Editorial
Over the past few years, CMOs have expanded their ability to measure marketing impact by investing in the ability to attribute revenues to their efforts. But are they maximizing their team’s contribution to said revenues?
In 2019, the data science team at my firm, Optimove, coined the concept of a CRM Contribution Metric as a means for companies looking to grow through their existing customers to gauge the financial impact and effectiveness of their retention marketing. Back then, they discovered that top brands drive an average contribution of 33% to their revenue from this marketing.
(Note: The term "CRM Contribution Metric" is explained in full at the end of this article)
CMOs looking to benchmark their CRM marketing effectiveness can look at that 33% mark and refer to it as an A plus. Those looking to increase their CRM Marketing performance can follow a simple formula. CRM contribution correlates strongly with three factors:
- Number of segments a company communicates with.
- Coverage of live customers.
- Number of marketing channels in use.
CMOs looking to optimize their efforts to achieve maximum revenue contribution need to drive change via these three factors.
The Case for Hundreds of Segments
Let's look first at company performance from the perspective of the number of segments they communicate with. The more segments a company has, the more personalized its campaigns. The more personalized a campaign is, the greater impact it has on the customer.
Analyzing three years' worth of data shows that the average CRM contribution of companies with over 300 segments is 74% higher than that of companies with less than 100 segments. In other words, hyper-segmentation has a direct influence on how big an impact your retention marketing has on the bottom line.
Furthermore, the average CRM contribution grows as more segments are added. The more segments, the higher the contribution. For example, the top performers in the group of companies that engage with over 300 segments see 49% of their revenue come from CRM activities.
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Why Extensive Targeting Is Important
It's no secret that one of marketing's strategic objectives is to reach as much of your target market as possible. The more customers you reach, the more conversion opportunities.
Especially, as we just saw, if you do it in a hyper-segmented manner.
The data supports this claim. The higher the coverage of live customers, the higher the CRM contribution. Of course, the definition of "live" customers will differ from one business to another, and depend on the frequency of customer activity. But as a simple rule of thumb, any customer who hasn't missed three expected visits can be considered "live."
The differences here are even more extreme. While brands that cover between 60% and 70% of their live customers contribute an average of 5%, those that cover over 90% reach an average revenue contribution of 21%. That is more than three times difference.
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More Marketing Channels Create More Marketing Impact
Recent trends have led to an accelerated diversification of channels, as marketing teams look to communicate with customers wherever they are. Data seems to concur that the more marketing channels in a company's arsenal equals increased marketing contribution.
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Companies that use at least three channels as part of their retention marketing efforts generate an average contribution that is 67% higher than those using a single channel.
However, having numerous channels on its own isn’t enough. Successful brands ensure they provide customers with symmetric messaging across all channels for a unified brand experience.
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Making Sense of the Numbers
As the direction setters for marketing initiatives, CMOs who want to build best-in-class retention marketing need to push their teams to segment more, broaden their reach, and engage through more channels. But it would be naïve to think that more is better 'just because.' If it’s not done with the right tools, this 'more' can lead to overload and chaos.
The key to success lies in the way teams scale and manage their activities so that they can tell a congruent story, across all channels, to as many customers, in as many segments as possible.
In order to push your retention marketing as far as it can go, CMOs will need to help their teams maximize these metrics, while ensuring they have the right combination of people, technology and organizational alignment.
**Understanding CRM Contribution**
CRM Contribution measures the percentage of revenues created from CRM efforts during a specific period using the following formula:
CRM Contribution = (Revenue uplift from CRM campaigns / % Campaigns with control) / (Total revenue)
It bases its calculation on two concepts:
- Control Groups – In order to know the incremental value of any campaign or strategy, you need to hold out a percentage of customers from receiving said activity
- Uplift — The incremental revenue (or any other KPI) from campaigns, which is calculated by comparing the revenues driven by customers that received the activity to those from the control group
The CRM Contribution's formula first takes the uplift from CRM Campaigns and divides it by the percent of campaigns with control. Why is this? Let's say that you calculated an uplift of $100,000 this month but measured only 80% of your campaigns. You have to base the assumption that the uplift generated from 80% of these campaigns also reflects the uplift in the campaigns that lack a control group.
Dividing the uplift you have from campaigns with control groups by the percent of campaigns with control groups (out of all your campaigns) will give you a fair estimate of the total contribution of your CRM efforts for 100% of your campaigns.
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