Strategy #8 & #9: Develop Key Metrics; Improve Marketing ROI
Every CMO and senior marketer I talk to these days is striving to improve marketing ROI (aka ROMI). Most have become proficient at measuring and reporting on marketing effectiveness. But few believe they have succeeded in proving the value of marketing to their CEO and peers, especially the CFO and boards of directors. Why is this so? There are a lot of reasons, including not having an agreed upon set of metrics, not constructing marketing dashboards and/or reporting in a manner that is easy to understand, or simply not having delivered sufficiently compelling data to support ROMI assertions. From my experience, however, the primary gap results from not being fully aligned, and adjusting to maintain alignment with the CEO and marketing’s peers on what metrics really matter
To illustrate this point, there’s an entire category of metrics that don’t matter much to anyone besides the marketing department activity levels. In other words, the quantity and frequency of marketing activities, such as the issuance of press releases, emails sent, campaigns executed, collateral created, and a variety of social channel engagements on LinkedIn, Meta, Instagram and the like. While all of us set objectives for increased activity and performance levels in nearly every facet of marketing, the intrinsic value of a given quantity of activities is virtually zero in the eyes of the CEO and many C-level peers. It’s not the number of activities that matters, it’s the results vs. targets, benchmarks and the ability to drive continuous improvement.
There are many ways to objectively demonstrate relative contribution by marketing, such as percentage of pipeline generated, converted and closed, and for some organizations, pipeline acceleration – i.e., shortening the sales cycle – if truly measurable – as a result of nurturing campaigns and other marketing-owned tactics. If you can attain agreement on the acceptable numbers and percentages for these and related measures, you are well on the way to demonstrating the value marketing contributes.
For SaaS companies, here are some of the most important ones I recommend tracking: CAC (customer acquisition cost), CAC to LTV (lifetime value), MRR/ARR (monthly, annual recurring revenue), ARPU (average customer revenue), NPS, Churn Rate (soft and hard), conversion rates at all funnel stages (from lead to close), and key web vitality metrics (traffic, bounce rate, unique visitors, page views, form fills, hand raisers, SEO rankings, etc.).
There are also a number of pipeline efficiency, or funnel metrics, to track as well, and I would argue, it’s important to track by customer segment, sales team, region, or whatever cohort provides insights into ongoing marketing performance. Some of these include CPL (cost per lead), full funnel conversion rates (from lead to pre-qual to qualified to close), along with win rates and ACV (average contract value). I also like to track campaign, channel or tactic ROI to optimize the mix of marketing investments that will produce the greatest overall return, and given dynamic markets, these tend to change over time and by industry and market segments (e.g., SMB, mid-market and Enterprise).
If you find discord in what to measure, how to measure it, and how to report marketing performance to a range of stakeholders, it’s critical to get agreement from the CEO and your peers on what good looks like, what metrics matter to them and what returns are expected. Setting shared objectives and targets with sales, partners and other go-to-market teams is critical to staying aligned. Once you have achieved this, it’s still important to present the information, dashboards and reports in a readily digestible format that conveys the facts and figures in a compelling fashion. The first rule of communication effectiveness applies equally well here: it’s not what’s said, it’s what’s understood. So, when you achieve understanding, you are well on your way to proving not only just the effectiveness of marketing, but also its worth.
Top 10 Strategies for Marketing Success
Strategy #9: Improve Marketing ROI
Getting a Better Return
As we continue to experience the uncertain economy, one thing is certain: most marketers are wasting money. In the Web 3.0 world, and given the measurability of all things digital, at least it’s not as bad as the old lament: “I know half of my money is wasted; I just don’t know which half.” Nevertheless, many heads of marketing, especially at companies with broad product portfolios, are suffering from being far too egalitarian in how they allocate budgets by treating all budget centers and customer or prospect opportunities more or less equally.
But all customers are not created equal. Your best customers buy more of your products, are more loyal, less price sensitive and willing to recommend you more often to others. So why are we not dramatically tipping the balance to the “20” in the “80/20” rule that can not only generate more revenue per invested dollar, but also more profit?
The main reason is the curse of entitlements and how established businesses generally approach the budgeting process by assuming that the prior year’s budget is the baseline – wherein each department or budget manager is entitled to some increase over the previous year (if at a growing company). This old-fashioned thinking typically leads to incremental vs. extraordinary improvement and reinforces a “business as usual” vs. a “break from the pack” mentality, not only in terms of how budgets are allocated, but also regarding what market share gains are actually possible. Geoffrey Moore addressed this level of stasis in his book, “Escape Velocity: Free Your Company’s Future from the Pull of the Past.” He says: “When organizations begin their strategic planning effort by circulating last year’s operating plan, they reinforce the inertial properties of the resources as currently allocated.” To break away from the pack, Moore argues, companies need to be laser-focused on what they invest in and concentrate the maximum resources on strategies and investments that can create separation from the competition and also make sure that they are investing across creating differentiated offerings across various time horizons.
If one accepts the notion that all investments will not have the same impact and return, it’s not a big leap to realize that all customers and prospects should not receive equal shares of a budget. The target segments and existing customers that have the highest revenue and profit potential should receive a disproportionately larger share of the marketing budget. One of the more important contributions to this type of non-traditional thinking is V. Kumar’s book, “Managing Customers for Profit”. The quote from David Aaker on the back cover sums up Kumar’s approach best: “This book shows how a focus on Customer Lifetime Value (CLV) can change management toward long-term results by providing a fresh perspective on customer targeting, retention, and loyalty…it shows you the way toward strategic customer thinking.”
So, what’s this mean to you? If you haven’t already parsed out allocations in a traditional fashion, where everyone gets their fair share approach, then consider a more radical or zero-based budgeting approach during your next budget cycle that can foster greater marketing efficiency and increased revenues and profitability. If you are already locked in to the old way of doing things, who says it’s too late to shake things up a little? Marketers need to be agents of change, and there’s no better time to drive change than the present.
CMO Mentor 