As a marketing manager, you no doubt know some of your company's key performance indicators (KPIs). You probably have to mention them in your reports because the emphasis is usually on return on investment (ROI). The question you always get is: Are we seeing a return on our marketing efforts? Still, it would be a shame if you ignored other aspects of your marketing efforts in your reports. You can demonstrate the added value of your marketing in many ways - you just need to know which metrics to look at.
If you don't know which KPIs to measure and analyze, it becomes difficult to demonstrate the added value of your marketing efforts. Therefore, here we discuss the 6 key KPIs that marketing managers can use to measure and demonstrate added value to their commercial director.
Not to be confused with return on investment (ROI). Both involve revenue, but incremental sales revenue looks at revenue growth over a period of time. This KPI does not look at total sales made over a period of time, but rather the growth trend of sales over a period of time.
This is important to know because compared to marketing ROI, this KPI often shows the importance of your efforts. For example, if incremental sales revenue over the last three months shows a downward trend, while your marketing ROI is still positive, you can show that your department is not only profitable, but even one of the most profitable departments in the company.
Incremental sales revenue by itself is not a very meaningful KPI for marketers, but it can be useful in further examination of your other KPIs.
This statistic is fairly familiar to marketing managers, but can often be disregarded. It is simply the cost your company incurs to acquire a customer. This cost is often expressed as an average for all customers acquired through a particular marketing medium. It is extremely important to know how much you have to spend to convert each new customer within a specific medium. This is because you can use this fact to argue for more marketing spend, to change marketing platforms, to determine which medium to invest more or less in, or for other measures.
Customer Lifetime Value is the average value your customers bring in over their "lifetime. This is often calculated as follows:
(Average purchase amount per customer) x (Average number of purchases per customer) x (Average lifetime value per customer - expressed in months or years, depending on what suits your business)
The Customer Lifetime Value is an important statistic to consider because it refers to a number of points that can be analyzed. If the Customer Lifetime Value is low, are you recruiting the right kind of customer? Are your customers satisfied? Do your customers know how to buy a more expensive product (upselling) or more products (cross-selling)? This is a good way to examine what mindset your customers have, what type of buyer they are and determine how to improve lead nurturing, customer communications and target group targeting. This statistic is also often good to calculate by marketing medium and provides insight into which media you are using to reach the "better" customers.
Something your customer lifetime value can tell you about is customer attrition (or churn). This statistic shows you how well you manage to retain your customers. The value is usually calculated over a period of time as follows :
(Number of customers who dropped out at the end of the period) / (Number of customers at the beginning of the period)
A dropout rate above 50% means you are losing more customers than you are gaining. You're probably better off focusing your marketing efforts in that case on nurturing and customer satisfaction than on increasing conversions. What you want to see is a low failure rate. It means your customers are probably satisfied and you have the opportunity for upselling or cross-selling.
This is the statistic everyone asks about. What is the return on your marketing investment? The formula for this statistic, calculated over a period of time, is as follows:
(Total revenue from marketing efforts) - (Total marketing expenses)
A positive amount means return. A negative amount means you spent more money than you made. Still, this statistic is not beatific. A start-up often has a negative marketing ROI in the beginning, especially when initially it focuses more on reach than conversion. Only when the company connects with the market can it become profitable. What marketers should be looking at is the ROI of a particular marketing medium remaining negative for an extended period of time.... If it doesn't work, it doesn't work.
The moral of this story is: present the KPIs that best align with your marketing strategy. If your focus is on reach, don't look at reports with conversion rates, look at traffic numbers. If your focus is on retaining and upselling existing customers, look not at reports with lead-to-customer ratios, but at customer engagement, customer satisfaction and failure rates. Look at your metrics and take advantage of them. Don't be limited to the usual KPIs that everyone expects. Use the information at your disposal to best inform your commercial director and demonstrate your added value.