Only about one-third of marketers believe their team understands the ROI of their marketing plans, according to the Marketers’ Confidence Index released last month by the American Marketing Association and Kantar Consulting. Perhaps this is because those organizations lack strong key performance indicators (KPIs) that accurately measure against their business objectives and help them become better marketers. “For some organizations, the process of measuring data serves as an exercise in futility — measuring it without using it to reach strategic goals,” Kenneth Hamlett wrote in a Chron report. “When used correctly, KPIs become an important part of a company’s strategy. For the small business owner, measuring the right KPIs and creating actionable items from the data can elevate a company above the competition.”
We’ve caught up with marketers and experts to better understand what marketers should consider when crafting KPIs in order to build effective marketing programs.
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Align KPIs to the Business Strategy
Melissa Burns, senior marketing manager, EMEA, for Quadient, said marketers should ensure their marketing KPIs are aligned to the overall business strategy. “Business 101, I know, but so many get it wrong,” she said. “It’s hard to achieve accurately unless the right MarTech IT stack and processes exist.”
Some KPI examples she feels are important include:
- Marketing sourced pipeline and bookings
- Marketing influenced pipeline and bookings
- Return on marketing investment rolling pipeline coverage
- Brand health, Net Promoter Score (NPS).
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Consider Your Customer Acquisition Cost (CAC) Payback Period
The CAC payback period is how fast you recoup your costs of acquiring customers. “Remember that most SaaS companies see gross margins between 85 to 90 percent,” wrote Brandon Pindulic, founder of OpGen Media, on his company’s blog. “A company with a $10 subscription service would need a little less than six months to recoup their investment, while a company with a $25 subscription service would only take a little over two months, giving the second company a lower (healthier) CAC payback.”
Pindulic said CLV to CAC (customer lifetime value to customer acquisition cost) and the “CAC payback period,” can serve as effective KPIs for marketers. The latter (CAC payback period) is mainly for bootstrapped companies, he said, or those that prefer to grow more conservatively. The former (CLV:CAC) is for businesses that are tracking more top-line metrics. “That is a generalization, but seems to be accurate from what we see,” Pindulic said. Marketers, he added, care a lot about Marketing Qualified Leads (MQLs), Sales Qualified Leads (SQLs) and sales opportunities. “Ultimately, if sales owns a ‘closed won’ and revenue quota, marketing should own a lead and sales opp quota.”
“It’s a super important metric,” Pindulic said, “because this is kind of how your brain goes and sort of takes theory out of the equation. It is saying, ‘OK, how quickly are we getting cash back in the bank? That is really the most important metric in my mind if you're a bootstrapped (Software-as-a-Service) company. It has to be the number 1 marketing metric if you're a SaaS company that's putting more priority on the bottom line.”
Pindulic believes that cost per lead (CPL)/cost per acquisition (CPA) should be a secondary KPI. “Any marketer,” he said, “should rather spend two times on CPL if the leads convert at a higher rate to justify the spend. However, some organizations only look for the CPL number, and not the conversion metrics.”
Incremental Lift the Gold Standard for CMOs
Ryan Kelly, vice president of marketing at Nanigans, said the “only KPI that matters and is the gold standard for CMOs is and will be incremental lift.” “With incremental lift,” Kelly added, “randomized control trials (RCTs) compare the revenue from an exposed group (that sees ads) to a control group (that does not see ads)."
For instance, as a marketer you first need to determine what percentage of consumers to your website should be in the control group (with no ad exposure) versus the audience exposed to ads, according to Kelly. The precise split will vary across companies and markets, he added, but holding out 10 to 20 percent of your audience is a good place to start. For the largest advertisers online, Kelly pointed out, control groups of as low as 3 percent of the entire audience may be enough.
So how often do you run these tests? “Past methodologies may have relied on turning ads off entirely for a period of time, then turning them back on and analyzing the lift,” Kelly said. “However, there are simply too many external factors — seasonality, consumer behavior, etc. — to make this a valid test. Thankfully, new technologies are emerging that enable always-on RCTs to provide the most accurate real-time data on true incremental lift from advertising.”
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In B2B Scenario, Consider Funnel Metrics
James A. Gardner, who handles market and business development at MedTouch, said in B2B lead generation situations, marketers can start with funnel metrics, especially those giving insight into activity levels, conversion velocity, lead quality and acquisition cost. “More holistically,” he added, “you need to also think about profitability and relationship longevity, keys to lifetime customer profitability and value.”
Show Results With Definitive Data
Brian Hansford, vice president, B2B marketing client services, revenue performance and marketing technology at Heinz Marketing, recommends marketers adopt the following KPIs:
- Pipeline Velocity (PV) compared month to month, quarter over quarter and year over year. “This is a difficult one to work with at times because the question always comes up: ‘What are we comparing our velocity to?’” Hansford said. “To me PV is valuable because any of the four factors used to calculate velocity can have a significant material impact on revenue each month/quarter/year. Over time an organization can develop their PV ratio as there really isn't a standard.”
- Opportunity creation in quantity and dollar value
- Percent of marketing sourced revenue
- Percent of marketing influenced revenue
- Attribution by channel and spend
- Customer acquisition costs.
“Marketers typically are too focused on metrics like No. of MQLs, site visits, opens, etc.” Hansford said. “Those are important in the right context but not at the organizational level. Think big. Think revenue. Show results with definitive data."