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Calculating your Marketing ROI – a practical guide

Calculating your Marketing ROI sounds super simple, right? You just take the income, divide it by the marketing expenses, and boom! – there’s your marketing ROI. Super simple – or is it?

Well, the truth is, when you google “marketing roi” you will find that there is a huge number of different definitions out there. So many, in fact, that Forbes Magazine has called this situation “ROI Anarchy”.

In this article, we’ll look at what a marketing ROI calculation should take into account in order to deliver meaningful insights to evaluate a campaign.

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24
Jan 2017
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Academia

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How selection bias will skew your activity mailing results

Here’s an interesting thing that I came across when evaluating a mailing for a client that I need to share.

Fallacy01

The observation

So what we’re looking at here is the revenue for a given group of customers from 06/2014 to 12/2014. (Note that the data presented here is completely fictional recreated in a spreadsheet, but follows patterns similar to the original data. See below for more details.)

This group of customers had been selected due to its inactivity as defined by the revenue in 06/2014 being smaller then a certain threshold (again, the actual selection was a lot more refined that is described in this model).

The mailing was sent out on 01/07/2014 to the group of customers. So we’re looking at a total revenue of $46,837 in 06/2014 and a subsequent jump in revenue to $271,950 in 07/2014.

At first sight, that seems to be great news – the mailing worked, revenue increased drastically, everything fine.

However, when I looked at preceding months, the following pattern emerged:

Fallacy02b

So our group of customers had a high revenue 01/2014 – 05/2014.  Then in 06/2014 – the month that was used to determine whether or not a customer was active – the revenue suddenly drops by about 80%, only to be back at the original level the following months.

Now this seems rather odd. In fact, it looks a lot like there’s something wrong with the analysis.

But as it turns out, it’s actually perfectly correct. What we’re observing is due to what I call the selection bias.

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11
Nov 2015
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How to tell if your results are significant – a practical guide

Marketers frequently face a situation like this: In a survey it is found that 57% of women prefer product A, while 60% of men prefer product B.

In this article I will show how marketers – using only simple statistical analysis tools available in Microsoft Excel – can quickly and easily decide whether or not they can draw meaningful conclusions from such a result, or whether they may be making fatal mistakes by interpreting random noise as valid data.

stats mofo

Marketers frequently face a situation like this: In a survey it is found that 57% of women prefer product A, while 60% of men prefer product B.

Some marketers will just go “Great, statistics prove that women prefer product A, and men prefer product B. We’ll market product A to women then and product B to men.”.

But is this really always a valid conclusion? Couldn’t it also be that the difference is purely coincidental? After all, we haven’t asked all people, but only a subset of people: those participating in our survey. So maybe if we took another sample, and asked different people, the results would be different? May well be!

Statistics to the rescue!

As is often the case, statistics can provide a solution. Before delving into the details, let’s look at another, more formalized example. Dice!

Suppose we take two dice, and we want to know if one of them is loaded, i.e., we want to know if one of the dice yields better values than the other. Let’s start by throwing them 10 times each. This is what the results may look like:

Example 10 dice

Well. What do we get? Let’s look at the mean value for each die. As a reminder, if the two dice were fair dice, there would be an equal likelihood of one in six for each number to turn up. More formally, the expected value would be 3.5 (=1/6*1+1/6*2+…+1/6*6).

So what do we get for our dice? For die 1, the mean is (4+4+4+…+3)/10 = 4.40, the mean for die 2 is (5+2+1+…+1)/10 = 3.20.

So is die 1 better than die 2? Well the average is higher, of course, but as you will intuitively suspect, 10 throws is quite a small number of throws to draw any meaningful conclusions.

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25
Nov 2014
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Why the new Spotify UI makes no sense. A rant.

Spotify

A while back I’ve been whining about the lack of a decent music collection management Spotify. In the past months, Spotify has worked quite a bit on their UI and have changed their interface a lot. Sometimes for the better, sometimes for the worse. Bottom line however: the music collection management is still freaking useless.

Disclaimer: the following contains a lot of SHOUTING and CURSING. Sorry about that. But I’m really really passionate about my music player, and just hate to see that Spotify, which I otherwise LOVE, can’t seem to get their sh*t together.

So here we go: First, there’s the SONGS tab:

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27
Sep 2014
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13
Mar 2014
POSTED BY Sebastian
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Other

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Last.fm partners up with Spotify to offer on demand plays

Spotify Last.fmGreat news! Last.fm partners up with Spotify to again offer on-demand plays:

We’ve teamed up with Spotify to bring their entire catalogue, on demand, to the world’s leading music recommendation service.

About two years ago, Last.fm had dropped their on-demand plays, to “focus on the features that make Last.fm unique — scrobbling, personalised radio, and being the online home for your music taste”, or, put differently, CBS wanted to cut the costs so they decided to save the royalties.

Well I’m glad they’ve finally come up with this solution! The integration works pretty well, too: if you hit the play button on last.fm, Spotify is opened in the background to play the track. Smooth. What’s great, too, ist that on a “Top Tracks” list, such as the one below, the entire list is put in a Spotify-playlist.

PlayOnLastFM

08
Feb 2014
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Spotiamp – it really whips the llama’s ass.

Found this little gem today:

Spotiamp

Spotiamp is a little program that lets you login to your Spotify account and play your playlists and more.

Apart from being nostalgic, it actually is a great player! The minimalistic design is timeless of course, but it is also a very fast player. The download is less than 500kb, it loads up in no time, and hardly uses any ressources. Plus, there’s any equalizer (which is dearly missed in Spotify).

In other words – it really whips the llama’s ass!

 

09
Jan 2014
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Spotify free mobile arrives on iOS

Good news for all free users – Spotify free is now available for iOS as well:

Spotify free mobile App store

09
Jan 2014
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Free mobile version of Spotify to be introduced

According to the Wall Street Journal, Spotify is about to introduce a free mobile version.

The new ad-supported offering will allow nonpaying mobile users to play a limited number of songs on demand, but will mostly serve up music based on the user’s input, much like custom radio services such as Pandora.

This move makes a lot of sense.

The usual path of a Spotify user was to get the free desktop version and then they would eventually upgrade to premium. Either because of the ads or because of the mobile version which is currently limited to premium users.

But given that traditional computers are on the wane, Spotify is slowly losing their only channel for users to upgrade.

Of course the free mobile version will cannibalize some of the premium users. But how many users are there that would pay €10 for the full mobile version, that would swap that for a free radio service (with only limited on-demand songs)? Probably not many.

Hat tip for getting that deal with the record labels though. Must have been a nightmare to negotiate.

10
Dec 2013
POSTED BY Sebastian
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Music Industry

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New Artist website from Spotify gives interesting insights into business model

Exciting stuff going on over at Spotify: Today a new website for artists, www.spotifyartists.com, was introduced. On this website, Spotify gives – among other things – some interesting insights into their business model.

Spotify Revenue Model

So basically, Spotify take all the revenue from paid subscription and ads, keep 30% and multiply the rest by the times the relative number of streams of an artist. This is what the label gets. The artist ends up with whatever is left after the label takes their cut as negotiated in the individual contracts.

So Spotify does not pay per stream, but rather pays according to the formula above (i.e., in relation to an artist’s relative popularity on Spotify). Of course it’s possible calculate the per-stream payout ex-post:

Recently, these variables have led to an average “per stream” payout to rights holders of between $0.006 and $0.0084.

Has anybody calculated yet how that compares to CD sales? Taking into account – and I believe that’s crucial – the long-term revenue stream? As far as I can see it one of the key differences is that Spotify will create revenue for every stream, long after the last CD has been sold. I’ll take a closer look at that…

04
Dec 2013
POSTED BY Sebastian
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Music Industry

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