MBA 741 - (ISDS-710) Final Exam Study Guide

Basic Take Rate Measurement

# accepted offers / by # of contacts

How to calculate Transaction Conversation Rate (TCR)

# of actual transactions/# of clicks

How to calculate WOM

# of direct clicks+ # of clicks from recommendations / # direct clicks

How to calculate Click Through Rate

# of impressions/# of clicks

Take Rate or Probability of Generating Sales

(CTR * TCR) this measures the probability of generating a sale from a delivered impression

Cost per click (CPC) on sponsored search link or banner ads are more important than cost per thousand impressions because:

- only counting impressions -Clicks have a higher degree of lead quality

How to calculate Bounce Rate

-% of customers who leave your website after spending less than 5 seconds on your site. - website churn rate .5 sec measurement

Word of mouth (WOM)

-Helps quantify the value of social media activities -relates to CSAT in digital channels

Bounce Rate

-Measures how good /relevant your website is

Return on Dollars Spent (ROA)

-Measures the efficiency of generating net revenue from ad dollars spent when the end action is the purchase of a product or service -The equivalent or ROI for SEM (search engine marketing)

5 essential non-financial metrics

1. Brand Awareness 2. Test Drive 3. Churn 4. Customer Satisfaction Rate (CSAT) 5. Take Rate

FIVE web metrics

1. Cost per click (CPC) 2. Transaction conversion rate (TCR) 3. Return on Dollars Spent (ROA) 4. Bounce Rate 5. Word of Mouth (WOM)

Simple Linear Regression Example MAO's Palace to determine how the price of the bowls affects daily sales

1. Create XY Chart (Scatter Plot) X - Price Independent Y - Bowl Sales Dependent 2. Add trend line, show equation, and R squared 3. Use Y formula to create predict future sales column 4. Create Error rate column (actual demand-predicted demand)

What is the Flaw in CLTV metric?

1. Does not capture future activity accurately, requires prediction of future behaviors that are unpredictable - only useful for the moment in time when the calculation is preferred - may be a flaw to cut the customer - uncertainty, flaw in logic need flexibility, retaliation variables, effect of growth.

Linear Demand Function in Excel

1. Place Price and Demand numbers into scatter plot 2. Switch Row/Column 3. Right click one data point 4. Select Trend line 5. Select Display Equation

Four essential financial metrics

1. Profit 2. Net Present Value (NPV) 3. Internal Rate of Return (IRR) 4. Payback

Using Excel Solver to Optimize Price

1. Select Solver 2. Select Target cell - e.g. optimize profit 3. Changing variable cells: Price 4. GRG Linear

Why is the standard definition of ROI not one of the essential marketing metric?

1. Standard ROI calculations do not account for the time value of money. Future money is worth less 3. Assumes value of $ is equal for all time periods 2. The length of time is ambiguous - 100% ROI can be achieved on a long enough timeline ROI = ((benefit - cost)/ cost)*100%

To determine profit price maximizing you need 2 things:

1. Variable cost (VC) to produce each unit VC = Total Cost/#Units 2. Price Elasticity Price Elasticity = %change in quantity demand / % change in price

Power Demand Curve in Excel

1. naming a cell as "a", enter a trial value for a 2. Name cell "Price" and insert price value directly underneath 3. If elasticity of demand equals 2, you know that the demand curve has the form q=ap-2 where "a "is unknown. 4. Name cell "Demand" 5. Enter a formula that computes the demand when the unit price equals $100. The demand is linked to your choice of the value of a in cell DEMAND with the formula a*p^−2. 6. Use Global Seek command to determine the value of "a".

ROMI: Determine Incremental Cashflows for new campaign

1. new project net profit - base net profit Net Profit (Cash Flow) Total Rev - Cost of Goods Sold - Marketing Costs - Earnings Before Interest (EBIT) - Taxes = Net Profit (Cash Flow)

ROMI: Determine Incremental Cashflows for new product

1. new project net profit - base net profit Net Profit (Cash Flow) Total Rev - Cost of Goods Sold - Marketing Costs - New product development costs (*) - Depreciation (*) - Earnings Before Interest (EBIT) - Taxes = Net Income + Depreciation (*) = Net Profit (Cash Flow)

ROMI: Determine Incremental Cashflows for sponsorship

1. new project net profit - base net profit Net Profit (Cash Flow) Total Rev - Sponsorship Cost - Marketing Activation Cost - Earnings Before Interest (EBIT) - Taxes = Net Profit (Cash Flow)

What is the correct length of time to calculate CLTV

3-5 yrs best practice

How to calculate Return on $ spent

=Net Revenue / cost =Net Revenue= Revenue - Cost

Profit

=Revenues - Cost -Competing on price leads to death spiral

The marketing behavioral impact model (LAET)

> loyalty > awareness > evaluation > trial >

What is the purpose of a pivot-tables?

A PivotTable is an interactive way to quickly summarize large amounts of data. You can use a PivotTable to analyze numerical data in detail, and answer unanticipated questions about your data. A PivotTable is especially designed for: Querying large amounts of data in many user-friendly ways.

Understand how to calculate CLTV or CTV

CLTV = Contribution margin x retention rate %/ 1+Discount Rate(5) - Retention Rate (%) -cost of service over time contribution margin x (retention rate % /1+discount rate% LTV=C12*c13*C14*C16/C10 = LTV

Take Rate and Web Marketing Measurement

Click Through Rate * Transaction Conversation Rate

How to calculate Customer Lifetime Value (CLTV)

Contribution Margin * (Retention Rate %) / (1+Discount Rate%-Retention Rate %)

linear demand curve

Elastic a straight-line curve; s has a constant slope but usually has a varying price elasticity

How to calculate IRR

In excel use function: =IRR ( range of values of net profit each period)

Power Demand Curve

Inelastic Arc curve; elasticity is not impacted by price

Take Rate

Internal effectiveness of a campaign linked to cost.

Customer Satisfaction (CSAT) Rate

Leading indicator of future sales, linked to future intent

Prescriptive

Now that you know what should likely happen what should you do next? Suggests course of action and outlines what the potential implications will be. a playbook for how to move forward.

Price elasticity calcuation

Price Elasticity = %change in quantity demand / % change in price

Return on Marketing Investment (ROMI)

ROMI (Main formula) = ((income from marketing X - cost of goods - marketing expenditures)/marketing expenditures)*100 ROMI ((Revenue - Investment) /investment) *100

What is the Internal Rate of Return (IRR)

Rate that money is compounding internally to the campaign

CLTV: How to calculate retention rate

Retention Rate (1 - The churn rate) = Percentage of customers who stay on the platform. Churn Rate(c) = Percentage of customers that leave the platform.

CLTV: How to calculate contribution margin

Revenue earned from serving a customer - VC (Variable Cost) spent in serving the customer = CM

ROMI: Best (top 5%), worst, (bottom 5%) and expected (mean) scenarios

Sensitivity Analysis Use random #s in ROMI formula to generate different outcomes

T/F CSAT is one of the most important marketing metrics

TRUE

T/F Churn rate is an essential loyalty metric?

TRUE

T/F Churn rate is an important indicator of the growth or decline of a company's customer base.

TRUE

T/F Competing on price is often a losing game, marketing to drive profits is a better strategy

TRUE

T/F If IRR is greater than r, accept it, if it is less than r, reject it.

TRUE

T/F Leading firms invest more in branding and customer equity not market share

TRUE

T/F ROMI can be calculated on monthly and annual basis

TRUE

T/F Take rate is an essential marketing performance metric

TRUE

T/F Test-drive is an essential evaluative metric?

TRUE

T/F Management should invest if the NPC is greater than ZERO

TRUE If NPV is greater than zero, the avg benefit is bigger than cost in each time period, taking into account money is worth less in future.

Predicative

Takes historical data and feeds it into a machine to learn model that considers key trends and patterns and makes predictions as to what will happen next. Big picture views of your leads and how likely those leads are moving down the funnel to be converted into customers. What presumably is going to happen.

What is the difference between NPV and CLTV

The CLTV includes the probability the customer will stay

Payback

The time for the cost benefit out to equal the cost -usually not discounted

Transaction Conversion Rate (TCR)

This information would be determined from the number of tickets booked on a website. =% of customers who purchase offer clicking through

Know how to interpret and explain the simple linear regression formula

Y= a + bx x= explanatory value-dependent variable - x-axis-response a= y-intercept - independent variable-explanatory-predictive b=slope R^2=regression the percentage of the variation in the dependent variable explained by the least squares line is known as R^2

Churn rate is a term that refers to the:

a. % rate at which customers leave a product or service

Acquisition Cost (AC) and Take Rate

a. ($ per contact * # contacts)/#accepted offers b. $ per contact / Take Rate

How to calculate Net Present Value Excel

a. (PV-COST) After TAX b. (Year/Period ZERO Net Profit )+ NPV( discount rate, cell range - net profit for each period) c. NVP(discount rate, range of values) + Investment

CSAT and Net Promoter Score

a. Survey: How likely are you to recommend this product or service to a friend or colleague on a scale of 1-10

How to measure brand awareness

a. Surveys - ask customers directly b. Website traffic using Google Analytics c. Search volume data using Google AdWords keyword planner or/and Google Trend d. Measured by asking what is the first company name you think of? e. measured by what other company have you head of? f. Example: Use specific URL or text # to quantify the number of people who acted on it.

Elastic Demand and pricing

a. When elasticity is larger than 1, demand is price elastic b. When demand is price elastic a price cut will increase revenue

How to calculate churn rate

a. customers who leave/existing customers b. calculated annually

What is the purpose of linear regression?

a. determines linear relationship between a dependent variable and one or more independent variable. b. How price affects demand How does advertising affect sales c. single independent variable (X) (usually price) is used to predict value of independent variable (Y) (units or demand)

What is the "r" in the NPV formula?

a. discount rate b. the rate of return investors expect

Calculating test-drive

a. measure probability of purchase b.conversion rate: # purchases/ test-drive c. marketing campaigns that lead to test drives

Template formula:

a. total cost per transaction = click charge /total volume of booking b. total cost = click charge c. net revenue = amount - total cost d. ROA = Net Revenue / total cost e. average revenue booking = amount / total volume of booking f. take rate = (probability of booking) = CTR x TCR

How to calculate Payback

a. use figures from positive cumulative cash flow b. (Net Profit/Cumulative)/Net Profit c. add qty of years it took to answer from b

inelastic demand and pricing

a. when elasticity is less than 1, demand is price inelastic, b. when demand is price inelastic, a price cut will decrease revenue. (responsiveness)

Brand Awareness

ability to recall product or service

ROMI: Use Incremental Cashflows from new product/campaign to:

calculate 1. NPV 2. IRR 3. Payback

How to calculate Cost Per Click (CPC)

cost of a paid advertising campaign / number of clicks

What is present value?

current value of a future sum of money or stream of cash flows given a specified rate of return.

test-drive

customer pretest of a product or service prior to purchase

Marketing analytics

measures business metrics like traffic, leads and sales and which events both on on and off your website influence whether leads become customers -details with the big data, includes data from your website and other sources such as social media, email, events and blogs - mostly focused on people and is customer0centric giving more emphasis to the prospect, lead or customers.

Web Analysis

measures things a webmaster would care about, like page load times, page views per visit, and time on sites

Descriptive

most of statistical information in newspapers, reports, publication with data summaries, tubular graphical or numerical. What happened in the past can be graphs, charts, reports and dashboards

What is Net Present Value (NPV)?

the NPV of a project or investment is the difference between the present value of its benefits and the present value of its costs (Net Profit w/taxes)