The efficiency control portion of the marketing control process measures spending efficiency as it relates to marketing activities. As you may have read in the Profitability Control Analysis article that profitability control concerns itself with where the firm is making or losing money in regards to:
- Trade channel
- Order size
Efficiency control aims to evaluate and improve the firm’s spending efficiency and the impact of marketing expenditures such as:
- Sales force
- Sales Promotion
Larger firms sometimes implement a marketing controller role within the controller’s (finance) office to improve marketing efficiency. The marketing controllers may get involved with one or all of the following activities:
- Examine adherence to profit plans
- Help prepare a brand managers’ budget
- Measure promotional efficiency
- Perform media production costs analysis
- Evaluate customer and geographic profitability
- Staff training on the financial impact of marketing decision’s
How Efficiency Control Improves Marketing
In essence, efficiency control may improve a marketing department’s activity efficiencies in two ways.
- It may improve the ability of various marketing activities to better contribute toward reaching marketing objectives.
- It can help reduce waste and marketing expenses.
Let’s take a closer look at the four different efficiency control tools, sales force efficiency, advertising efficiency, sales promotion, and distribution. Each efficiency control has its set of marketing metrics to determine if the marketing initiative meets its goals or falls short.
Measuring Sales Force Efficiency Control
Sales force efficiency analyzes if a particular salesperson is efficient in meeting their goals through a set of predetermined metrics. Some standard sales metrics may include some or all of the following measures:
- The average number of sales calls per salesperson per day
- Average time spent on sales calls per contact
- Average revenue generated per sales call
- Average costs incurred per sales call
- Percentage of orders per group of calls (For example, how many orders did sales receive per 50 sales calls?)
- The number of new customers created during a specific period
- The number of customers lost during a specific period
- The sales force costs as a percentage of total sales
Marketing professionals or controllers may deploy various tactics to gather the necessary information to calculate the above metrics. Information gathering tools such as sales reports, internal databases, questionnaires, meeting discussions, and observations may aid in determining metrics for calculations to determine the sales efficiency.
Conducting a sales force efficiency examination based on the metrics mentioned earlier can lead your marketing management team to discover answers to the following questions.
- What role does the sales force contribute to generating revenue? Is online marketing playing a higher position, or are your salespeople in the field generating the bulk of the sales?
- Which salespeople are more or less efficient in utilizing resources to convert prospects into buyers?
- What are some other reasons for poor efficiency within your sales force, assuming there are inefficiencies.
- What is some course of action to take to correct and improve the efficiencies?
Measuring Advertising Efficiency
Advertising is perhaps the most costly expense of the marketing budget. Traditional (offline) marketing typically costs more than online marketing. However, both can become expensive over time. Because of its high costs, it’s essential to determine the advertising efficiency of a given campaign or the efficiency of the overall marketing budget.
While online advertising effectiveness is easier to track, offline advertising proves more challenging. While advertisings efforts and costs contributions are complicated to determine, marketing managers can develop systematic qualitative tools to measure:
- Increased brand awareness
- Changing attitudes toward a brand
- Creating brand loyalty
Some standard advertising metrics for determining advertising efficiency may include:
- Advertising costs per thousand through a specific communication vehicle such as television or online video ads
- The percent of a target audience that read or viewed a print media or online advertisement
- Customer opinion on advertising effectiveness
- The measurement of an audience’s attitude toward an advertised product
- The number of leads generated by an offline or online ad campaign.
Marketing managers can use the advertising efficiency metrics to measure internal and external benchmarks that determine if an advertising campaign and its communication channels are efficient in reaching its goals. Should the manager discover inefficiencies, some corrective actions they can initiate are to change:
- The company’s advertising objectives and policies
- Ad messages
- Switch communication channels or media type
- Media schedule or ad frequency
- the advertising budget
- Marketing staff training
- The advertising agency if the company is using one
Depending on what metrics you measure and their results, you may need to modify or add additional corrective actions to your plan.
Measuring Sales Promotion Efficiency
Depending on the organization’s internal structure, the marketing or sales department may monitor sales promotion efficiency. The sales promotion efficiency process measures the impact of the sales promotion efforts on:
- Consumer Satisfaction
Generally, sales promotions offer a range of incentives to customers and vendors (dealers) to stimulate sales and product trials. Running an inefficient sales promotion can end up costing the company money and other resources. That is why marketing and sales managers need to measure the cost and impact of each sales promotion tool.
Sales promotions are applied at three levels typically. They include the:
- Customer level
- Dealer level
- Sales force level
Some standard sales promotion efficiency metrics used to measure sales effectiveness include:
- The total sales promotion percentage expense to actual sales
- The cost of samples, coupons, and other tools per unit selling price
- The number of inquiries or leads generated from a specific sales promotion
By analyzing the costs and contribution of the sales promotion tools, managers can determine which promotional tool, channel, and level are most efficient. Companies can use their efficiency data results to reduce or eliminate underperforming sales promotions or bolster effective promotions. Additionally, sales promotion metric results can help firms design more efficient promotional strategies in terms of:
- Level of sales promotion
- Promotional timing
- And sales promotion strategies at each level:
- Sales force
Measuring Distribution Efficiency
Distribution costs for consumer products, electronics, and apparel can be as high as 35% of retail sales prices. Distributors are the middlemen and are part of the value chain in product distribution. A distributors main assets include their:
- Sales force
- Transportation means
- Storage capabilities
With their assets, distributors will try and optimize margins. In other words, the distribution efficiency control tool allows companies to assess the efficiency of their distribution processes. In essence, the distribution efficiency control tool measures how well a company’s distribution system is to achieve its marketing objectives. From time to time, it may be necessary to make changes to distributors or help distributors better understand the company’s goals and see if distributors may accommodate those goals in their processes and costs.
Some typical criteria used to assess the distribution efficiency process include:
- The percentage of total distribution costs per unit price
- The share of physical distribution costs per unit price:
- Warehousing (storage)
- Fixed business costs
- Percentage of channel partners’ cost per unit price:
- The costs and contributions associated with direct and indirect channels
- The potential for using online marketing and network marketing channels or by retail chains
- Evaluating costs of marketing channels as they relate to offered services to the company and consumers
Companies that regularly evaluate their distribution efficiency costs can determine the effectiveness of their distribution channels and partners. Through their analysis, a marketing manager can minimize distribution costs while maximizing or improving profits and its price and earning competitiveness. Additionally, managers can improve customer satisfaction by adjusting to enhance distribution efficiencies through improved costs and quicker product delivery or service.
The four efficiency control areas, sales force, advertising, sales promotion, and distribution, each have a set of metrics. Marketing managers should measure the metrics and understand the various courses of action to take if any control area is functioning inefficiently. Taking swift action and correcting any issues can boost a company’s profit and keep them competitive.
Firms that fail to establish efficiency control metrics and act on inefficiencies may find themselves bleeding resources and ultimately falling behind their competition or shutting their doors altogether.