If you’re reading this as a marketing manager, you’re most likely aware of some key performance indicators (KPIs). That’s because they’re probably expected in your reports and, generally, the most focus is put on return on investment (ROI). That’s the question you’re always asked: Are we seeing a return on our marketing efforts? But it would be a mistake to miss out on other aspects of your marketing efforts when drawing your reports. There are lots of ways to prove the added value of your marketing, and it’s simply about knowing which metrics to look at.
Without knowing the right KPIs to track and analyse, your marketing efforts are going to struggle to prove their worth to anyone who doesn’t truly understand what they’re doing. That’s why we’ve covered the six most important KPIs for marketing managers to track and prove added value to their commercial directors.
1. Incremental Sales Revenue
Let’s not get this confused with return on investment (ROI). They may both be talking about revenue, but incremental sales revenue looks at revenue growth over a given time. This KPI doesn’t look at the total revenue earned over a given time, but at the growth trend of revenue during a period.
This is important to know because when compared with marketing ROI it often reveals the importance of your efforts. For instance, if the incremental sales revenue has been on a downward trend over the past three months but your marketing ROI is still positive, then you can prove that your department is not only profitable, but one of the most profitable departments within the business.
While incremental sales revenue is not a KPI that makes a lot of sense on its own for marketers, it often helps to include when doing a deep dive into your other KPIs.
2. Customer Acquisition Cost (CAC)
This metric is fairly well known by marketing managers, but can often be ignored. It is simply how much it costs your business to acquire a customer. This is often worked out as an average for all customers over a single marketing medium. It’s vital to know how much you need to spend to convert each new customer within a specific medium, because you’ll use this to motivate for additional marketing spend, to change marketing platforms, to decide which medium deserves more or less investment, or for any number of other actions.
3. Customer Lifetime Value
Customer lifetime value looks at the average value that your customers offer over their “lifetime”. This is usually worked out as such:
(Avg. purchase amount per customer) x (Avg. number of purchases per customer) x (Avg. lifetime span per customer—use either months or years, whichever suits your business best)
Customer lifetime value is an important metric to note because it points to a number of points that can be analysed. If lifetime value is low, are you acquiring the right kind of customer? Are your customers satisfied? Do your customers know how they could upsell or cross-sell? This is a great way to investigate the mind-sets and purchase personalities of your existing customers, to understand how to better finesse your lead nurturing, customer communication and audience targeting. Again, this metric is often good to work out per marketing medium, which then offers insight into which mediums reach the “better quality” customers.
4. Customer Attrition Rate (Churn)
Something that your customer lifetime value may point you to is customer attrition rate (or churn). This metric displays how good you are retaining your customers. Using a particular period of time, this metric is usually worked out as such:
(No. of customers lost by end of period) / (No. of customers at start of period)
An attrition rate above 50% means that you’re losing more customers than you’re winning, and points to the fact that marketing energy is probably best spend on nurturing and customer satisfaction than further conversion efforts. A low attrition rate is fantastic and means that your customers are likely satisfied and may present opportunities for upselling or cross-selling.
5. Marketing ROI
This is the one that everyone asks for and so it’s important to know. What is the return on your marketing investment? The formula for this metric, worked out over a chosen period, is simply:
(Total revenue earned from marketing efforts) – (Total costs of marketing)
A positive amount means that you’ve earned a return, while a negative amount means that you’ve spent more money than earned. This metric is not the be-all and end-all that many believe it is, though. A start-up is likely to have negative marketing ROI for the first while, especially if your initial approach is focused on reach above conversion, until the market buys into the business and it can start turning a profit. But what marketers should watch is the ROI of any specific marketing medium that remains negative for a prolonged period of time… if it’s not working, it’s not working.
6. Conversion Rates
Conversion rates are important whenever a business is concerned about winning leads and customers over reach (which is the majority of businesses). It’s important to remember to report on all three primary conversion ratios:
- Traffic-to-lead ratio (the percentage of users who become contacts).
- Lead-to-customer ratio (the percentage of contacts who become customers).
- Customer-to-promoter ratio (the percentage of customers who upsell/cross-sell/refer new customers—you may have your own definition of what counts as a “promoter”).
Conversion rates are perhaps one of the quickest and easiest ways to tell if a campaign is working for you or not, and can often indicate what your reporting focus should be. If your campaign was meant to win customers and it didn’t, but your traffic-to-lead ratio is fantastic, then speak about this. Perhaps you need to look at a nurturing email series as the next step. Use the information at hand to motivate what you’ve done and what you will do.
It’s important that your takeaway from this is reporting on the KPIs that make sense for your marketing strategy. If your focus is on reach, then don’t focus reporting around conversion rates… look at your traffic numbers. If the focus is on retaining and upselling current customers, don’t focus reporting on lead-to-customer conversion rates, but look at customer engagement, satisfaction and attrition rates. Use your metrics to your advantage and don’t be hemmed in by the usual KPI suspects that everyone’s come to expect. Leverage the information you have at your disposal to best inform your commercial director and prove your added value.