It's not the size that counts, it's how you measure it
You do lots of work and spend plenty of money finding new customers and marketing to them. How do you know it’s making a difference? This is how. Here are the top 5 marketing metrics you should be tracking.
Measure one
Profit
How much of the money coming in the door stays in your pocket (even if you squirrel it away before the tax man sees it).
This probably the most obvious one, but the reason I’ve started with it is that so often we run with the easier measure of revenue. You should definitely measure revenue. It’s great to measure how much money you bring in the door. But if you’re only measuring revenue you’re missing a trick. Why? Because only measuring revenue and ignoring profit covers over bad marketing, pricing, sales strategies.
Profit is a better measure because you’re counting how much you keep after you’ve done all you need to do.
You can then calculate things like return on investment of your marketing and sales efforts (using the other figures below)
Yes, it’s hard to measure. Here’s all you need though:
Revenue
Less variable cost (including your marketing
Less fixed costs
Simple but hugely important.
Measure Two
Cost per acquisition (CPA)
How much does it cost for you to find and acquire a customer?
This is part of the picture above. If you know how much your products/services cost to deliver and how much your fixed cost base is, the next biggest metric to overlay is how much you’re spending on marketing.
At the most basic level, this is marketing costs, divided by the number of customers acquired.
e.g.
$1,000 marketing spend, 10 customers acquired = CPA of $100
If you’re looking to go one step further you can go down to the channels you can track digitally (e.g. display, search). When you break down by channel you’ll often use the last source or touchpoint the customer to ‘give’ or attribute the sale to.
e.g.
$1,000 spent on paid search, 1000 customers acquired = $1 CPA
$1,000 spent on digital display, 100 customers acquired = $10 CPA
Your CPA will vary by the channel you acquire the customer and it’s good to give you an idea of what’s working and what isn’t. It also allows you to optimise and tweak your efforts over time as you track.
I won’t be covering the intricacies of attribution modelling in this post, suffice to say when you get large and sophisticated enough it’s often good to measure how your multiple sales and marketing touchpoints work together to make a sale.
What I will say though is try to avoid making the mistake of discounting a specific channel because you can’t attribute any conversions to it OR overspending in a well-performing channel.
It could be that the apparently underperforming channel is working higher up in your sales funnel before you can effectively tie it to a customer and their purchase. In the second example above you’d be forgiven for thinking digital display advertising is a waste of time compared to search, which is clearly a far cheaper channel to acquire customers. What those two numbers in isolation can’t show you is how many of those customers only searched for you after seeing your display advertising.
Measure three
Lifetime value (LTV)
What is a customer worth to you over time?
How you calculate LTV will depend on your organisation, the specific product or service you sell and the associated sales cycle. It doesn’t have to be an actual human lifetime, just measure it consistently.
For example, if have long purchase cycles the LTV might just be the one purchase your customers make every few years. The inverse is when you have lots of smaller, more frequent purchases you might choose to cap LTV at the annual value.
Regardless of how you calculate it the intent is to provide a second data point for your CPA to give you a richer picture of the value your marketing is adding.
It’s not a secret that most of the effort you put into marketing will be finding new customers. By neglecting subsequent purchases after you’ve acquired them you’re at risk of ignoring important data points.
If your data allows you can overlay the original source from the CPA you’ve attributed the sales to. This will let you identify trends and adjust your spend accordingly.
E.g.
Customers referred to you from ‘Website A’ cost $1 to acquire and only buy once a year.
Whereas customers from ‘Website B’ cost $2 to acquire but buy three times a year.
If you were to weigh those channels up on CPA only, you’d probably reduce your spend on Website B because Website A offers you the ability to acquire customers at half the cost. What that would cover are the higher value customers B is sending your way.
Another reason you’d track this is to make sure you’re appropriately spending with your full sales mix taken into account.
E.g.
Say you have a ‘gateway’ product or service which most customers will test the water with first before buying your premium product.
Your LTV can model this into it, potentially allowing you to offset a much higher CPA for the ‘gateway’ product because you know a high percentage of customers will then convert on the more valuable premium product. Likewise, it could also allow you to adjust your pricing strategy to cover the costs of the CPA.
If you know the LTV of the customer you can also attribute value to micro-conversions like website sign-ups or subscriptions. Obviously you can’t count people up twice, but it does give you a rough value to attribute to your list building efforts. Just make sure you account for not everyone joining your list buying… but you should have an understanding of this because another metric you should be tracking is…
Measure four
Conversion/ Retention/ repurchase rate
How frequently your customers buy from you or keep using your service.
Ok, so I’ve cheated a bit here by jamming a few together. But hear me out. What we’re looking at is the rate at which customers move through your funnel at the various stages.
To be clear a conversion could be anywhere you’re tracking how many people turn up and then how many go on to do what you want them to do.
E.g.
Your bricks and mortar store front has a conversion rate. How many people walk in the door divided by how many walk out buying something. 100 in the door and 10 walk out buying something? Great, that’s a 10% conversion rate.
This is important to track because it’s a key indicator of how well that specific stage or execution is working. Especially if you’re spending money to get people there in the first place.
The most common place you’ll hear about conversion rates are on websites and landing pages. This is for many reasons, often related to CPA because at the pointy end of the stick the higher your conversion rate the lower your CPA.
Retention and repurchase rates are technically another conversion rate but further on in the funnel. I’ve drawn attention to them specifically because as I noted above, we spend most of our marketing efforts acquiring customers. Once that ‘hard work’ is done, not continuity marketing and up selling/cross selling them products is a huge mistake (where your sales cycle allows). That means one of the metrics you should be tracking is how often your customers buy from you again. Remember: More purchases means a higher LTV too!
Measure five
Market share OR Awareness OR Consideration
Awareness - how many potential customers know who you and/or your product are?
Consideration - how many customers would choose your product if they had the need for it?
These are a pretty clear departure from the metrics above.
While those above are clear sales related measures you should track these three are a little fluffier, but they’re arguably the metrics marketing has the most influence over.
Tracking them can be hard to do but if you’re spending money on anything higher up in the sales funnel you need to be tracking them, otherwise, you won’t know if your marketing is working.
More on how to track them in another post.
SUMMARY
If you can track all those metrics, well done. It’s ok if you can’t - but you really should know why. Too hard basket? That’s ok. Don’t know how? Let us take your six and we’ll show you how.