Let's talk numbers: metrics and KPI's in marketing

Let’s talk numbers: metrics and KPI’s in marketing

juli 13th, 2016 Posted by management, marketing 1 comment

As specialists in communications and marketing, we fell in love with our line of work. We are able to create and build, we work with colourful personalities and the results of our efforts are tangible. But to be honest, as creatives and strategists, there is a part of our job, many of us, are not that fond off: metrics and KPI’s. Nonetheless, both metrics and KPI’s offer important management information concerning the effectiveness of our programs and this data is needed to further improve and strengthen our marketing strategies. It is just as important to tangibilitate our actions for our colleagues within the organisation. Lastly, the effects of controlled management based on data are intertwined with the continuous growth of the organisations we have committed ourselves to. Because of this importance, an article about metrics and KPI’s in marketing seemed to be justified.

The diversity of metrics and KPI’s in marketing

As a marketer and/or communications specialist, you represent your company on a variety of channels. You dive into the world of social media, e-mail and print, you look for the best ways to generate leads and high-quality content and, simultaneously, you nurture your current clients. Due to the diverse nature of your marketing activities, overall results in terms of marketing programs and strategy are dependent on a lot of different factors. Your work, therefore, can appear fragmented which also makes it difficult to provide insight into the effectiveness of your efforts.

As a manager, it is of the utmost importance to have the ability to judge the companies’ activities within all of those channels on a day-to-day basis. At the same time, your team has the need to know how their work affects the company, while your superior is mostly interested in the end-result of all of the joined efforts. As you may have already experienced yourself, fulfilling all of these needs calls for the use of a diversity of metrics and KPI’s.

KPI’s used to verify the overall result

In this article, we will describe the most important formulas to measure team performance within marketing departments. It is important to nuance the following by saying that optimal results can be achieved only when one is willing to experiment with data sets. For example, a higher CPS can be desirable if this leads to a prolonged CPL (focus on transactions) or higher ROI. The definition of “the best result” is interwoven with your goals, the strategy you have chosen and could differ per campaign and even per channel.

CLV (customer lifetime value)

The average sale per customer x The average number of times a customer makes a purchase x The average length of time a customer is connected to the company. If you would like to balance it out even further the formula is as following: Gross contribution x Yearly retention ratio / 1 + yearly discount – Yearly retention ratio.

Measuring CLV is important because it puts a value on the relationship you have with your customers. Secondly, the CLV comes in handy when estimates are to be made to determine the value which will be derived from an investment or a project. It also helps managers estimate what amount of investment is needed in order to retain certain customers and to create or preserve a positive ROI.

CRR (customer retention rate)

The number of clients at the beginning of a certain period of time / The number of clients that remain at the end of a certain period of time (within a year for instance). The declination should not exceed 20% but a variation between the 10% and 30% isn’t unusual within most industries.

Many companies don’t measure CRR or are mainly focused on acquisition. That by itself is a mistake because your CRR rate tells you a lot about the company’s “health”. While being successful in acquiring new customers is an important aspect of sales, if you lose just as many (or more) customers at the end, you will end up without prospects and customers further down the line ( if you lose too many clients, you should probably look into your customer satisfaction). Secondly, retaining customers is much more cost effective than luring new clients. Fred Reichheld once said that a 5% CRR increase would lead to an increase in turnover between 20% up till a 100%.

CPA (cost per acquisition)

Total costs within an acquisition trajectory (media coverage, production of materials, staff) / Total number of conversions within a campaign.

Your CPA will tell you how cost effective your campaign has been from an acquisition perspective. This data is especially important when your campaign goal was to acquire new customers in the first place. What it doesn’t tell you, however, is which value the acquisitions hold. It is to be advised to use the CPA as an indicator on performance and-or as a piece of the puzzle but be careful not to use it on a stand-alone basis.

CPS (cost per sale)

The number of sales / Total costs.

The CPS offers insight in the investment needed to realise a certain amount of sales. It will help you estimate future needs of funding to achieve new turnover targets.

CPL (customer profitability score)

Average sales per customer per year / Average costs per client per year. Ideally, clustered by specific client groups.

Your CPL will tell you which client types are most profitable and which clients are actually costing you money. Moreover, that insight will lead to a higher level of awareness amongst the Sales and Support team.

CSI (customer satisfaction index)

This formula is a bit more complex because the outcome depends on the attributes of choice and their weighting factors. Usually, elements that are used to calculate CSI are client expectations, perceived quality, value perception, the number of complaints and customer loyalty. Data gathering is done by conducting interviews and-or through questionnaires.

The CSI is an important measurement tool to indicate the future financial position of the organisation. Secondly, it is an indication of the strength of your products and services offered within the market.The most important information derived from the CSI is a) if a gap exists between the expectations of your customers and the products and services you offer and b) offers insight in which elements of your business call for further improvement.

ROI (return on investment)

(Growth of sales – Marketing costs) / Marketing costs – Average organic growth in sales.

An ROI simply shows what a business unit or department yields. It will offer the possibility to justify budgets (when need be). Needless to say, it will also help you judge the effectivity of your campaigns and improve overall efficiency.

Price elasticity

Changed demand as a percentage / Changed price as a percentage.

Marketing and Sales should research the optimal pricing together. Especially online, pricing can have an enormous impact on demand. Marketing is the ideal partner to conduct pricing experiments with. Usually, though, pricing is kept static while that might not always be beneficial.

Other important KPI’s and metrics for marketing managers

The before mentioned KPI’s are clear indicators of the effectiveness of your department. But, there are several other KPI’s that should interest you:

NPS (net promoter score)

This formula is used to calculate customer loyalty. The NPS is determined by using a scoring system linked with the following question; how willing would you be to recommend our services and/or products to your friends and family? They are then asked to scale their willingness on a scale from one till ten.

Clients who rate your services with a 9 or a 10 are called loyal customers and are fairly easily converted into brand ambassadors. Passive clients rate your services between a 7 or a 8, these clients are content with what you have to offer but aren’t really enthusiastic about it and clients who rate you a 6 or lower are considered to be unsatisfied. If you detract the percentage of unsatisfied customers from your satisfied customers, you will have your NPS.

This KPI is interconnected with your CLV, if there is a desire to elevate CLV, you would need more loyal customers. This can be achieved by creating lead nurturing campaigns, campaigns focused on activating your current customer base and elevating the brand experience.

BE (brand equity)

Your BE can be measured on several different levels (country, continent, per product etc.). Central stage is the brand value, the value a name and corporate identity give to products and or services. The most simplistic way to calculate BE is to look at the difference in pricing between your product and of a nameless product. The difference in pricing is the added value of your brand.

MGR (market growth rate)

Total sales within your market during the last year / Total sales within the market during the year before that.

The MGR shows you how a market develops and is also a useful indicator concerning your potential growth.

RMS (relative market share)

Your market share / Your biggest competitors market share.

It goes without explaining that this KPI tells you something about how your company is doing within the market. The repetition of measuring this KPI gives you the opportunity to monitor a company’s commercial progress.

These are the most important KPI we wanted to share with you today. All the before mentioned metrics have a clear focus on your overall achievements as a department.In the article of next week, we will further explore KPI’s on specific different job levels, as the OSOV for instance.

Do you feel like there is a KPI that should definitely be added to this list because you find it incredibly useful yourself? Please do let us know!

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Maike
Marketing and Communication Specialist at TAS - Tells a Story
Maike van Oyen is a mother, friend, sister, daughter and dedicated communications and marketing specialist on the side. She has written many articles for several websites in both Dutch and English about Corporate Communications, Marketing, Change Management and HR.

Maike loves to sink her teeth into complex projects of change and has a good knowledge of communication on a strategical, tactical and an operational level. She is trained to work in hectic environments (she manages to write blogs while also doing the housework, watching 4 misguided missiles and working for TAS at the same time). And is used to finding creative solutions for every challenge.
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[…] In the first part of Let’s talk numbers, we focused on the overarching objectives (based on KPI’s and Metrics) within the field of marketing and communications. Have you missed it? Read it here […]