Key performance indicators to demonstrate the role of marketing in driving revenue.
As a marketing leader it’s your job to demonstrate the value of your department in driving revenue and value to the business.
Steering the marketing ship isn’t easy, but you can succeed by working with the right key performance indicators (KPIs).
Here, we’ll look at the importance of key performance indicators and go over the five essential top-level marketing KPIs you should track as a department leader.
Let’s get started.
Shifting the perception of marketing
One of the biggest challenges of being a marketing leader is shifting the perception of your department from a cost centre to a revenue generator.
Many stakeholders and business leaders feel that marketing is a money pit and, as such, getting senior buy-in for strategies or campaigns can be a struggle.
To change the perception of marketing, you’ve got to demonstrate a good ROI—or you won’t get a decent budget.
When you create a quantifiable sense of accountability and transparency, your marketing department will be seen as a revenue-generating partner and an invaluable pillar of the business that transcends brand awareness and lead generation.
The 5 essential marketing KPIs
KPIs will empower you to spot trends, measure your performance, and prove your worth as a marketing leader and as a marketing organisation. Here are the five essential KPIs that your CEO really cares about:
Marketing contribution to revenue
This KPI focuses on where marketing is focusing its money. It positions the department as a profit generator rather than just a cost centre.
This balanced revenue-based KPI shows the department’s value and accountability and is split into two pillars—sourced (new business driven by marketing efforts) and influenced (an indicator that marketing has nurtured the prospect at some point during the sales process).
To track this KPI successfully, it’s important to look at where marketing is focusing its time, money, and resources while considering your company’s business model. Doing so will empower you to decide whether to place your primary focus on sourced efforts, influenced efforts, or a mix of the two.
Marketing return on investment (ROI)
Measuring and proving your department’s return on investment is key to your department’s growth and success. It will influence the operational and budgetary support you get from above. Here are two ROI-based marketing KPIs that will help you do just that.
A holistic marketing quantifier, strategic ROI looks at the activities your department has invested in and the financial resources that have been delivered on the back of those investments. It’s possible to analyse strategic ROI on a product, regional, or business unit level.
A more tactical KPI, attribution ROI drills down into the campaign activities that are directly contributing to your business’s pipeline and revenue. By tracking this metric consistently, you can gauge whether to run your activities again or whether your initiatives need improvements to earn a healthier ROI.
You should track both strategic and attribution metrics to gain a balanced view of your marketing department’s overall organisational impact.
Customer acquisition cost (CAC)
The CAC metric offers a clear-cut insight into how much it costs to convert a potential lead into a new customer.
The reason this is vital from a marketing perspective is that it legitimises your profitability as well as how efficient you are at attracting new customers.
Your aim here is to drive down your CAC over time, considering costs such as sales and marketing campaign assets, paid advertising spend, team salaries, commission and bonuses, talent outsourcing, and creative or operational costs.
To calculate your CAC, you need to divide your overall sales and marketing costs by the new customers you’ve gained over a certain period.
You can measure your CAC on a monthly, quarterly, or annual basis and drill down into the marketing-only spend to calculate your department’s percentage. By doing so, you will gain a snapshot of how you’re investing your efforts and whether they’re working for the business.
This will help you make accurate tweaks or changes that will optimise your marketing CAC and provide extra value to the business.
Customer lifetime value (CLV)
CLV offers a reliable indication of a particular customer or client’s value during their relationship with your business. Here’s how it’s calculated:
This is important, as you can link it to your CAC to guide your spending or investments in sales, marketing, and customer service. Your CLV and CAC ratio combined will help you make more informed and efficient marketing and business decisions.
By analysing your CLV consistently, you can identify segments of customers that aren’t currently driving revenue or being profitable for your business. As a result, you will be able to focus your marketing spend and efforts on the segments of your audience that really count, reducing unnecessary costs and driving more revenue.
You should aim for a CLV:CAC ratio of 3:1 or, in other words, the value of your customer should be three times the cost of acquiring them.
Customer sentiment or Net Promoter Score (NPS)
By asking your customers how likely they are to recommend your company to others on a scale of 0-10, you can see how well your business is performing in the eyes of your customers. Customer sentiment is split into three categories:
Detractors: customers that scored you 0 – 6. Unsatisfied.
Passives: customers that scored you 7 or 8. Neutral or apathetic.
Promotors: customers that scored you 9 or 10. Repeat customers and brand advocates.
To calculate your NPS score, you should subtract your percentage of promoters from your percentage of detractors.
By tracking your NPS consistently over time, you will gain a panoramic view of how successful your marketing activities (and all customer engaging activities) are at meeting the needs of your customers while understanding what you need to do to improve your efforts.
Your NPS score will also reveal your most loyal customers, allowing you to create campaigns that will further boost their value and drive advocacy.