CEOs are used to measuring net income, revenue, contribution margin and cash flow (among others) to indicate the financial health of the organization. But do you know which marketing metrics can help you determine marketing’s contribution to your financial health?
In today’s digital world, there are metrics for everything. You can easily get lost in the analytics and still not have a clear picture of how your marketing activities are impacting your bottom-line revenue. So, how do you know which metrics to use to better inform your marketing investment decisions?
To get a better handle on this, it may be helpful to illustrate how different metrics can be used within the framework of the marketing funnel and customer journey.
Marketing Funnel & Customer Experience Journey
The marketing funnel has been around for a long time and has evolved over the years. You may know it as the conversion funnel, sales funnel, buyer’s journey or many other names. But fundamentally it is the representation of how your customers progress from prospect – to customer – to advocate.
Each stage of the marketing funnel represents what your prospect/customer experiences, and what their needs are for that given phase. The top of the funnel (ToFu) is where prospects enter the funnel – i.e. where they become aware of your company, products or services. (I didn’t make these names up, I swear!)
The middle of the funnel (MoFu) represents the interest and desire of the customer to further engage with you, also known as the consideration stage. The bottom of the funnel (BoFu) represents the point in which the prospect converts into a customer.
From here, the ideal situation is for quality customers to repeat purchases and become loyal advocates for your company and products/services. I’m calling this (RoFu)- the ‘revenue optimization’ part of the funnel. (Ok, this one I made up. Cute eh?)
The RoFu part of the marketing funnel is where the magic happens. This is where marketing productivity can be measured in terms of impact on your organization’s bottom line. This is also where CEOs and business leaders can evaluate investments, payback, sales & marketing processes, and MROI.
Campaign metrics versus bottom-line metrics
To be clear, evaluating campaign and marketing activities (ToFu, MoFu) are still important as these illustrate ‘tactical’ or campaign performance. Marketing managers will typically spend most of their time with ToFu and MoFu metrics. On the other hand, BoFu & RoFu metrics are the ones business leaders care about most since these are indicators of marketing productivity on the bottom-line.
So now, let’s see a few examples of BoFu & RoFu marketing metrics. And, how organizations can use these to improve profitability and processes, as well as inform investment and resource allocation decisions.
Marketing Metrics to help Optimize Revenue
Whether you are looking at metrics for the top or bottom of the funnel, marketing analytics are only meaningful indicators of performance when they are aligned with the organization’s strategy.
The first step in creating a meaningful KPI dashboard is to start with a solid strategy which states the organization’s goals such as increased brand exposure, increase in market share, geographic expansion and so on. The next step is the development of a strategic marketing plan which connects your marketing activities with your business objectives.
The strategic marketing plan becomes your roadmap for achieving your objectives, and how to measure your progress in terms of appropriate marketing analytics. Find out more about aligning strategy to marketing metrics.
BoFu & RoFu marketing analytics for business leaders
When compiling your most valuable marketing metrics to evaluate bottom-line results, the metrics you choose will depend on your organization’s business objectives. We’ve outlined a few examples below but check out this free eBook ‘7 Marketing Metrics Every CEO Should Measure’ for a more comprehensive list and descriptions.
Long-term profitability & customer value
If increasing long-term profitability is in your strategy (and why wouldn’t it be?), one of the first things you’ll want to measure is the profitability of customers. Also known as the lifetime value of a customer (LTV or CLTV).
Why is LTV so important?
When you are spending money to attract and convert new customers, you want to make sure you are attracting your ‘ideal’ customer. Some customers are worth more to your business than others. Especially those customers who are repeat buyers and turn into loyal advocates for your brand. And, it can cost from 5 to 25% more to acquire a new customer than retain a current customer.
Additionally, a study by Bain & Company shows that a 5% increase in customer retention can increase profits by 25% to 95%! Now, that’s a great case for knowing your ideal customer –and understanding their value to your bottom line.
There are many formulas for calculating LTV but a simple formula is LTV = (Revenue the customer pays in a period – gross margin) + estimated churn % for that customer.
LTV or CLTV is a critical metric that every organization should measure as it provides a projected revenue that a customer will generate during their tenure with you. The LTV metric is also the foundation for many other important marketing metrics. LTV can and should be segmented for all critical customer segments to help you understand who and where your most valuable customers are.
LTV also provides a great benchmark when looking at CAC, or customer acquisition cost since it’s never a good investment to pay more to acquire a customer than the revenue received from the customer.
(For more critical marketing metrics every CEO should measure – download this free eBook)
Marketing investment & ROI
Want to make sure you are spending enough on marketing to stay keep up with the competition?
The LTV:CAC formula is a ratio of customer lifetime value to customer cost of acquisition. This metric can tell you how much ROI your sales and marketing team is delivering to your bottom line. The formula for LTV:CAC is Lifetime Value / Customer Cost of Acquisition.
The higher the number, the more ROI. It’s hard to say what a good LTV:CAC ratio is but benchmark studies typically show a 3:1 range is healthy for many industries. However, extremely high ratios aren’t necessarily a good thing as they can indicate a low investment in sales and marketing. This could open the door to competitive threats and slow down company growth.
Other critical metrics for big-picture planning include MROI (Marketing Return on Investment) or ROMI (Return on Marketing Investment) and Time to Payback CAC, which tells you how long it will take to earn back the cost spent acquiring new customers. These and other critical marketing metrics can be found in this free eBook ‘7 Marketing Metrics CEOs Need to Measure’.
Marketing metrics are critical to evaluating your organization’s marketing productivity. Some metrics at the top and middle of the marketing funnel are best to evaluate tactical and campaign performance. While others at the bottom of the funnel help senior leaders decipher marketing’s impact on the bottom-line.
Need help getting started? Contact us today to learn more about marketing strategy and analytics to help increase profitability.
About DB Marcom
DB Marcom helps small to mid-sized businesses market smarter, faster, and more profitably…without adding overhead. We are a full-service marketing partner providing outsourced and managed services for strategy, branding, digital and inbound marketing. DB Marcom is a strategy-first agency with a focus on building integrated marketing systems that attract, engage and convert profitable customers.
No more thrashing. No more chaos. No more wasted marketing dollars. We’ll focus on the details so you can focus on your running your business. Contact us today to find out how we can help you.