend and attributed conversions.
Level of difficulty? The calculation is simple, but attributing conversions back to a single channel can be difficult in non-digital/top-of-funnel channels.
Marketing Mix Modeling (MMM)
What is it? An analytic technique that allows you to predict the impact of various channels in driving conversions and revenue, typically done using some form of regression analysis.
Why should I care? MMM tells you which marketing investments are helpful in driving revenue, allowing you to optimize your marketing mix.
What do I need to get started? Marketing spend by channel, revenue/conversions, internal/external Factors, ad and media.
Level of difficulty? High. Both difficult and time consuming, MMM is typically performed using some type of regression analysis and incorporating diminishing returns.
Customer Centric Model
What is it? Analysis centered around the individual customer and their propensities toward a particular product, service, or content type.
Why should I care? It helps you understand individual behaviors, allowing you to effectively personalize and implement strategies that deliver a unique experience to each type of customer.
What do I need to get started? First-party data at the individual level including transactional and digital behavior, as well as demographic data.
Level of difficulty? It can range from fairly easy to hard, depending on application and level of sophistication.
Customer Lifetime Value
What is it? This analytic technique calculates the estimated lifetime value of a customer using their average revenue during a period and how many periods they are expected to be active.
Why should I care? A component of many other forecasting methodologies, CLV provides a baseline for understanding the long-term value a customer brings and whether the cost of acquiring customers exceeds their predicted value.
What do I need to get started? Customer and transactional data.
Level of difficulty? Easy to calculate. May be harder to get all the inputs.
Lifecycle forecasting
What is it? Analytic technique that evaluates where in the journey a customer may be, from onboarding to thriving to churning.
Why should I care? You gain an understanding of the Customer Lifetime Value (CLV) of a customer and how they progress through their lifecycle stages–which is useful for knowing when to amplify or intervene in the customer journey. Also, CLV is important for determining the effectiveness of a particular channel.
What do I need to get started? Customer and transactional data.
Level of difficulty? Moderate to advanced modeling required to calculate and forecast CLV as well as segment movement between stages.
Acquisition & Retention
What is it? An acquisition forecast is used to project the impact of marketing on acquiring customers including channel and level of spend. A retention forecast is an analysis that predicts when customers may churn (or stop using your product).
Why should I care? Acquiring new customers is expensive. Understanding the impact of the demand funnel is critical to accelerating the path to conversion. Retaining high-value customers and understanding churn patterns are necessary for delivering optimal customer experiences.
What do I need to get started? Customer and transactional data.
Level of difficulty? Ranges from easy to difficult depending on number of channels and complexity of business.
Summary
There are many applications of marketing forecasts that focus on different aspects of performance. Used individually or collectively, each of these methods can provide valuable insight into the potential impact of a particular initiative and whether it is a worthwhile undertaking. Even in situations where it’s not possible to execute all of these forecasting exercises, the process of defining and exploring inputs and possible outputs provides a framework for marketers to think more broadly about the initiatives they are putting into marketing efforts, as well as how they relate to other factors impacting their business–now and in the future.
Get in touch with DEFINITION 6 to find out how we can apply our world-class data modeling to your marketing forecast today.
