At a time when marketers are being asked to be more accountable, more is being measured. The challenge, however, is to find the right things to measure, i.e., the marketing metrics that improve and prove the value of your investments. Read on for a primer on how to do this successfully.
Marketing Metrics Come in Three Primary Forms
Measurement typically fall into three categories: financial, infrastructure and behavioral. Financial metrics are things such as revenue growth and really serve as the verdict for how we’re actually performing. But they don’t necessarily tell us how we got to where we are or what to do going forward. Infrastructure metrics are often related to time such as response time, sales cycle time, and problem resolution time. Behavioral metrics refer to measures associated with customer and prospective customer engagement.
Behavior metrics are often linked to both financial and infrastructure performance; capturing these measures regularly can inform us as to why financial performance is rising or falling – you can’t make a profit without customers. These metrics can also confirm the impact of degradations in infrastructure performance which could turn customers away.
Focus on Behavioral Metrics
There are a vast number of behavioral metrics you can measure. If you’re new to behavioral metrics, we recommend starting with these four:
- Consideration Conversion Rates to Purchase – this measures what percentage of prospects make a purchase. If 100 prospects within a given time frame are in the consideration phase and five of them buy, the conversion rate is 5%. This metric can further be reduced to first time or repeat conversions. When you develop marketing strategies, using this metric serves as a gauge for overall effectiveness in driving purchasing, although it does not inform us as to why someone bought. The next metric addresses this.
- Conversion Rate to Qualified Opportunities – this measures how many sales are made from various tactical initiatives–advertising, promotion, PR, down to the finest details, which mailing, which banner, which ad, and so on.
- Average Cost of Customer Acquisition – this measure speaks for itself; out of all the ways in which we get paying customers, what is the cost of capturing them, on average? This metric can be an effective way to dive into a deeper market analysis. If the average cost is going up, why? Can it be attributed to higher capital or labor investment in the effort? Higher marketing cost because of increased competition? Both?
- Lifetime Value – this measures the future cash value in today’s dollars of a particular customer. We’ve pretty much come to accept that it is much more profitable to keep and grow repeat business from existing customers rather than having to go out and constantly replace them with new ones.
While tracking your own numbers is a great start, it’s important to put them in context. Knowing your company’s conversion rate has increased 30% from last year may sound good but you won’t know for sure without context. It might be that the industry average conversion rate has increased 80%, so while the company is doing better, the additional industry information would suggest you may have lots of opportunity for improvement.
For organizations that are data challenged, setting performance targets for your metrics can be difficult. One option is to use averages as a starting point.
Use Industry Averages as a Starting Point for Your Metrics
Averages can serve as a good guidepost and allow for easy categorization. Think about the teams of actuaries at insurance companies who use them to set rates. Or the analysts that comb through data to determine batting averages. If you don’t have any internal metrics, we suggest you use industry averages initially to help set expectations and establish your baselines. Set measurable objectives for each of your initiatives that will have the greatest impact.
Various organizations publish studies that provide insight into averages. Some well-respected sources for Marketing benchmarks include CMOSurvey.org, CMO Council, Demand Metric, Forrester, IDC, ITSMA, and our Marketing Performance Benchmark Studies.
Measure and Report On a Regular Basis
Once you have gained agreement from the management team on metric priorities, established your metrics and measured your results, make sure you have a process for learning from and communicating them. A Marketing Dashboard is one part of this process. Learn more about Marketing Dashboards.