How to calculate genuinely meaningful marketing metrics for campaign improvement.
In the past, marketing was provided with a budget and left to generate new leads for the sales team to act on. So long as the leads kept coming, the board seemed relatively happy to leave the CMO to spend the money as creatively as they wanted.
Every business unit is now under pressure to calculate and report returns on their investments, in part due to the financial downturn. Regardless of board level involvement, the CMO would also benefit from monitoring marketing metrics for ROI calculations to help fine-tune and improve campaigns, and to ensure the marketing team is operating effectively.
So which marketing metrics will provide the best understanding of marketing ROI? Try these for starters:
1. Customer Acquisition Cost (CAC)
Of particular interest to the CFO, the Customer Acquisition Cost gives you a concrete financial value that defines exactly how much it costs (on average) to create a new customer. CAC is calculated by summing the costs of:
And of course, any other costs associated with customer acquisition.
This figure is then divided by the number of new customers acquired over the same period to obtain an average cost per acquisition. This figure can be further refined to calculate the marketing percentage of the CAC, providing greater insight into marketing-specific costs.
“Every business should look at its cost of customer acquisition twice a year and after each campaign. The old business adage goes, “You can’t manage what you don’t measure.” Yet we fail to measure these costs all the time. We seldom take the time to see how effective our marketing was.” – Lon Safko – The Fusion Marketing Bible.
2. Marketing Originated Customer (MOC)
Less of an ROI calculation and more of a marketing metric of success, the MOC gives the CMO an idea of how successful their campaigns have been at creating new customers. The calculation is relatively simple – for a given period, define how many of the new customers came into contact with one or more marketing campaigns.
Taking that figure and dividing it by the total number of new customers during that period should yield a number of useful observations:
- The percentage of new customers who were influenced by a marketing campaign.
- The split between marketing and sales driven leads.
- An indication of whether the sales and marketing teams are performing as well as expected or whether the sales cycle takes too long, or is inefficient.
“Companies supported with an inside sales team could see an average of 40-80% of new customers starting as a marketing lead.” – Volpe
3. Marketing Influenced Customer (MIC)
Very similar to the Marketing Originated Customer marketing metric, this figure tries to define the effect marketing had on a customer’s decision to purchase. Although harder to accurately calculate than MOC, the MIC should help the CMO arrive at a more accurate understanding of marketing influence on the customer’s purchasing journey.
As with MOC, the MIC is calculated simply by identifying how many customers had an interaction with a marketing message over a given period.
“This MIC is obviously higher than the “Originated” percentage, and for most companies I think this should be between 50% and 99%.” – The TechPanda Blog
Putting it all together
Collecting and analyzing these marketing metrics can be difficult, but the effort will pay off if they reveal ways to improve campaign success. The application of metrics is particularly important for electronic marketing communications like email and social media, to confirm that they are indeed raising revenue.
- Analyzing the Marketing Customer Acquisition Cost will help prove marketing ROI to the CFO and help justify budgetary spend.
- The Marketing Originated Customer metric helps prove the value of marketing in the customer acquisition process.
- The Marketing Influenced Customer metric helps to quantify the role of marketing in the customer decision process, giving the CMO insight into campaign and team success.