How profitable is your marketing? Only 38% of companies calculate marketing ROI and can answer this question. Let’s discuss what the best marketing KPIs are, how to calculate them, and how to align marketing with a company’s strategy.
Here are 4 topics that I’d like to talk about in this article:
- Marketing measurement challenge
- Tracking marketing ROI and activities measurable by design
- Specific examples of the KPIs
- Strategy map template for marketing
1. Marketing Measurement Challenge
What’s the purpose of the marketing measurements? First of all we need to keep an eye on the internal processes to make sure that everything is running smoothly:
- Visitors are coming to the website and are converting into the leads;
- Emails are being sent, and their content is interesting enough to make people click onto the links inside;
- Leads are moving along the marketing funnel.
To measure this we need to have internal marketing metrics (see the examples of the KPIs below). Many companies (23% according to the Lenskold research) stop here, but if we want marketing to be really accountable, then we need to continue.
By using internal metrics we confirm that we are doing things in the right way, but we also need to understand if marketing is actually doing right things, e.g. helping business to generate more revenue!
According to the data from the above mentioned Lenskold research only 38% of the companies use some profitability metrics (ROI or NPV). What kind of problem is here? Why are some companies able to track their ROI while other treat marketing activities as something intangible and impossible to measure?
2. The Challenge to Track Profitability
There are two major problems that prevent companies from tracking marketing ROI:
- The use of many overlapping marketing channels, and
- Long time periods between initial contact with the prospect and sale.
- Case A: A company is selling a $29.99 product on the website. Most of the purchases are impulsive and are done within 15 minutes after the visitor is on the landing page. Traffic is coming from a Pay per Click campaign.
- Case B: A company is using a website to market and sell expensive products. They also participate in the conferences and trade shows, send out press releases, and are doing ads on local radio.
In the Case A one can easily have a profitability estimation. While in the Case B it is possible only by using a disciplined approach to the measurement.
Measurable by Design
Measuring marketing ROI is a tough task, but many companies solve it successfully. A good starting point for this is to dedicate 5-10% of the marketing budget on the controlled experiments targeted on the various marketing methods.
Another point is that normally:
- The problem is not with finding right metrics for the activity; it’s about the activity that should be measurable by design.
Let’s take a trade show as an example. What can a company do to find out the ROI in this case? The investment part is clear, but what about tracking the revenue generated?
- Option 1. The company is trying to calculate ROI afterwards by tracking the increase in sales.
- Option 2. The company puts into their CRM all the business cards, emails, and badges scanned on the trade show so that in the future they can attribute closed sales to this event.
- Option 3. The company suggested that all visitors of their booth conduct a free self-assessment using an iPad app.
The chances to track the lead are much higher for options 2 and 3. Moreover, with option 3 a company is generating excellent leads for sales! Think about the way to track something before you actually do it.
Costs that Companies Often Forget About
Let’s continue with a trade show as an example. To calculate the ROI one takes into account the investments made and the revenue generated by the leads from that trade show. As a result one might see a relatively high ROI for this event. The issue is that there are still other expenses that were not taken into account. The obvious part is:
- Trade show, booth, and marketing materials expenses,
- Travel & accommodation fees.
Less obvious, but still significant expenses might be:
- Multiple contacts with the person after the trade show (we cannot 100% isolate trade-show from other marketing efforts),
- The cost of processing unsuccessful leads.
3. Examples of Internal and Profitability Marketing KPIs
The conclusion is simple – we need both KPIs for the internal processes and profitability KPIs to ensure that the marketing helps a company to move into the right direction.
- To present internal indicators visually we can use marketing funnel model;
- To present profitability indicators and what is more important, the marketing strategy, we can use a strategy map.
Marketing Funnel KPIs
There are various models of the marketing funnel, I’ll use this one:
- First contact with brand
- Converting prospect into the lead
- Closing lead into sale
- Working with customer loyalty
It is obvious that this model is not straight. A lead might be disqualified, or might be loyal to the brand in terms of social network engagement, but not ready to buy. Here are the most used metrics.
- Brand awareness can be measured using social network tools, or by an industry survey. Due to its lagging nature, its usefulness is limited
- Media mentions indicator need to be customized according to the various medias that a company tracks
- Owned reach indicator includes client database, subscribers to the mail list, followers in the social media, and regular visitors of the website
- Total leads and Cost per lead (CPL) to understand what number of leads we had in the beginning and at what cost
- Marketing qualified leads (MQL) and respectively Lead to MQL Ratio
- Sales qualified lead (SQL) and respectively MQL to SQL Ratio
- Revenue per Marketing Qualified Lead (MQL)
Sales and finance
- Closed deals and SQL to Closed deals Ratio if marketing and sales are overlapping in the organization
- Cost of Customer Acquisition (COCA), obviously COCA will be much higher than CPL
- Revenue per closed deal
- Customer lifetime value (CLV) helps to calculate adjusted ROI; can be aligned with loyalty
- Sales growth, it is much better when it is attributed to a sure kind of marketing method and tracked by ROI by Marketing Channel indicators
If it makes sense in your business context add, as well “Marketing Expense per Employee” and “Marketing Expense as a Percentage of Revenue,” here you’ll need some historical benchmarks to get use out of this data.
- Customer satisfaction survey indexes and their lighter version Net promoter score (NPS) that was reported to correlate with revenue growth
- Referrals, reviews, and anything quantifiable that can be considered as a positive recommendation of the product
- Returning visitors (for a website) and Open rate, Click Through Rate for mail list
- Customer retention is easy to measure when your business uses subscription model, if not this indicator will be very lagging in time
From the practical view point only Customer retention is a hard indicator of loyalty as customers are actually voting for your product by prolonging their subscriptions.
Performance Indicators for Website and Mail List
Some time ago I was writing about indicators for digital marketing, so I’ll focus here only on the most important ones.
For the company website:
- Visitors to Lead,
- Adjusted Bounce Rate
- + Various options that Google Analytics gives to us
Before checking out GA panel I’d recommend to start with the formulation of the questions that you want to ask. You might want to track mobile usability, or conversion rates into the certain goals, or the percentage of the referral traffic, or the percentage of Spanish speaking users if you need to justify the localization of the website.
Metrics for a Mail List
Mail list indicators based on the process map:
- Delivery rate
- Open rate
- Click Through Rate
- Conversion Rate
- Unsubscribe Rate
Practice shows that delivery and unsubscribe rates are more or less stable and due to their lagging nature do not generate many insights. Tracking open rate might be a great idea when you are testing marketing message (=subject line). Conversion rate might be an inexpensive way to track how your loyal auditory reacts on some new offer.
4. Strategy Map for Marketing
The next step that will bring us to the level of the performance management is to build a strategy map. A strategy map is an excellent way to:
- Define marketing strategy,
- Align it with the company’s strategy
- Communicate important priorities to the team
Here is an example that might work as a template for your own project. I’m going to review the goals within four perspectives.
Here we have a generic goal “Increase revenue,” which in this example can be achieved by Generating sales qualified lead (SQL) (with “The number of Sales qualified lead (SQL)” as a lagging indicator) and Controlling marketing costs (with “Cost of Customer Acquisition (COCA)” as a lagging indicator).
When working on the goal of increasing revenue we can take into account two main indicators:
- A leading one: “ROI by Marketing Channel,” and
- A lagging one: “Customer Lifetime Value (CLV)”
My choice of these two indicators imply that the strategy will be focused on developing long term relationship with customer. For example, the first product a company sells might generate no profit, but will establish certain level of trust between a company and a client that will result in revenue increase in the long term. A real strategy is always tailor made, so I’m not suggesting for all companies to follow this very strategy and use these very indicators.
What do customers want from a company marketing? Or what needs of the customer does a company have to satisfy in order to fulfill company’s financial goals? The most general goal here can be about bringing company’s message and its product in front of customer eyes. I formulated this goal as “Build and present brand.”
- The leading indicators in this case might be “Media mentions” and “Owned reach” discussed above;
- The lagging ones “Brand awareness” and “Total leads”
Internal Business Processes
What should we do inside the marketing department to achieve the goal from the Customer’s perspective? Most likely we need to “Implement new marketing tools” and optimize existing ones, for example the lead generation part, so I’m adding “Optimize lead generation.”
It is hard to come up with specific indicators right now, as an example, I suggest to focus on:
- “Adjusted Bounce Rate” as a leading indicator for “Implement new marketing tools”
- “Marketing qualified leads (MQL)” as a lagging indicator for the same goal.
In this way we are focusing our search on the marketing tools that will allow interact with the customer long enough (measured by bounce rate) to deliver our message, and track the results by MQL metric.
As for the goal of lead generation optimization, then we can obviously focus on the lagging indicator “Cost per lead (CPL),” and another lagging indicator “MQL to SQL Ratio” to track the leads’ quality. As for the leading indicators in this case, they should be related to the adjustments that we plan to test.
Learning and Growth
Where should we focus our learning efforts in order to “Implement new marketing tools” and “Optimize lead generation.” Two major areas might be:
- “Research & test of new marketing methods,” and
- “Analysis of customer loyalty” to learn in the details preference of the prospects.
For example, the analysis of loyalty might show the areas where a company already has a good relationship with customer, but is not able to convert the customer into the MQL because of it is not clear how the product can solve a customer’s problem. To find such areas we can use “Net Promoter Score” and “Returning visitors” metrics.
The last, but not least: show on the strategy map how the goals are contributing to the company’s overall strategy, align specific actions plan, and assign a person’s responsible for the goal. You can learn more about building strategy maps from the previously published article.
Here are some key takeaways:
- Know how your marketing processes are doing; use funnel model, and track indicators on each level;
- Plan activities with measurement in mind; prepare controlled marketing experiments; calculate marketing profitability;
- Create marketing strategy map to ensure that marketing efforts fit a company’s strategy.
Feel free to share in the comments your thoughts, and the best practices about measuring marketing.
- ^ “Group Lead Gen Marketing Effectiveness Study 2013” Lenskold Group / Pedowitz
- ^ Importance of Tracking Social Media KPIs, Levi Newman, BSC Designer
- ^ How to create a Balanced Scorecard for Digital Marketing, Aleksey Savkin, Smart Insights, 2014
- ^ How do You Set Your Traffic Goals? Compare it to the Forbes Formula, Aleksey Savkin, BSC Designer