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Building a business case for MMM

This article describes how to build a business case for Marketing Mix Modeling

Juha Nuutinen avatar
Written by Juha Nuutinen
Updated over a week ago

Building a business case for Marketing Mix Modeling: Introduction

Adopting MMM is far too difficult today - we want to make it easy!

This article is part of Sellforte's MMM Procurement guide. We are in Chapter 2A of the guide, as illustrated below:

Getting approval for MMM at your company typically requires three activities:

  1. Build a business case for MMM (focus of this article): You need to rally the troops and get priority for your effort with a compelling business case that communicates how much additional sales & profit you can drive with MMM-based recommendations

  2. Define MMM use-cases for your company: After the business case is ready, it's important to define the specific use-cases how your company would utilize MMM to realize its benefits.

  3. Get management approval: Now you are ready to get approval to open an MMM project by explaining the value of MMM to your management. But what's the best way to do that?

In this article, we will share a simple approach for building a business case for MMM.

Get your business case calculator

The business case calculations presented in this article are also available as a spreadsheet. Send a direct message in LinkedIn to https://www.linkedin.com/in/lauripotka/ to get one. No strings attached.

What makes an MMM business case great?

A great MMM business case has five characteristics:

  1. Financial benefit: Clearly communicates how much more sales and profit can be achieved by taking MMM into use

  2. Actionable: Explains the sources of value (and not just one number)

  3. Credible: Founded in justifiable facts / benchmarks

  4. Transparent: Assumptions are visible

  5. Trackable: You can track realization of the business case later when you have implemented MMM

Where does the financial benefit of MMM come from?

While MMM can help marketing teams in various ways, such as tracking marketing ROI and comparing performance of advertising channels, ultimately the financial benefit of MMM is realized through optimization of budget allocations.

There are two main factors that drive how much value MMM can bring through budget allocation optimization:

  1. Size of the marketing budget: The bigger the budget, the more there is to optimize

  2. Number of budget allocation decisions available: The more opportunities there are for reallocating budgets, the more MMM can help. The most important ones include

    1. Allocating budget across countries (or US states)

    2. Allocating budget across campaign types/objectives (E.g., Always-on, Brand campaign, ...)

    3. Allocating budget across advertising channels (E.g., PMAX, Shopping, Facebook Retargeting, ...)

Building the business case for MMM: Example for a multinational fashion retailer

To estimate the additional sales & profit that can be driven through more optimal budget allocation, following steps are needed

  1. Gather annual sales and marketing budget

  2. Estimate marketing-driven sales

  3. Estimate potential to drive more sales by optimizing budget allocation across...

    1. Countries (or US states)

    2. Campaign types/objectives

    3. Advertising channels

  4. Summarize the benefit

1. Gather annual sales and marketing budget

To start with, let's assume our example company is a multinational fashion retailer with following characteristics:

Annual sales

20M EUR

Annual marketing budget

1M EUR

2. Estimate marketing-driven sales

To estimate how much additional sales can be driven through better budget allocation, an estimate is needed for total marketing-driven sales.

One might ask: Isn't "marketing-driven sales" one of the outputs of MMM? Yes it is, and you can actually compare your estimation in the business case to the actual result when you have implemented MMM, and update your business case accordingly.

Marketing-driven sales can be estimated by multiplying annual marketing budget with estimated Sales ROI for marketing. "Sales ROI" tells how many euros/dollars marketing brings back for each invested euro/dollar in marketing.

Typical Sales ROI is in the proximity of 3-5. It varies depending on many factors, for example:

  • Growth stage: Established mature companies tend to have higher ROI than high-growth companies

  • Investment level: Companies with lower investment levels tend to have higher ROIs than companies with higher investment levels due to diminishing returns

  • Industry

A safe assumption for an established fashion retailer is 3, meaning that we can add the following last two rows to our information table.

Annual sales

20M EUR

Annual marketing budget

1M EUR

Marketing's Sales ROI

3

Marketing-driven sales

(Sales ROI x marketing budget)

3M EUR

Now we are ready to move on to analyzing the value-creating levers and estimating their potential to drive more sales.

3A. Estimate potential from optimizing cross-country allocation

First, we will estimate the additional sales potential from allocating budget more optimally across countries (or states in the US). In the table below, you can find typical outcomes on how much additional marketing-driven sales you can gain from better cross-country allocation, depending on how many operating countries/states a company has. These are based on Sellforte's experience on cross-country optimization results.

Number of countries (or states in US)

(with at least 1% of total sales each)

Additional marketing-driven sales from optimized budget allocation

1

0 %

2

3 %

3

4 %

4

5 %

5

6 %

6

6 %

7

7 %

8

7 %

9

7 %

10

8 %

More

10 %

Let's assume our fashion retail company has 5 operating countries, so we will get the following benefit from MMM:

Number of countries

5

Additional marketing-driven sales from optimizing country allocation

6%

Additional marketing-driven sales from optimizing country allocation

180k EUR

(3M EUR * 6%)

3B. Estimate potential from optimizing campaign types/objective allocation

Next, we will estimate the additional sales potential from allocating budget more optimally across campaign types / objectives. In the table below, you can find typical outcomes on how much additional marketing-driven sales you can gain from better budget allocation, depending on how many campaign types / objectives you have in use. These are based on Sellforte's experience on optimizing campaign types.

Number of Campaign types/objectives

Additional marketing-driven sales from optimized budget allocation

1

0 %

2

4 %

3

6 %

4

8 %

5

9 %

6

9 %

7

10 %

8

11 %

9

11 %

10

11 %

More

15 %

But what are the "campaign types / objectives" we refer to here? In the table below, you can find typical campaign types/objectives in fashion retail. You might need to adjust this table to your own media hierarchy. Let's assume that our example company has 8 campaign types (marked with "X").

Campaign type/objective

In use for our example company?

Always-On

X

Brand Campaign

X

Spring

X

Summer

X

Summer Sale

Summer-Autumn transition

Back to School

Autumn

X

Winter

X

Singles Day Week

Black Friday Week

X

Xmas

X

Winter sale

Winter-Spring transition

With 8 campaign types, we will get the following benefit from MMM for our fashion retail example company:

Number of campaign types/objectives

8

Additional marketing-driven sales from optimizing allocation across campaign types/objectives

11%

Additional marketing-driven sales from optimizing allocation across campaign types/objectives

330k EUR

(3M EUR * 11%)

3C. Estimate potential from optimizing across advertising channels

Next, we will estimate the additional sales potential from allocating budget more optimally across advertising channels. In the table below, you can find typical outcomes on how much additional marketing-driven sales you can gain from better budget allocation, depending on how many advertising channels you have in use. These are based on Sellforte's experience on advertising channel budget allocation.

Number of advertising channels

Additional marketing-driven sales from optimized budget allocation

1

0 %

2

5 %

3

7 %

4

9 %

5

10 %

6

11 %

7

11 %

8

12 %

9

13 %

10

13 %

More

17 %

In the table below, you can find out what we mean with "advertising channel" in Sellforte's media hierarchy. Let's assume that our example company has 10 advertising channels in use (marked with "X").

Ad Platform

Advertising Channel

In use for our example company?

Facebook Ads

Facebook Brand Awareness

X

Facebook Advantage+

X

Facebook Prospecting

X

Facebook Remarketing

Facebook Retargeting

X

Facebook Other

Google Ads

Google Discovery

Google Display

X

Google Performance Max

X

Google Search Brand

X

Google Search Generic

X

Google Shopping

Google Video

X

Microsoft Advertising

Microsoft Search Brand

Microsoft Search Generic

TikTok

TikTok Retargeting

TikTok Prospecting

TikTok Brand Awareness

Adtraction

Adtraction

Criteo

Criteo

Klaviyo

Klaviyo

Match2One

Match2One

Pinterest

Pinterest

PriceRunner

PriceRunner

Shopalike

Shopalike

Stylight

Stylight

TradeTracker

TradeTracker

Email

Email

Push notifications

Push notifications

TV

TV Spots

X

TV Sponsorships

Radio

Radio

Print

Leaflet

Magazines

Newspapers

OOH

OOH

DOOH

DOOH

...

...

...

With 10 advertising channels, we get the following estimated benefit from MMM for our fashion retail example company:

Number of advertising channels

10

Additional marketing-driven sales from optimizing allocation across advertising channels

13%

Additional marketing-driven sales from optimizing allocation across advertising channels

390k EUR

(3M EUR * 13%)

4. Summarize

The table below sums up the business case: We can drive 780k EUR more sales by adopting more optimal budget allocation. This is 30% improvement to the marketing-driven sales and 3.9% improvement to the total sales.

Additional marketing -driven sales (EUR)

Additional marketing -driven sales (%)

Optimize cross-country allocation

180k EUR

6%

Optimize allocation across campaign types/objectives

330k EUR

11%

Optimize allocation across advertising channels

390k EUR

13%

Total

900k EUR

30%

With this information, you should already be able to evaluate, whether MMM brings sufficiently large benefits for your company to be worth investigating.

To deepen the analysis, we also suggest the following:

  • Transform "additional sales" to a profit-metric (by multiplying it with gross margin %) to evaluate profit potential of MMM.

  • Calculate Return on Investment (ROI) of an MMM solution, by comparing additional profit or sales with the cost of the MMM solution. You can estimate MMM pricing for example here: Sellforte pricing page.

Depending on where you are in the process, you can also evaluate the granularity of the available marketing and sales data to ensure that measuring marketing within the optimization dimensions (country, campaign type, advertising channels) is possible.

What to do next?

If the business case is attractive to you and your working team, the next steps from here are the following:

  1. Understand MMM use-cases in more detail so that you can (i) evaluate how they would fit into your organization, (ii) discuss more credibly with your stakeholders about how the business case would be realized

  2. Prepare materials for a management approval, so that you get approval to start evaluating how to implement MMM at your company

We are preparing articles on these topics - stay tuned!

Interested to learn more?

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