CEOs and CFOs tell me time and again that they don’t know whether or not their marketing is working.
They are frustrated with their marketing team and the ambiguity around marketing outcomes.
That happens when internal marketing teams become too focused on tactical marketing metrics when they should be leveraging strategic marketing KPIs.
KPIs, formally known as key performance indicators, assess the impact of specific activities on the top and bottom line.
When Strategic Marketing KPI’s are combined with tactical marketing metrics, marketers and senior leaders can see how their customer service, sales efforts, and marketing activities are performing, enabling leaders to adjust accordingly to achieve strategic goals.
Why Should CEOs and CFOs Care About Strategic Marketing KPIs?
As a senior leader, it’s your job to keep your thumb on the pulse of what your team is doing.
What are their objectives? What are they trying to accomplish? How are they working towards a shared goal? How are they doing? What needs to be adjusted?
These are some of the questions that Strategic Marketing KPIs can answer because they provide timely insights about your customer retention, satisfaction and acquisition activities.
You want to know what drives customer retention more so than how many impressions a post received and how much it costs to land a customer as opposed to the bounce rate of your website.
From my experience, I can say that senior leaders don’t get excited about tactical marketing metrics.
But, they do get excited about strategic marketing KPIs that can measure success and determine areas for improvement.
With that in mind, here are the four that you should be focusing on in 2020 and beyond.
4 Strategic Marketing KPIs that will tell you what you need to Know
Whether you’re a senior leader trying to push your team in the right direction or a marketing professional trying to improve your efforts, there are four strategic marketing KPIs that you should focus on.
These KPIs get down to the nitty-gritty of what’s important and remove the focus on the vanity metrics that have no bearing on your top and bottom line.
KPI #1: Customer Lifetime Value (LTV)
LTV = Profit Per Year Per Customer X Number of Years the Customer is Retained
LTV takes into account the churn rate (the rate that customers stop doing business with a company) and shows the long-term value of a customer.
I like to think that LTV is the most important metric because it gives you the information you need to understand who’s in it for the long run and who’s not. Who’s investing time and funds into your business and who’s chasing after the shiny ball.
And where you might be missing opportunities to meet and exceed customer expectations.
All of this information will help you drill down into each market segment to learn the value of different types of customers and how to tweak your marketing efforts so you can get the best return.
KPI #2: Customer Acquisition Cost (CAC)
CAC = (Sales Expense + Marketing Expense)/Number of New Customers
This strategic marketing KPI shows your cost to acquire a new customer.
Knowing this information will help you efficiently allocate your resources to acquire new customers and be profitable at the same time.
Keep in mind you can’t calculate what it’s costing you to create a lead and turn it into a client if you can’t evaluate the effectiveness of your marketing and your sales efforts.
KPI #3: LTV:CAC Ratio = LTV/CAC
In this ratio, you’re looking at the customer lifetime value and the customer acquisition cost.
It gives you insights on budgeting and ROI so you can spend effectively and get the most bang for your marketing buck.
Every marketing team is in this balancing act so this is one you’ll want to pay extra attention to.
Think of this ratio as the barometer of your efforts because it gives you valuable insight as to whether your company is positioned for sustainable growth or if you’re spending too much or too little on your marketing efforts.
When it comes to the LTV: CAC ratio, if the ratio is extremely high, that means you’re leaving money on the table and should be investing more in customer acquisition because new customers are typically highly profitable and you gain market share from the competition.
If the ratio is below or near one, that means you’re losing money on new customers or breaking even. That’s a big red flag because that trajectory is unsustainable.
Now you know when to invest and when to pull back the reins, but what’s the sweet spot?
There’s no black and white answer as the target ratio range is dependent on the industry, but I can say that it must be greater than 1:1 but certainly not 10:1.
3:1 is generally a good benchmark to strive to reach.
KPI #4: Net Promoter Score (NPS)
Promoters % – Detractors % = Net Promoter Score
NPS is a predictor of growth and asks customers two questions:
On a scale of 0-10, how likely is it that you’d recommend (insert company name) to a friend or colleague?
And a follow-up question, such as can you tell us why you gave that score?
NPS goes beyond customer satisfaction to gauge whether customers like your company enough that they’d tell their friends about it.
Today, customer satisfaction is the bare minimum while customer recommendations, reviews, and testimonials fuel growth.
The beauty of NPS is you gain real-time insights as to what your most vocal customers are thinking.
If you’re an internal marketer, you’ll want to build these four strategic marketing KPIs into your system because they’ll bring clarity to both the how and the why behind your organization’s marketing efforts and sales activities.
If you need help implementing strategic marketing KPIs that senior leaders can leverage to make better decisions that impact both the top and bottom line, contact us today.