The role of KPIs in influencing, persuading, horse-trading & arm-twisting.
With all the current uncertainty around the shape of the long-term newstrade market, there is now a golden opportunity for subscription marketers to grow the size of the direct-to-consumer market. And to do this, those of us in the subscriptions business must persuade, influence and horse-trade in order to convince publishing management to invest much, much more in direct-to-consumer subscription sales.
The big challenge here is to use big picture thinking to excite and engage senior management in order to get your company to invest in long-term development. And judicious use of Key Performance Indicators (KPIs) can play a critical role in making this happen.
At BBC Magazines, a publicly stated aim to double subscriptions over three years and reach a target of 600,000 subscribers has been underpinned by KPIs justifying the larger scale additional investment to support the big picture.
The good news is that we are well on our way towards meeting our target – and to get there earlier than originally forecast. I’m delighted to say we have raced well past the 500,000 milestone. And, behind the scenes, we have invested in the tools, skills and marketing campaigns on the back of the forecast future benefits that have empowered us to achieve such phenomenal growth. In doing this, we have worked harder and smarter in order to get everyone to understand the key drivers behind the numbers.
Access to data
All publishers have access to great treasures in the form of a wealth of data that can be used to review past performance and to guide and influence the future. Of course, manipulating this data can, in some cases, take time as this data is held in many forms – in-house databases, fulfilment company databases, bespoke marketing databases and financial reporting to name just a few. And even those who have a wealth of data and reports can struggle to draw the bigger vision when the data from these sources is very number heavy. Not seeing the wood for the trees, as it were, is all too easy when the focus can too often be on the detail of individual campaigns in both day to day and strategic planning discussion.
And frustration around the complexity of information generated via fulfilment bureau reporting, lifetime value models and circulation modelling tools, can mean that too much time is spent arguing at campaign level at the expense of increased focus on true strategic direction.
In my experience, this means the horse-trading and arm-twisting around where marketing budgets are best spent, often sees far too much discretionary marketing spend directed at above-the-line promotions with limited short-term return. This reinforces the business case that properly detailed and extracted key performance indicators are well worth the data manipulation involved in making them user friendly. Correctly used, they will energise a publishing business and trigger off some serious debate about increasing investment in subscriptions marketing.
Many publishers are in the fortunate position of having already invested in subscription marketing expertise and have put in place in-house resource to analyse, plan and implement campaigns. And for those who have still to begin this journey, there is a huge number of reasons why they should start to make that move.
Firstly, anyone who has data can use KPIs to define past trends and predict future business movements. These KPIs are the measures that make the difference between success and failure and give an at-a-glance health check to show how your business is doing and where the business is going. Secondly, KPIs are a powerful tool that can be harnessed to big investment business cases and strategic visions for a brave new future.
Sounds simple, but in the subscriptions world a wealth of analysis, including detailed by campaign analysis, makes defining and agreeing robust KPIs, particularly those which can be reviewed at a glance, much harder than it sounds.
For me, the KPIs that a business should be able to look at are listed below. But first, it’s important to note that, to maximise their effectiveness as a management tool, you must be able to look at them together on a single sheet of paper, tracking the results over at least the last three years and your forecasts for the next three years.
* Average paid volume. One of the most basic and key KPIs. Putting this in an at-a-glance sheet tells the most basic story for your title; growth, decline or stability.
* Revenue / yield. This indicates where volume growth has been successfully achieved through aggressive offer discounting, where declining volume has been maximised in revenue terms by aggressive price rises, or more worryingly, the opposite scenarios.
* Contribution. Not everyone looks at this as part of long term planning but everyone should. This is the key to any business case around increased volume at reduced yield – additional sales are always worth it if they generate additional profit.
* Margin. Here, I would always argue, it’s acceptable to trade forecast decline in margin against increased longer-term profit. Of course, the opposite applies when both numbers are moving in the downward direction and this strikes a huge warning bell for any organisation.
* Marketing spend. This figure, shown over the six year period, side by side with the figures above, will clearly indicate to any finance director the message all subscription teams preach to the rest of the business – long term investment in subs will give you a great pay off over time.
* Marketing spend as a percentage of sales. Again a great at-a-glance view to illustrate how effectively you are spending your marketing budget.
* Number of new subs acquired. Shows where the investment has been too high, too low or just right when compared to the next KPI.
* Number of renewed subs. Has there been enough focus in the past, and will there be in the future, on renewals?
* Renewal rates. Split into average renewal, first time renewal, second time renewal, third and subsequent renewal and direct debit retention rates. These will show you where you are retaining enough subscribers and where you are not.
* Direct debit penetration as a percentage of the whole file. If you can show growth here, you are underpinning a secure base of renewals and investing wisely in the future.
* Percentage of subscription sales in the total paid circulation mix. In today’s market place, where newstrade sales are increasingly under pressure and subscriptions are increasingly important, this KPI will show another clear benefit for the increased investment driving the other KPIs.
So, if putting this all on one sheet sounds like a lot of hard work and effort, the payback is that once all the reporting templates are set up, your internal discussions will move into a completely different level of thinking.
So take a look at the example KPI health check sheet (below). This clearly demonstrates the effect of increased investment in the past and robustly makes the case to increase this investment by two thirds over the next three years. These are example numbers for a fictional magazine but the trends that they illustrate are very much based on real life experience.
KPI heath check sheet - Year ave Vol. Rev-enue Contri-bution Margin % New Subs Ren'd Subs 1st ren % 2nd ren % 3rd plus ren % DD ret % DD Penet-ration Mktg Spend Mktg as % of sales % Subs / Total Circ * 2002 3,100 £210,000 £69,000 33% 1,850 1,250 55% 65% 75% 90% 12% £20,000 13% 13% 2003 4,250 £255,000 £79,050 31% 2,600 1,650 45% 65% 75% 90% 15% £25,000 18% 18% 2004 4,650 £245,000 £69,750 25% 3,250 1,400 40% 63% 75% 90% 15% £30,000 18% 20% 2005 6,000 £330,000 £97,200 27% 3,250 2,750 45% 64% 75% 90% 23% £43,000 18% 25% 2006 7,000 £420,000 £121,800 29% 3,750 3,250 47% 64% 75% 90% 27% £48,000 18% 29% 2007 10,000 £600,000 £174,000 29% 4,500 5,500 57% 65% 78% 92% 35% £60,000 16% 42% * Assumes flat newstrade circulation of 23,800 over the six year period
Key trends within these numbers
1. Fantastic volume growth is forecast hand in glove with significant revenue growth, and reducing yield in years 3, 4 and 5, starts to improve from years 6 onwards.
2. Clearly, margin has been traded downwards in terms of percentage ROI. However, an amazing 250% increase in bottom line profit more than justifies the additional marketing investment / discounted acquisition pricing strategy that would sit behind these numbers.
3. To deliver such aggressive growth, marketing spend has been increased, and this is more than justified in payback terms.
This example shows how you can present the numbers – the format is completely scalable to magazines already benefiting from a generous marketing budget. By using circulation modelling and running what-if scenarios to see the effect of changing any of the variables in our sample model, you can easily and simply show decision makers the effect of additional or even reduced marketing investment.
Board level buy-in
Having personally pushed the benefits of wise use of KPIs, it’s well worth noting that the story behind subscriptions growth is always underpinned by commitment at the most senior levels to longer term investment in subscriptions. The horse-trading and arm-twisting within the subscriptions team that gets this commitment in the first place is all around producing easy to understand, profitable results and quantifiable profit and loss forecasts.
Comparing KPIs by magazine can throw up very interesting data around which magazines are on the right investment track and which are not! And as a final point to round up, there is huge benefit in aggregating the data to produce the KPIs for your publishing business as a whole – as well as for individual magazines.
So, if you want to double your marketing spend over three years but can’t get management to agree, investing now in using at-a-glance KPIs to drive the business decision model is a brilliant thing to do today.