Marketing metrics go beyond ROI. Penny Hutton, strategy and planning director at Eclipse Marketing, provides tips for measuring ‘return on customer (ROC)’
Ask any marketer what sums up their profession over the last couple of years and you’ll get pretty much the same answer; return on investment (ROI). But while ROI is a tangible and valid metric, it isn’t the only one that should be considered.
‘Return on customer’ (ROC) is an alternate metric, one that helps to measure the true value of a customer. While ROI certainly has its own role to play, by just using this measurement you’re basing everything on earnings. But are purely accounting numbers a true representation? Customers are a more valuable metric than just money.
So what’s the real difference between the two forms of measurement? While ROI measures the value a business creates from capital, ROC measures the value created from the customers.
Customers as assets
So how does a B2B marketer measure ROC? The concept must be built on the understanding that customers are actually economic assets. This is the same as how CFOs think about their own business investments. In the world of the CFO, this decision looks at the projection of the investment; comparing future costs and upkeeps against the benefits that will come from it, and then calculating the ‘discount rate’, which is how investments are considered for capital budgeting.
As marketers, we must ensure everything spent on obtaining and then retaining customers is factored in to the amount they generate the business. This calculation will show us how much that customer is actually worth. We can then measure the value for every interaction.
As campaigns progress or refresh, our ROC figure will help to shape future campaigns and the resource that should be allocated accordingly. And this means everything; so if there’s a cost involved in hospitality or entertainment, this must be factored in as it could impact on repeat business and sales. ROC as a measurement tool offers more scope for planning and ensuring that all resources are maximised.
Working this out is actually easier said than done. It is challenging to obtain the revenue and expense data for each of our customers at the best of times. So here are some steps to try and get this measurement as easily as possible.
1. Track customer interactions
Firstly, customer tracking forms the foundation. The tracking of customer interactions must start from the very first contact, whether that’s a general enquiry into a contact centre or a purchase from an online website. Every touchpoint that a customer hits through their journey must be tracked helping to create the single customer view (SCV). Responses to advertising, direct marketing campaigns and to any form of sales activities should also form part of this, as will contact with call centers both in and outbound.
2. Allocate current costs
The next stage is to work out and then allocate costs from marketing campaigns to all customers making purchases and those who make enquiries. After all, it is important to know how long the period from initial enquiry through to sale is and what the purchase pathway was; this is a metric used in the model for ROC. It will enable marketers to show whether or not multiple approaches move the customer along the buying process or not and then plan accordingly. This requires a knowledge of which marketing method actually influenced the call-to-action of the customer. Did the customer respond to a piece of direct mail, did they see an advert in a trade magazine, were they watching CNN and caught a TV advert in the break or did they receive a sales call? Different techniques are available to marketers depending on how they sell their product to their audience.
3. Allocate future revenue
The final stage is the revenue allocation. By the time this stage is reached, it is far more plain sailing. There’s an accounting function that will allow the revenue generated from each customer to be unearthed. But one of the tougher areas is how the allocation of future marketing costs and revenues is identified. It could be down to historical data based on response rates, to project what similar marketing activities will generate in future campaigns.
Now we’re closer to measuring ROC. A customer’s true value can be estimated from calculating the cash flows of present and future customers. As more historical data on revenue and marketing expenses is collected from customers, a model looking at ROC can be built to help predict how future marketing programmes will fair in terms of shorter and longer term customer equity. This can then help a company to calculate the long-term term benefits from existing marketing programmes and then take this to key budget holders to justify further investment in marketing activity.
Looking at ROC isn’t new. After all, CFOs have been using financial metrics for years. The difference now? Actually applying these financial metrics right down at the individual customer level to provide a new metric for measurement that isn’t just based on earnings.
