Marketing is increasingly being recognised as a strategic board-level function within organisations, and the pressure is on CMOs to prove its value to the business. Assessing the impact of marketing strategies on business performance is now an essential skill, and today’s marketing managers need to be familiar with the metrics that are responsible for commercial success. There are 12 in total, which Robert Brunning explains in a two part series on the University of Sydney Marketing Matters blog. The first six are listed below:
1. Customer Lifetime Value
Customer lifetime value (CLV) is the measurement used to predict the net profit of all future relationships with customers. CLV is an incredibly useful tool businesses use to analyse who are their most valuable customers. Knowing which customers are the most profitable is just as important as knowing which customer segments are less desirable to retain. Calculating CLV helps businesses manage their customer relationships as assets to the company and monitor the impact of marketing investments.
2. Retention Rates
Retention in marketing is often used to count customers and track their activity over time. The retention rate is the ratio of customers retained by the company vs. those customers who are potentially at risk of leaving. While driving sales and engaging customers is important, failure to build a loyal customer base and retain the most important customers can undo all your business's hard work. After all, it is always cheaper to retain profitable customers than to acquire new ones.
3. Customer Acquisition Cost
Customer acquisition cost (CAC) is measured by calculating the costs associated with convincing a customer to purchase your product or service. The reason why this is such an important metric is that it is used in calculating the value of the customer to the company and how many resources should be used to attract a particular customer segment. CAC is particularly useful for established businesses that may be considering targeting new markets and customers.
4. Profit Margins
Profit margins are simply a measure of profitability. Today's marketing managers are often asked to evaluate the profitability of their campaigns. A campaign with a high margin reflects high levels of profitability, whereas a campaign with a low margin reflects low levels of overall profitability.
5. Return on Marketing Investment
Return on marketing investment (ROMI) calculates the contribution that marketing spending has made to profit. This metric can be used to measure the overall effectiveness of a campaign and help aid marketers in their decision making for future investments. ROMI is calculated by comparing revenue gained against a business's marketing investment. It is often useful to compare effectiveness across many marketing activities in percentage term, which makes ROMI particularly useful.
6. Internal Rate of Return/Net Present Value/Payback Period
The internal rate of return (IRR) metric is used to measure the profitability of potential investments. When considering if a marketing project is worthy of potential funding the IRR can be used to better evaluate the decision. The internal rate of return is actually the discounted rate that makes up the net present value (NPV). NPV is a metric used to evaluate long-term projects and is also a key part of determining ROMI. Payback period is simply the length of time that it takes to cover the cost of an investment. The length of this period can help to determine if a project is viable.
Today, marketing is more science than art – the availability of data makes it possible to evaluate marketing performance which leads to better decision-making and provable ROI. CMOs are now held accountable for their strategies and campaigns, so being able to not just measure but interpret data is key. For the other six metrics, read part 2 of the series on the Marketing Matters blog here.
BeInbound Managing Director Chris Fell also covers some of these metrics in an opinion piece he wrote recently for CMO Magazine. Click here to read the article, where he explains how marketing managers can use data to facilitate a business conversation with the CEO.
There’s also plenty more information on how to measure marketing ROI in our eBook, which you can download for free by clicking below: