Are You A Profit Center or a Cost Center?
In the introductory installment of this blog series on being successful with digital analytics, I outlined the problem at hand – too many organizations that are not derived value from their investment in digital analytics. Common symptoms of the problem include poor digital analytics implementations, poor data quality, overwhelmed teams, confused business users and so on.
When I am up against complex issues like these, I find it helpful to go back to the beginning. In this case the beginning is thinking about why your organization invested in digital analytics in the first place? While this may seem trivial, it is not. I would bet that 98% or more of you reading this were not at your current organization when they first decided to invest in digital analytics. That decision was likely made in the early 2000’s or nearly twenty years ago! At that time, the Internet was just getting started. The expectations of digital analytics tools were pretty basic i.e. “Show me how many “hits” my website got…” At that time your organization likely invested in digital analytics because everyone else was doing it and/or because one of the purported advantages of “online” was that you could digitally track customer behavior.
But that was all a long time ago. So why does your organization continue to invest in digital analytics? Are your executives crystal clear on why you have digital analytics? Unfortunately for most organizations, I find that if I ask five different people, I will get five different answers. As a follow-up task, I would encourage you to do a survey to some of your leaders and ask them in an open-ended way why they think your organization has digital analytics. I think the variety of the answers will surprise you. Once you get these various answers, you can trim them down and then use that short list to see which reasons are most important to your leadership. Sometimes taking a step back can help you to move forward.
Some digital analytics teams are viewed as cost centers and others as profit centers. Ideally, your team will be perceived as the latter, but that is easier said than done. For example, when I first joined Salesforce, I am not ashamed to admit that the analytics team I took over was a cost center. We ran reports each week, counted how many forms were submitted and provided IT with some information that helped them know which browsers to support. The perception of our team wasn’t great, and we weren’t brought into strategic project meetings. Being viewed as a cost center is not very fun and if your organization ever encounters any budget cuts, you are likely among the first to lose people and resources.
Instead, you want to be viewed as a profit center. The best digital analytics teams are proactively using digital analytics data to make the organization more money or, in some cases, save money. If you can leverage the data that you are collecting to identify hypotheses that then lead to website/app changes that ultimately lead to incremental revenue, you are a profit center. Another reason you want to be a profit center can be illustrated by this scary concept – your organization doesn’t generate one dollar of ROI on digital analytics until it effectively uses data to make the organization money or save it money! In fact, if you add up the amount of money spent on digital analytics tools, your analytics headcount and the time executives and other stakeholders spend working with your team, it is not uncommon for digital analytics to cost an organization a million dollars or more! That means that in order to provide value to the organization, you have to generate enough incremental revenue or cost savings to cover your team every year! Even if your executives aren’t currently asking you to earn your keep, it is important for you to compute your team’s cost and cost-justify yourselves. Doing this will help focus your team and is a great defensive measure in case budget cuts rear their nasty head.
Going back to my time at Salesforce, our team decided that we wanted to be viewed as a profit center instead of a cost center. We began automating the boring reports that were expected of us so we could free up time for more strategic work. We focused on generating more leads for the sales team since they were a powerful group within the organization. We scrutinized all visitor behaviors around lead generation and began identifying points of friction. Once identified, we ran targeted A/B tests to see if alternative designs or approaches led to increased form conversion rates. We investigated tools that helped us identify which companies were on our site so we could tell sales which companies were actively checking out Salesforce and even identified which products in particular each company was clicking on. While it didn’t happen overnight, the word spread that our team was helping drive leads and help sales close deals. This got the attention of the CMO and led to our team presenting at Marketing all-hands meetings and so on. Within a year, we were given more money for tools and headcount. We were officially a profit center and got the spoils that went with it!
So, is your team a profit center or a cost center? If it is a little of both, is it 60/40 or 70/30? I encourage you to take some time to reflect (and be honest with yourself!) about whether you are the former or the latter.
- Survey some of your stakeholders on why they think digital analytics is needed today at your organization. How would their world change if you shut down the digital analytics team completely?
- Look at the last two weeks of work that your team has done and attempt to quantify what % was spent on cost center activities (i.e. running reports or performing analysis resulting in no changes to the website/app) and what percent was spent on profit center activities (i.e. analysis that was done to improve something specific).
In the next post of the series, I will delve into one of the worst culprits causing organizations to not become profit centers – the dreaded SDR (Solution Design Reference).