KPI, CAC, and Bingo was his name-o!
How to make meaningful marketing metrics
On the bulletin board in our office kitchen—between the photo of my thirty-something self that some wit pinned up to point out that I once had hair and the poster that threatens employees with severe consequences if they fake a work-related injury—is a Dilbert comic strip. In it, the goateed marketing director declares that “Our marketing campaign depends on word of mouth. Unfortunately, our product is bad. So we found a guy with poor judgment and a huge mouth to say good things.” At which point the huge mouthed guy pipes up, “Present!” It ends with the pointy-haired boss asking this question: “Marketing isn’t a real thing, is it?” To which the marketing director admits, “It’s mostly guessing.”
Ha! The brilliance of Dilbert is that the exaggerated satire that makes it funny always begins with a little nugget of truth. Because let’s be real: marketing does involve a lot of subjectivity. And for those of us who get to work on the creative side of marketing, that’s what makes it so interesting. But there is a component of marketing that relies on empirical data and delivers objective, actionable information. At the tactical level, there is the post-buy analysis that follows an advertising campaign. With digital media, these metrics are robust and easy to attain; Pandora radio can tell you exactly how many impressions they delivered within a specific demographic, how many of those impressions resulted in click-thrus, etc. For those of us who work on the creative side, the quality of our messaging is always improved when supported by empirical data. Knowing what to say and who you’re saying it to depends on understanding the characteristics and desires of the audience. And knowing if the messaging resonated or not depends on post-campaign metrics that define an objective measure of success.
But on the strategic side of things lies a different set of metrics. If you’re a business owner or CEO, these are the analytics you should be most interested in because they provide important indicators to how marketing is driving the bottom line. Beyond the tactical realm of impressions delivered, click-thru rates, etc. is the measure of the investment your company is making in marketing, advertising and sales. It’s important, big-picture information that most small businesses don’t bother with and should.
On the flip side of having no metrics at all is being over-metriced. Like stuffing yourself with too much turkey at Thanksgiving, it just leaves you bloated and fuzzy with no clear direction. So, here’s the thing about metrics: you really don’t need a lot of them to have the information you need to make marketing decisions, you just need to pick the ones that will provide the data you need to take the appropriate action. Here are three to consider:
Key Performance Indicators (KPI)
KPIs are generally described as an actionable scorecard that gives you objective information you need to manage and achieve your business development goals. KPIs are also over-used and little understood terms that too often mean any kind of measurement at all, as long as it’s, well, measurable. Here’s an example: “Increase the number of Facebook followers.” While this is certainly a measurable metric, it is not a good KPI. The legitimate tactic of building followers may eventually lead to increased sales, but unless your social media followers are converted to customers, they have no real value to your business. The beauty part of a KPI is that it forces you to clearly understand the desired results of your marketing effort and holds you accountable to the overall business development strategy. KPIs should reflect the most important objectives of your business. Here’s another example of what is not a KPI: “Sell more stuff!” The construction of a true KPI begs the question, How will you sell more stuff? Be as specific as possible in your answer. Will you generate 50% more leads? Compel your existing customer base to buy 25% more? Shorten the sales cycle by 30%? Those are good KPIs. If you’re clear about where you are going and how to measure when you get there, you can construct KPIs that bring value to your business.
Customer Acquisition Cost (CAC)
The CAC is a simple formula that provides a quick overview of your sales and marketing cost and the return on that investment as measured by new customers. To calculate your CAC, simply add up all your sales, marketing and advertising costs, including salaries, ad spend and overhead during a specific time period, then divide it by the number of new customers acquired in that same period. For example, if you spent $50,000 on sales and marketing in a month and acquired 25 new customers that month, your CAC is $2,000. Keep in mind that the CAC is not a deep dive into ROI. Since it only measures return by the number of new customers and not the revenue generated by these customers, its bottom-line value is limited. If you’re selling $200,000 sports cars, you’re obviously going to interpret your CAC differently than the guy selling $10 widgets. Still, the CAC has value to both as an overview analytic.
Customer Lifetime Value (CLV)
This analytic speaks to the churn rate of your customers. While it’s good to know how many customers you actually have, it’s even better to know how much and how often they buy, and how long they remain a customer. With the robust Customer Relation Management (CRM) systems that are available today, this information can easily be tracked and reported. Understanding the behavior of existing customers and your engagement with them goes a long way in keeping your customers and acquiring new ones. If you find that you’re losing customers, that may point to flaws in your service delivery, pricing, product quality or content marketing that need to be addressed.
In our next blog, Julie Hober will explore the more tactical marketing metrics that are available through digital channels and how to leverage these into actionable information.