In recent years, you may have heard more people reference a “Signal To Noise” Ratio (SNR). Once a term reserved for scientists and statisticians, SNR has increasingly found its way into everyday discussion. This is especially true in business and marketing.
So, what exactly is the signal to noise ratio, and why does it matter in business?
Let’s start with an example.
Imagine listening to a 60-minute podcast episode on the topic of entrepreneurship. You pick up at least 10 valuable pieces of information throughout that hour. Information that is useful in your daily life or in running your business. Later that evening, you attend a networking event and meet several impactful, high-quality individuals. However, most of the event consists of casual and less relevant discussions. Chatter that you find repetitive, useless, or even boring.
When comparing the two, the podcast had a higher signal to noise ratio than the networking event. The podcast provided more quality information with less “noise.”
Signal To Noise Ratio: What Is It?
Signal to noise ratio has its origins in engineering. It defined, in decibels, the ratio of the signal to the background noise. Over time, its usage has expanded to many other areas and fields.
- In statistics, the signal to noise ratio is often used to distinguish relevant data from less relevant figures.
- Social media posts that are on-topic and truthful are often called “signal.”
- False or irrelevant comments, including spam, are often labeled “noise.”
In 2012, Nate Silver was praised for successfully forecasting the Election Results. He consequently gave a famous Google Talk called “The Signal and the Noise.” Silver attributed his success to analyzing the many already available polls while attaching higher weights to the ones he determined were most credible. In other words, the credible polls were signals amidst the noise. Ultimately, Silver precisely predicted the outcome of the Presidential Election in all 50 states. He also accurately forecasted the winner in 31 of the 33 Senate Races.
Information Overload
But what’s interesting to us is how the signal to noise ratio can help manage information overload. “The principle is simple,” writes blogger Nick Ingram, “Take in less, so that you can think about it and assimilate it more deeply.”
The average person encounters countless news stories and factoids daily. Each item claims to be accurate and poignant. Google built its initial business on reducing SNR by providing the best and most relevant search results. Social media sites like Facebook and LinkedIn aim to reduce SNR by using an algorithm to provide the most relevant posts in a feed.
Data In Marketing: Signal Or Just Noise?
“Unfortunately, most of the big data used to optimize and measure digital marketing campaigns is just ‘noise,’” wrote Jon Lombardo, Global Lead of LinkedIn’s B2B Institute. Lombardo believes the common business fallacy of assuming more data is better is a prime example of what can happen when one ignores the Signal To Noise Ratio. “More data often leads to worse decisions, not better decisions. And because people tend to make bigger bets when they’re more confident, “big data can lead to big losses,” he notes.
Managing a healthy signal to noise ratio is especially difficult for the small business executive and/or solo marketer. Accumulating data has never been easier. Finding time to analyze and extract what is relevant has never been harder.
Did the email campaign underperform due to poor content, ill-planned timing, or a technical snafu? Did the high click rate on your most recent ad signal strong copy and savvy algorithm alignment, or was it just luck?
Understanding Your KPIs
Small businesses can manage their SNR by defining and understanding their Key Performance Indicators (KPIs). A KPI is not the same thing as a metric. Anyone can manipulate data to create a nice-looking chart or graph. If the numbers don't align with larger company goals, they will likely produce more noise than signal. Consequently, they will not provide a map for larger corporate growth.
“Over the years, we’ve seen countless marketing teams attempt conversion rate optimization. Few are successful,” noted Matt Lacey, Director of Data, CRO & Insights at Dept. Mr. Lacey made his observations in a blog piece bemoaning (well, actually celebrating) the fate of Google Optimize. “Stretched too thin, teams experiment without the correct research inputs, test in sporadic ways, or don’t have access to the right skillsets to conduct analysis–and therefore come to the wrong conclusions.”
In other words, data is only valuable when accompanied by tools that extract signal from the noise.
Signal To Noise Ratio: A Dilemma For Marketing Managers
Marketing managers are often inundated with data. Locating the relevant signal can feel akin to finding a needle in a haystack.
Compounding the issue is that marketing managers are often tasked with tracking multiple KPIs involving data related to:
- Orders
- Customers
- Products
- Traffic
At first glance, it’s very possible for two or more of these KPIs to produce conflicting narratives. In those cases, knowing where the signal ends and the noise begins is very important.
Signal To Noise Ratio: A Dilemma For eCommerce Store Owners
The same is true for eCommerce store owners. According to Shopify Statistics, the average merchant has six apps installed.
With that many apps feeding your system, there will be no shortage of data. But unless the store has the bandwidth to analyze and clean that data, a low signal to noise ratio is very likely.
Managing Your Social Media
Another area where marketers must pay special attention to SNR is social media. Separating the signal from the noise can often be the difference between a successful social media campaign and a disappointing one.
“Any social media program will produce a TON of data,” noted Megan MacInnes, a communications professional who has worked on digital programs in both the public and private sectors. “Having a high follower count can boost your ego -- but if you have really low engagement, and your followers aren't part of your target audience for your product, then that follower count doesn't matter. It looks like a signal, but it's just noise.”
Many social media platforms provide a plethora of data. A wide range of metrics, including Visits, Impressions, Mentions, Follows, and Likes are vying for your attention. If you’re a marketer utilizing multiple social media channels, the number of metrics you must manage has multiplied exponentially.
Managing SNR: A Day-To-Day Task For Business Leaders
Acknowledging the importance of signal to noise ratio is one thing. Maximizing SNR, however, is a task on its own. So how do we do it?
In the words of noted thought leader Shane Parrish, “Most of us are capable of distinguishing signal from noise, but it takes a bit of work.”
Maximizing signal while reducing noise are tasks that can be both practiced and learned. As marketing and revenue eCommerce professionals, maximizing that signal directly impacts a business’s bottom line.
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