Turn Your Company’s Notion of Marketing Metrics On Its Side
Most companies take too narrow of a view when determining how to measure marketing return on investment (ROI). This leads to more battles between marketing and finance than necessary. For marketers, it can feel like a non-stop war to justify their very existence.
It’s not that marketing ROI measurement is a bad discipline. This isn’t one of those articles that absolves marketers of financial responsibility.
Marketers should measure everything they do. But measuring ROI solely on a campaign-by-campaign basis ignores several long-accepted, powerful marketing ROI measures that are equally as important, if not more so. Many of them were first postulated in the late 1990’s by 1:1 marketing innovators Don Peppers and Martha Rogers. These under-utilized metrics are more relevant than ever given our increased ability to track them.
Lifetime Value (LTV ) Underscores Marketing’s Key Role
Every time a marketing initiative, campaign or strategy helps close some deals, it provides your company with more than just some immediate revenue. Every sale to a customer increases their likelihood of buying more from your company in the future. That. is, if you don’t mess it up through bad service or other bad corporate practices.
The sum total of the expected future profits from a customer is called Lifetime Value (LTV). Marketing analytics packages, like Marketo Engage and many others, make it easier than ever to measure LTV.
However, we’ve seen many B2Bs using campaign revenues only rather than also including LTV earned as the numerator in their marketing ROI metrics. Why?
LTV is often not measured because it can expose a couple of flaws in how a company is behaving internally. Decreases in LTV could shine the spotlight on bad service and operational difficulties.
Slow-growth or declines in LTV could point out that a company is operating in divisional silos. This misses the obvious cross-selling opportunities that almost always exist in multi-divisional companies.
Being the ones to connect these silos on behalf of the customer represents a huge value stream that marketers can uncover for their company. Now, instead of being thought of as simply “lead generators” or “collateral developers”, marketing becomes a more strategic function within the organization.
But all of this is just the tip of the iceberg when you take a broader view of marketing metrics.
How Measuring Potential Value Accelerates Revenues
The same analytics packages that measure LTV can, with a few extra inputs, measure potential value. This represents the amounts that your customers spend across all competitors in your company’s product categories.
You already know how much they spend with you—call this their actual value. The ratio of potential value to actual value is known as your share of customer (SOC).
Knowing your share of customer is powerful. It points out which clients you cannot afford to lose. It can also highlight those customers that are unprofitable to serve, even if you had 100% of their share of customer. Some companies find big wins simply by reducing service to these unprofitable accounts.
But the biggest opportunity lies in your low share customers with high potential value. Peppers and Rogers Group called these your most growable customers (MGCs). Finding them and accelerating the star treatment that you provide them can lead to an immediate revenue boost for your company.
It’s like an airline with superior frequent flier perks finding out you fly 500,000 miles a year (potential value) but only about 10,000 (actual value) with them. They offer to immediately enroll you in their top-level awards tier, in exchange for more of your business. You switch because the overall value proposition is immediately worth it—you would have to wait years to earn the rewards.
You don’t have to have an airline-like perks program to take advantage of this strategy. Just look at the things you do for your biggest revenue clients that they value most, and figure out how to provide them to your high strategic value clients in exchange for more business.
Concepts like LTV and potential value shift the discussion of marketing ROI in wholly-new directions. So how do you begin to get your company to embrace these metrics?
How to Shift the Marketing ROI Discussion
It’s not a bad thing that these concepts require marketing to play a much bigger role cross-functionally than they do in many companies today. They will lead marketers to be more active in service and operational delivery discussions and become advocates of silo-busting across divisions.
You can successfully take these big steps, but they often start with some baby steps first. You could design a pilot project to simply begin measuring LTV and potential value metrics for a segment of customers.
This simple act of measuring in a new way typically uncovers some pretty obvious strategies. Clear opportunities for improving service, accelerating the benefits of high-potential customers, and/or cross-selling will appear.
The best place to focus early is on most growable customer (MGC) strategies. They typically lead to eye-popping revenue increases and big wins.
All of these strategies shift the marketing ROI discussion towards a broader perspective. This is significant for marketers and for their organization’s bottom-line.
But review all of these suggestions and you’ll realize another constituency that benefits from them: customers. From better service to accelerated benefits to smarter cross-sell suggestions, these approaches work because they are ultimately very customer-centric.
Marketers who are successful at getting their organizations to consider and use these broader metrics, in addition to the traditional ones, feel that they no longer have to fight to justify their very existence, campaign-by-campaign. They can spend more of their time and energy doing what they are optimally positioned in the organization to do — orchestrate company strategy.