Marketing KPIs: Measuring what matters
- Customer acquisition cost
- Cost per lead
- Lead to customer ratio
- Customer lifetime value
- Customer retention rate
- Churn rate
- Monitoring and applying your marketing KPIs
We explain the most important marketing KPI's that marketers should be remebering and measuring, so that they can optimise and remain on trackWe all know the saying that ‘what gets measured gets managed’. And in 2021 there are literally thousands of different ways to measure the impact of marketing activity, in our digital and data-driven world.But how do you decide where to put your focus as a marketer, and which key performance indicators are the ones you should really be concerned about? After all, it’s easy to get distracted by vanity metrics: does it really matter how many social media followers you have, if none of them engage with you, never mind buy from you? Sure, track these things, because you can - but don’t get hung up on (or spend money on) things which will never move the needle in a meaningful way.Let’s start by remembering why you want to measure in the first place: which is simply to improve your effectiveness and your total return on investment. Marketing is a significant cost centre, and to ensure your brand receives good bang for its buck, it’s essential that your activities are directly impacting the bottom line. However, sales revenue is a lag indicator - your results won’t show up immediately, and depending on the length of the sales cycle involved there could be a significant delay. In fact, the bigger ticket your item, the longer it’s likely to take, for a shift in marketing activity to be visible in the revenue stream.So it’s vital that in the meanwhile you are measuring and monitoring the KPIs which optimise marketing performance overall, so you get early warning of any shifts you need to respond to, and ensuring you’re continually attracting new leads and customers into the top of the funnel, long before they show up at the end of it. You need to know how to allocate budget effectively in our increasingly complex multi-channel world, and also how to work effectively with the sales team to boost growth.Here are some of the most important marketing KPIs that you as a marketer ought to be across at all times, ready to respond to any changes in the landscape and optimise continually to remain on track.
Customer acquisition cost
What does it cost you to transform a lead into a customer?This metric has an impact across the entire enterprise, because it directly links to profit. If it costs you more to acquire a customer than you can earn by selling to them, then you do not have a business, you have a charity. Therefore, it follows that your marketing efforts must be aligned with product, and sales, to ensure the maximum conversion takes place as part of your sales process - driving this cost down, and maximising profit.Essentially, customer acquisition cost can be defined as your entire expense of acquiring customers (advertising, marketing, PR, etc), within a given period, divided by the number of new customers resulting during this time.Of course, you can only convert leads into customers if the leads are there in the first place, however, so another metric you need to monitor continually is:
Cost per lead
Optimising each stage of the conversion funnel is vital, and it starts by converting unknowing strangers into warm leads - people you can communicate with and market to and nurture along the road to paying customer status. So what does it cost you to acquire each one, and how many leads are provided by each of your marketing efforts?You can use this data in conjunction with other indicators, like acquisition cost and lifetime customer value, to measure the impact of different marketing and advertising activities. Bear in mind that different activities may generate leads which are qualitatively different, and bring different value to the business: for example, you may discover that leads generated face to face at a trade show are 3 times as likely to convert as those responding to a social media ad - it’s all there in your data, if you analyse it appropriately. Does it still make sense to do the social media ad? Potentially yes, as the trade shows may be few and far between, driven by an annual cycle which is not in your control. You need a steady flow of leads year round, to optimise revenue. But you need to know that you’ll want to manage the ad budget as tightly as possible, given the lower value of each lead generated, and that’s why it’s vital to know the cost of each lead in the first place.Connecting these two indicators is another number to watch:
Lead to customer ratio
This specific conversion is arguably a sales function, as it’s a case of how many of those precious leads are ultimately closed. A ‘good’ ratio here will be highly differentiated and subjective, because as indicated above, even within a single product line there are lots of factors impacting on the quality of the lead, and the likelihood of a conversion. Across different products or different businesses, factors such as average transaction volume, account management costs, and margin on each item, will vary wildly.What matters in terms of a KPI here is tracking any change in this ratio, when other factors remain the same. If the way leads are generated is consistent, and the product doesn't change, then any drop off here suggests a flaw in the sales process - or, possibly, an external factor, like an emergent trend or competitor activity. Spotting this fast, means correcting it fast. The marketing department saves the day!
Customer lifetime value
While that moment when a lead becomes a customer is a sweet one, the marketer’s job is far from over at this point. What really matters, what you need to know, is what that customer will ultimately be worth to the enterprise over time. How can you ensure they spend with you regularly, and continually enhance their value to you as a customer?Software-as-a-service (SaaS) is a great example of this, but even if you sell one-off products, think about how you can retain and upsell existing customers, by leveraging their loyalty long term. Their real value to you is then calculated in what they spend over the entire relationship, not the first transaction - which may in any case may be a smaller test purchase, when they first try you out.You can think about lifetime customer value as total revenue multiplied by gross profit margin, multiplied by the average number of separate purchases. Better still, if you can track the individual number of purchases directly - but the average will give you a metric for customers as a whole.It is well worth differentiating if you can though, because it will enable you to highlight your VIP superstar customers, whose present value to you is already greater than the average customer lifetime value. These are the ones to handle with velvet gloves at all times, because each subsequent transaction they make with you is of greater value, than those whose individual score is below the CLV line.All these indicators are also closely related to your:
Customer retention rate
What really matters is how long that customer sticks around, and spends money with your business. Because in most cases, it costs less to retain an existing customer than to acquire a new one, and your ideal business model is one which drives recurring revenue from each relationship. A high customer retention rate is a key signifier of customer happiness, and happy customers don’t just stick around spending money, they also add value by recommending you, rating you, endorsing you, and even evangelising about you. You’re doing things right, because they’re not going elsewhere for what you have to offer (which in product terms is unlikely to be truly unique, whatever your ads say.)As such, customer retention tells you that marketing activities are being effective generally, in communicating the value of the business, and driving up that lifetime customer value with each purchase they make.You’ll need to relate this metric to one which is almost an opposite to it, your:
This is vital to watch, because it doesn’t matter how many customers you acquire, if they’re straight back out through a revolving door. All that money you spend on customer acquisition only brings value to the business if they stick around and keep spending their money with you.So churn rate is an essential KPI for any marketer to watch and monitor, because an uptick here is generally an indicator of a significant problem. If you see churn rate go up, you need to immediately identify the cause, because there are a number of potential sources for this shift. Perhaps there’s a product problem - if there’s a new update with a dodgy UX, this should be clear from a change in the volume of support queries. Perhaps there’s a logistics or fulfilment problem, with poor customer service leading to growing dissatisfaction. Or a raised call abandonment rate in your contact centre, due to poor rostering management, which provokes a raised level of unsubscribes when people cannot get the support they want when they want it. It may even be an external factor outside of your control, like a competitor grabbing market share and share of voice out from under you with a better offer.Either way, marketing can flag a raised churn rate faster than sales can measure the impact on the bottom line, and you can then unpick the reason(s) for it and the right tactics to get things back on track.
Monitoring and applying your marketing KPIs
Tracking all of your vital metrics is easily done when you use the right applications, such as the CRMs which natively integrate with Ringover - HubSpot, Zoho, Salesforce and many others, will put these KPIs at your fingertips in a range of data visualisations that you can tailor in highly customisable ways.But as the saying goes, what really matters is what you do with it. Just watching the data, numbers go up/numbers go down, won’t help you. Neither will considering these KPIs in isolation.Where the marketing department adds value to the enterprise is in using this data to generate insight, and inform change.For example, you might identify a correlation between cost per lead rising alongside churn, and conclude that an external factor is eroding sales. A competitor survey doesn't indicate any new kid on the block stealing your market share, but eventually you find a social or environmental concern about your industry, which is driving people to worry about their use of your whole category.Then, you can consider how best to respond to this. Can you reframe your brand story, to acknowledge this change in public perception? Can you change your product, to have less environmental impact? Do you need to highlight things people don’t understand, about why your product is the better choice for the environment anyway, compared to other brands competing for share of voice?You can also use data from these marketing KPIs to really get to know your customers. Who are the true VIPs with the lowest churn rate, and the greatest lifetime customer value? Not only does singling them out in your CRM enable you to offer them the best possible priority service, you can model their distinguishing features for replication. Perhaps they are concentrated in a particular market, or demographic. Perhaps they came disproportionately from a specific marketing activity or lead magnet - one which didn’t stand out immediately for conversion excellence, but which over time is having a meaningful impact on your top customer profile…By slicing and dicing your data in this way you may find new customer personas and profiles emerging, which enable you to radically 80/20 your top-of-funnel marketing activities, and really target the acquisition of ‘more people like these people’, whatever their critical differentiating features turn out to be.All of this will add value to the marketing professional’s contribution to the most important metric of all: the bottom line.As mentioned above, if you’re a business rather than a charity, what really counts is the profit being generated. And staying on top of your key marketing KPIs will have a powerful impact on this most critical number of all.
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