We’re coming up to the end of the year, a time when every business should ask two marketing-related questions:
- How much did we invest in marketing this year?
- What was our return on investment?
Seems fairly simple. Add up all your marketing costs – from website and social media to advertising, promotions, hard copy collateral and anything else used to build your brand and increase sales. Then determine whether the results justified the spend.
Yet, for many companies this is not a simple process. Many can tell you how much they spent on marketing. But many can’t answer the second question with any degree of accuracy – if at all. Why? Because they don’t track key marketing metrics.
A business won’t survive very long unless they monitor basic financial metrics such as revenues, profit margins, and other P&L line items. Businesses generally measure the ROI (or payback) on building a new factory or hiring a new salesperson, but when it comes to marketing, this important process often gets overlooked. This is usually because companies aren’t sure what to measure, how to measure it, or both. Or, it’s simply not a priority.
Management typically sees marketing as a series of activitiesthat represents an expense on their P&L versus an important investment that will drive business results. If the business has an uptick after executing those activities, management assumes their marketing is working. But without any measurable data, they don’t know really know what specifically is working and/or why. The uptick could be due to the current economic cycle, a competitor going out of business, or any number of reasons.
How Many Business Cards Did You Get?
Industry trade shows provide a great example of what happens when organizations don’t track marketing metrics. Companies can spend thousands of dollars to have a presence at a trade show. Large companies that attend multiple trade shows can spend millions. When it comes to ROI, the problem isn’t the amount of money spent. It’s the lack of specific marketing goals for the event and/or the reason for going in the first place.
Too often, companies attend trade shows because their absence will be perceived as a sign of poor business performance or “nothing to talk about”, not because they have clear objectives they want to accomplish. So they go without a clear purpose or direction, and they come away with no hard data to help determine their ROI for the event. If they’re lucky, they might track who met who and how many business cards they got.
Nothing wrong with meeting people and getting business cards, but it‘s not much of a return for the money spent. Now multiply this process – or lack of process – by all the different things you do to market your business. That’s a lot of money going out the door with no idea and what you’re getting for it.
Which Marketing Metrics Should You Track?
In today’s digital world, there’s no shortage of marketing metrics to track. At the strategic level, key marketing metrics include brand awareness, brand consideration and preference, market share, and more. At the tactical level, metrics to track include lead generation, conversion rates, percentage of repeat customers, etc.
The digital side of marketing tracks number of visits to your website, where they go on the site, how long they stay, and conversion, based on how you define conversion on your website (e.g., a sale? a lead? downloading content? etc.). It also looks at channel sources – organic search, paid search, display ads, etc. – and more. Then there’s social media metrics, which involve a whole different language (content “shares”, engagement, influencers, share of voice), so we’ll save that for another blog.
With so many different marketing metrics to track it’s easy to see why some companies feel overwhelmed. Fortunately, you don’t have to track all of them, just the ones that align with your business metrics.
One challenge with marketing metrics is that many have very different timelines to measure their effectiveness and impact. For example, we can know an email open rate within minutes (or at least within a day) of sending it. However, a TV or trade ad campaign might have multiple objectives (e.g., brand awareness and / or a promotional component to drive sales) each with different timelines. Seeing an impact on brand awareness could take months (or longer), and a company may need to employ a brand tracking study, while the impact on sales can in some cases be seen in a matter of days.
This is why marketers have a hard time explaining ROI, because it’s hard to align the impact of all tactics on marketing activity. Even marketing automation tools generally provide limited support and are geared more toward measuring digital marketing activity.
The One Metric You Can’t Afford “Not” to Track
There’s one marketing metric that stands out above all, one that every business should track regardless of their product, service or industry. It’s called the lifetime value of your customer, or LTV. It’s determined by understanding the average customer’s total lifetime spend with you. In some cases, based on the nature of your business, “lifetime spend” may be a three-year period or it may be a 10-year period.
Why is LTV, and ultimately your target customer acquisition cost, so important?
Because it lets you know whether your business model is viable over the long term. You may know how much it costs to acquire and retain new customers. But unless you track their lifetime spend, you don’t know if it’s costing too much to acquire them in the first place.
LTV also lets you know which customers to focus your time, energy and resources on to achieve the best margins. When customers do business with you again and again, it creates a source of revenue that costs less to maintain and produces a higher profit margin. This information is critical when building your brand and devising customer retention strategies.
An effective marketing plan needs more than just strategies to move customers through the sales cycle until they buy. It also needs to outline which metrics you will track, how you will track them (e.g. the people and tools needed to track your spend), and why. With these components in place you can get a true picture of your marketing investment ROI.
What are your biggest marketing challenges and how do you address them? If you would like to talk it through with our experienced brand gurus, we’re here to help.