The 5 marketing KPIs that really matter to the CEO
There are plenty of KPIs to help run campaigns, but the only ones that marketers need to know are those that interest CEOs says Christelle Fraysse
It’s all about the numbers these days. Moneyball mania drives sport, education institutions are awash with statistics, while politicians nonchalantly toss off figures with practiced ease.
And it’s certainly true for marketing. It’s not about gut feeling, it’s about having a thorough understanding of the numbers that underlie the business, in particular being well-versed in all the KPIs that determine the success.
Marketing has never been more numbers-driven. To be a successful marketer, you need to be fluent in and articulate around the numbers and KPIs that represent your organisation's success. There are five KPIs in particular that marketers should be on top of – master these and success beckons.
Let’s go back to first principles: what’s the goal of every commercial organisation? The answer is – or should be – rewarding its shareholders by either generating or increasing profits – or preferably by both. Marketing’s role in this process is clear: it’s about the customers, bringing in new ones and increasing how much they spend. The essential driver for marketing departments is to be seen as a revenue generator, not as a cost centre.
This is where those numbers come in: to do this successfully, marketing teams need to have a thorough knowledge of the KPIs they need – this means focusing on the ones that are really going to demonstrate their worth. There are plenty of KPIs that will help run campaigns, for example, but the ones that marketers need to know – and really need to know – are the ones that interest CEOs.
Fortunately, because there are just the five, it’s not too hard a task, but marketing departments certainly need to get a handle on them.
The 5 metrics all B2B marketers should be measuring
1. Revenue impact
First of all, departments must be tracking their impact on company revenue; has marketing sourced a sales lead (i.e. did this come from a campaign) or influenced that lead in any way?
It’s great if marketing has sourced many leads but departments shouldn’t be too hung up on this metric, the number of leads has long ceased to be a key metric for marketers.
What’s more important is to recognise where, and how, marketing is contributing to company revenue, as this is what a board is going to be interested in. This can be achieved in two ways, by either sourcing an opportunity directly, through a marketing campaign or by influencing that opportunity throughout the sales cycle.
The former is one of the most widely quoted of marketing success stories. Marketers like to point to this metric with pride, because it shows accountability. Some marketing departments source more than 50% of their company’s pipeline – excellent news for them. Most, however, are not responsible for such a large chunk of their company’s revenue, but those who aren’t producing these sort of figures shouldn’t be dismissed as underperformers - a lot will depend on the type and commercial strategy of the business; for example, if the business depends on volume sales or is more specialist etc.
But it’s essential that marketers get hold of accurate numbers. There’s no point in using guesswork on this, it’s necessary to examine sales figures closely and match up marketing spend with successes.
2. Return on investment
The second KPI that marketers should know is whether they’re spending their marketing budget wisely. In other words are they making a decent return on investment? If the spend is £1000 and the revenue produced is £1000, that’s an ROI of 0% - the sort of figure that’s going to mean a rather uncomfortable meeting in the CEO’s office. On the other hand, if the revenue generated is £2000, then the next management meeting is going to be a breeze.
There are two approaches to understanding what’s going on: Strategic ROI is a holistic approach, looking at marketing as a whole, understanding what’s been invested in and what financial results have been achieved. The alternative approach to this is attribution, a tactical view at every marketing campaign to see how they’re delivering and impacting pipeline and revenue.
The two approaches deliver different results: the former gives an indication to whether the marketing department is heading in the right direction, the latter helps understand which campaigns are really working and whether they should be run again.
3. Customer acquisition cost
The next vital KPI is the customer acquisition cost (CAC). In other words, how much it costs to convert each customer. It’s calculated by taking the total sales and marketing costs (marketing campaigns, advertising spend, salaries, commissions, etc) and divide it by the number of new customers in that quarter. For example, if a company spends £300,000 and acquires 30 new customers, then the CAC is £10,000.
For further investigation, there’s the 'Marketing percentage of customer acquisition cost' (M%-CAC), the marketing portion of CAC as a percentage of the overall CAC. Keeping an eye on this metric is important because any change could give an indication that a strategy may need some tweaking. For example, an increase in M%-CAC could mean that marketing costs are too high or sales quotas have been missed.
4. Customer lifetime value
The last two KPIs are both linked to customer value. The first deals with Customer Lifetime Value, while the second of these looks at Perceived Value. The former deals with hard numbers: what’s the average sales value per customer? How often, per year, do customers buy? And what’s the average retention time for a typical customer?
5. Perceived value
The concept of Perceived Value sounds a bit more nebulous, but this can be measured simply by asking customers whether they’d recommend the business to others. From their responses, it’s possible to ascertain a Net Promoter Score (NPS) which provides an accurate picture of how the company is seen. It’s a figure that’s important to track over time, so it’s possible to see whether the perception of the company is improving or worsening.
The marketers aren’t on their own trying to pull these figures, there are plenty of tools out there that can help. Marketing automation software will help with campaign management, social media responses and web analytics, while CRM will help pull together information on sales leads and progression of those through the entire sales cycle - and together they can build up a pretty coherent picture.
Marketers have to get used in dealing with real figures and, most importantly, prove they add value to the business. There’s plenty of scepticism out there, according to marketing leadership guru Thomas Barta: "Fewer than half of business leaders believe their company’s marketing expenditure is significantly contributing to revenue or profitability.” In other words, most CEOs think of marketing as a cost centre.
This is not good news for CMOs: those who can’t demonstrate good ROIs are going to struggle for resources and are likely to be the first place to make cuts when a business reduces its budget.
Keeping on top of the KPIs and presenting the metrics that are truly relevant are the ways forward for the savvy marketer: it’s all a numbers game now
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