9 Marketing Metrics Every Business Should Use

In the first quarter of 2009, total ad spend in America fell by more 10%. That was the midst of the recession. Those two things are not unrelated.

Marketing and advertising budgets are often the first things cut during tough financial times. During hard financial times, individuals cut costs on things deemed “not necessary,” and it turns out, businesses act the same way.

The reason marketing is often filed under “not necessary” is that it can be incredibly difficult to measure return on marketing spending. If you show an ad during the Super Bowl, where would you even begin when trying to attribute subsequent sales to that ad? And how about all of the non-revenue value it creates, like brand awareness?

It’s not that marketing is not valuable, it’s just incredibly difficult to quantify its value.

The good news is, we’ve been getting better and better at quantifying it. Thanks, in part, to the internet and the increased ease of attribution, but also due to the recognized need for it.

If your marketing team is struggling to quantify its value, there are a number of go-to metrics you should start measuring. It’s worth noting, there are countless metrics you can choose from, so I’ve narrowed it down to 11 that are easily generalizable regardless of your business industry.

Let’s get started.

#1: Return on Marketing Investment (ROMI)

Okay, I’m putting this metric first because if you can calculate it accurately, it’s the most important one. On its face, it’s a very simple metric and is measured by the sales growth during a marketing initiative munis the marketing costs and then divide that number by the marketing costs.

To make this less abstract, here’s an example.

Before a Google AdWords campaign, a used bookstore had sales of $4,000 per month. After the campaign, sales bumped up to $5,000 per month, making the sales growth $1,000 per month. The campaign cost $100. So, the calculation would look like this:

(($1,000 – $100) / $100) = 900%

Here comes the but:

First of all, these returns shouldn’t be expected from an AdWords campaign, this was just an example.
Second of all, this example doesn’t consider the numerous other potential moving parts that could have an effect on sales growth. This would really only work if you did everything the exact same before and during the campaign (except for the campaign, of course), and even then, it wouldn’t account for some external factors.

Changing your hours of operation, hiring a new cashier, changing the sign in the front of the store, or even HBO’s upcoming Fahrenheit 451 movie inspiring the country to start reading more could all impact your sales and throw a wrench in your ROMI calculation.

The point is, you can try to control for as many factors as possible to get an accurate ROMI number, but it’ll never be perfect. This is not to say you shouldn’t track it, but rather just be aware that it has its flaws and should be just a part of your marketing reporting and not the whole thing.

#2 Customer Acquisition Cost (CAC)

Customer acquisition cost is simply the amount of money it costs to acquire a customer. Divide all of the costs spent towards getting new customers—these are largely, though not necessarily exclusively, marketing costs—by the number of customers you’ve acquired.

Voila! You’ve got yourself your CAC.

This is a crucial metric as it tells you how effective your marketing efforts are. Generally speaking, the higher your CAC, the less efficient your marketing is.

This rule of thumb does not apply equally to every company of course. Typically, CAC is going to be higher for companies that sell things that are worth more.

And while CAC is an important metric on its own, its real value is apparent when combined with another crucial marketing metric…

#3 Customer Lifetime Value (CLV)

This is another somewhat self-explanatory one. A customer’s lifetime value is the projected revenue that a customer will generate will generate during their lifetime. You can take the average revenue generated by all of your customers and use that to tell you how much each customer (on average) is worth.

It might be obvious, but the reason this metric and CAC are so useful when combined is it can serve as a guide for how much you should be willing to spend to bring in new customers. Also, the bigger the gap between your CLV and your CAC the better (assuming the CLV is the higher number).

Kissmetrics provides a nice infographic to help explain how to calculate CLV:

++ Click Image to Enlarge ++
How To Calculate Customer Lifetime Value
Source: How To Calculate Lifetime Value

#4 Churn

Churn is as much a customer service metric as it is a marketing metric, but it’s certainly worth mentioning, as the organizations are often intertwined. Churn tracks the number of customers that you are losing and can be viewed from the total customer or total revenue perspective.

This metric isn’t going to be useful for every kind of business. It’s often used in subscription-based businesses and wouldn’t be particularly useful for, say, an e-commerce company (although e-commerce companies could use this metric to measure things like churn as it relates to an email list).

Here’s the formula for calculating customer churn:

    (Customers at beginning of month—customers at end of month*) / customers at beginning of month = customer churn rate

*The customers at the end of the month number should not include any new customers gained during that month.

You can also use different time periods to calculate this—maybe quarterly or annually.

Revenue churn functions differently from customer churn, and in many organizations, it is the more valued number. It’s a tad more complicated. Here’s the formula for calculating revenue churn:

    {[monthly recurring revenue (MRR) beginning of month – (MRR beginning of month – MRR lost during month)] – MRR in expansions} / MRR beginning of month = revenue churn

Let’s clarify this formula with an example.

Your MRR at the beginning of the month is $100,000. You lost $10,000 in MRR from customers leaving or downsizing. However, you had $20,000 in expansion revenue from people upgrading their subscriptions. That leaves you with:

    {[$100,000 – ($100,000 – $10,000)] – $20,000} / $100,000
    [($100,000 – $90,000) – $20,000] / $100,000
    -$10,000 / $100,000 = -10%

As you can see, in this example, we’ve come out with negative churn. This is a good thing. Since expansion revenue outweighed the revenue lost, you’ve got negative churn, signifying a growing business.

If there was only $5,000 in expansion revenue, your churn would be at 5%, which would be an issue.

The reason revenue churn is often more valued than customer churn is it accounts for customer size. You can lose five customers, but if they’re your smallest customers, it may not be all that big a deal.

#5 Take Rate

The take rate is a very simple metric that does an great job of measuring the effectiveness of a particular campaign. Put simply, it is the percentage of people you contacted who accept an offer.

We can look at a practical example of deriving this metric by looking at when auto mechanics leave fliers under windshields.

Let’s say a mechanic printed 1,000 flyers advertising a deal for a discounted oil change and left all of them on cars. 25 people come in with the flier to get the discounted oil change. This means, of the 1,000 people contacted, 25 accepted the offer, making the take rate 2.5%.

You can then use the take rate to measure CAC for a specific campaign. If the fliers cost $.25 each, the cost of the campaign was $250. Since 25 people became customers, you can divide $250 by 25 to get your CAC for this campaign of $10.

#6 The Test-Drive

In Mark Jeffery’s book Data Driven Marketing: The 15 Metrics Everyone in Marketing Should Know, Jeffery outlines the story of a Porsche ad campaign during the peak (or valley) of the recession. In 2009, the luxury car company delivered “more than 241 million online display impressions and 17 million in print” aimed at getting potential customers to take a test-drive.

Given the state of the economy, many met this campaign with pessimism, especially considering the primary call-to-action was to just test-drive the car and had nothing to do with buying it.

Soon, however, dealers changed their tune, as they were making sales they wouldn’t have under ordinary circumstances. They realized how crucial marketing for a test-drive was.

The test-drive metric is simply of the people who take a test drive (or trial whatever your product is), how many make a purchase. If you give 100 test-drives and 20 people make a purchase, your test-drive conversion rate is 20%.

Once you know your test-drive conversion rate, you can more easily predict total conversions when marketing for a test-drive, or free trial.

#7 Transaction Conversion Rate (TCR)

People often look at traffic and clicks when evaluating the success of their website. Nobody would be wrong to use those metrics, but unless it’s for a website that makes the lion’s share of its revenue from advertising, those numbers leave a lot to be desired.

If you’re bringing people to your site with the hopes of selling them something, it doesn’t matter how much traffic you generate if nobody is buying. You could have a million unique visitors per month, but if 0% of those million result in a transactional conversion, you might as well pack up your things and go home.

This is why your transaction conversion rate is so important. It’s easily calculated as the percentage of customers who purchase after clicking through to your website. So if you get 100 visitors, and 10 of those visitors make a purchase, you have a 10% TCR.

It’s hard to say what a good TCR is because it really depends on your industry and what your selling. However, by knowing what your TCR is, it becomes much easier to predict the value of a marketing campaign.

#8 Customer Satisfaction (CSAT)

These last two metrics are a little different from the first seven because they’re much more difficult to measure and sometimes rely on things like surveys.

CSAT is a measure of how likely a customer is likely to become a product evangelist and help you sell by recommending your product to a friend. CSAT is derived from surveying customers and the question behind it is “how likely would you be to recommend [product] to a friend or colleague?” You might also know this metric as the Net Promoter Score.

We all know the value of word-of-mouth, so it’s no surprise that the higher this score, the better. However, obtaining this metric is a little tougher than the others. You can’t just look at a spreadsheet, make a calculation and have your answer.

Getting your CSAT score means actively surveying customers, but if you can do it well, you can get valuable insights about future sales, as well as identify trends. If your CSAT score is trending upward, good news, you’re doing well. If it’s trending down, you need to identify the problem and find a solution.

#9 Brand Equity

I don’t think there are too many people out there who would question the value of a strong brand, but you might find a fair amount of people who are skeptical about measuring the power of a brand.

Their skepticism is not unfounded. Measuring brand equity is very difficult, but not impossible.

To drive home the point that brands matter, Mark Jeffery, in his book, takes a look at water.

“Pure water is an odorless, tasteless liquid made from molecules of two hydrogen atoms and one oxygen atom,” he writes. “So why spend $2 a bottle for the brand and not 25 cents for the generic grocery store brand when the products are identical?”

Right now you might be shouting that Dasani is different from Aquafina. This just demonstrates the power of a brand.

But how do you measure a brand? Well, there are several ways to do it.

One way to do it is to subtract all the tangible assets of a business from the total market valuation of the business. The remaining value is the brand. This is probably the most black and white measurement, but it’s unreliable because it relies on so many approximations and assumptions.

The other approach is to use surveys.

Brand equity surveys are simple but can be laborious. They’re often based on two questions (with several follow-ups meant to refine the answers depending on the product/industry).

  • Question 1: “For [category of product], what is the first [product or company] name you think of?”
  • Question 2: “For [category of product], what other [companies or products] have you heard of?”

Again, these two questions are a great jumping off point, but they are not the finish line. Other questions like “How much more would you be willing to pay for [brand x] than [brand y]?” can help you refine your brand equity.

Conclusion: Using Key Marketing Metrics

Remember, there is no magic bullet when it comes to measuring the success of your marketing campaigns, but that’s no reason not to do it. By using a combination of different metrics, you can get a good view of not only the success of individual tactics but also a holistic view of your overall marketing performance.

By: Kevin Armstrong |  May 17, 2018

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Meet the Woman Who’s Boosting Arizona’s Mom-and-Pop Business Culture

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Kimber Lanning stands at just 5 feet 1 inch. But in the Arizona economic landscape where she acts as a fierce advocate for local economies, she is a giant.

In 2003, Lanning started Local First Arizona. She was the only employee, and didn’t take any salary. Now, with 3,200 members, it is the largest coalition of local businesses in the country. The coalition’s staff of 24 manages programs ranging from an annual local business fall festival to the state’s first directory of locally grown food to a program in Spanish for micro-entrepreneurs.

“I saw how unfair the competition is for local businesses.”

Lanning is widely recognized for her work. Even though she finds traditional economic development planners to be frequent adversaries, in 2014 the International Economic Development Council awarded her a Citizen Leader of the Year Award. She considers that a turning point in planners’ recognition of the value of local businesses. Arizona Business Magazine named her one of the 50 most influential women in Arizona, and the American Planning Association named her Distinguished Citizen Planner for her work on the reuse of old buildings.

In November, at a conference of the nonprofit Business Alliance for Local Living Economies, for which Lanning is an incoming co-chair, Lanning told me of the sources of her passion for local business.

Fran Korten: Kimber, what propelled you to start Local First Arizona?

Kimber Lanning: I was angry. I wanted to expose the horrible subsidies being given to big corporate chains. I own a record store that I started when I was 19. And I saw how unfair the competition is for local businesses. For example, in Glendale, Cabela’s got a $68 million subsidy. Bass Pro got $32 million. And I began to see the fallout. You’d read that Bass Pro is to create 160 jobs. Yet, I’m going over to Lorada’s Army Surplus and they’re closing. They say the city just took the income tax, the property tax, the sales tax that they’ve been paying for the 30 years and incentivized the competition to put them out of business. So I wanted to level the playing field for locally owned businesses.

I also wanted to strengthen people’s connection to place. In Arizona, a lot of people have moved here from Chicago. They are always talking about how great Chicago is. So I asked people why they love Chicago. They would say, “In my old neighborhood, I knew all the store owners.” One guy said, “I had the same barber for 40 years, and I come out here to Phoenix and all you guys have is Supercuts.” And I said, “This is so unfair. You give me 20 minutes and I’ll find you 20 barbers.” And he said “Really? Where?”

So I realized I’ve got to introduce these people to my world and the rich culture we have amongst the locally owned businesses. In Phoenix I put together a fall festival where I had all these businesses in one place. We are so geographically spread out that you never see them in one place. Put them all together and people started to go, “Wow. There is some cool stuff going on right here.”

“Don’t support mom-and-pop because mom and pop need you—support them because you want your children to have a job.”

Korten: You make the connection between buying local and having a thriving local culture and economy. Do you think other people see that?

Lanning: Generally they don’t. One of my mentors, Eddie Basha, told me this story. He owned a group of local grocery stores. The husband of a couple who were long-time customers died. Eddie called the widow and offered to provide all the food for the service. She was incredibly grateful. But he also told her, “I can’t bring the drinks.” And she said, “Oh, don’t worry, I’ll pick up the drinks at Costco.” When I tell that story, people in the audience gasp because they’ve done exactly that. We’re so disconnected from how the economy works that we believe we can put money into these big corporate entities and our friends who donate food when your husband passes away will survive and be there for you. And I’m here to tell you that they won’t.

Korten: After the Trump election, a lot of people are paying more attention to jobs in rural areas. You’re based in Phoenix. How does Local First Arizona work in rural areas?

Lanning: Rural towns have massive economic leakage. Amazon is the biggest threat facing rural America. People in rural communities tend to either buy online or travel to Tucson or Phoenix to spend their money. They don’t connect that to the fact that the town can no longer balance the budget because they don’t have sales tax revenue coming in and the storefronts are boarded up. You know, the jobs they lose aren’t just baristas. It’s the graphic designer, the payroll service provider, the accountant. Those jobs go away when you lose local businesses. I always tell people, don’t support mom-and-pop because mom and pop need you—support them because you want your children to have a job.

At Local First Arizona we make sure that these local businesses have the tools and resources they need to compete. One program we do is Mythbusters. People in rural areas will tell you, “I can’t buy this here.” So we reintroduce them to their town, showing what they can buy locally. And we dispel the myths about how expensive it is. I had a guy just barely hanging on, selling appliances in the town of Ajo. Everybody said he’s too expensive. They go buy in Tucson, which is two hours away. So I compared his prices with those in Tucson. Sure enough he was more expensive. But I factored in my gas to get to Tucson and back and the fact that, say, for a washing machine, I’d have to get a trailer to bring it home. And I’d have to pay somebody to haul away my old one, whereas he would do that for free. You stack those up and he was actually cheaper. After our Mythbusters program, his business is up significantly.

Korten: Arizona has a lot of Latinos. How do you reach them with your programs?

Lanning: Our Fuerza Local program is a six-month business accelerator program taught in Spanish. We help Latino micro-entrepreneurs strengthen their businesses.

Korten: What’s an example of a business you have helped with that program?

Lanning: We have many remarkable examples. We had a wedding cake baker whose business was all word of mouth. She had no marketing and no formal contracts. She had been sold three kinds of insurance that she didn’t need and was paying 48 percent interest on her loans. She had no health permit, no business permit. She was just a great baker. People would ask her to bake their wedding cake. She would quote, say, $500. But she’d go to deliver the cake and they would say, “We’re sorry. We only have $275.” So she would leave the cake and just feel sad.

After graduating from our Fuerza Local program, she enrolled in a credit union where she got a 6 percent interest loan and paid off all of her bad loans. We got her the right kind of insurance. GoDaddy donated a website. We got her up on Facebook and helped her develop contracts. I remember her face when I explained that she needed to ask for 50 percent down when a customer placed the order. She said, “I can’t do that.” I said, “Don’t bake a thing until you’ve got 50 percent in your hands.” Now, three and a half years later, she’s in a commercial kitchen. She has six full-time employees and she has a contract with Bashas’, the biggest locally owned grocery store.

“Both the millennials and the baby boomers are speaking loudly with their wallets.”

Korten: Does anyone oppose your work in building up local businesses?

Lanning: Absolutely. One group is the traditional economic developers. Their whole mission is creating jobs by giving away massive corporate subsidies. Just like everybody’s jockeying for Amazon right now.

But that’s changing. In 2014 the International Economic Development Council awarded me a Citizen Leader of the Year Award. That was an acknowledgement that local economy work is important. Now they’re bringing in more people at their conference who are talking about a new way of doing economic development.

Korten: Who are your biggest supporters?

Lanning: Local businesses, of course. Moms who care about healthy food and the future for their children. Young people who want to make change in the world. They are jumping in with both feet because they don’t like the way the corporations are treating the world. But they exempt Amazon from their concern with big corporations because they like the convenience.

Both the millennials and the baby boomers are speaking loudly with their wallets. Generally they want to place relationships first. They also want a unique experience. They may not be thinking about voting with their dollars, but you look at a comparison of craft beer versus Budweiser sales and you will see that people are voting for something unique. So when you ask who is with us, it’s the people who are choosing relationships.

I believe the American public is being divided into two camps—one that prioritizes convenience, the other that prioritizes relationships. The latter is something the media never anticipated. They were beating the death drum for local independent businesses. But local businesses are climbing back. More record stores opened in the last two years than opened in the 20 years before that; more bookstores have opened; more independent coffee shops have opened than Starbucks branches.

“People can see that the dominant system is failing them and their families.”

Korten: Do you feel that local businesses advance sustainability and justice?

Lanning: I think local business owners inherently care more about the community than a nonlocal corporation that’s answering to shareholders who don’t live in the community. They’re more likely to care about long-term sustainability because it impacts their children.

Sometimes sustainability and justice are baked right into the programs that support local businesses. Take our program to repurpose old buildings. There’s nothing greener than keeping an old building rather than tearing it down and building a new one. There’s a study called “Older, Smaller Better,” which demonstrates that communities that preserve their older building stock have more jobs per block. They support more businesses owned by people of color. They provide a unique sense of place. They are vital incubator spaces for small businesses. People say we want more entrepreneurs, but then they mow down the older buildings and put in big ones where there’s no place for entrepreneurs. With the cities of Phoenix and Tucson, we’ve streamlined the process for a new business to open in an older building. Phoenix has the most progressive adaptive reuse program in the country. We have about 85 new businesses right in our city center to show for it.

Korten: How did you get the city to keep the old buildings?

Lanning: I just said if we don’t protect our older buildings that usher in entrepreneurs and create a unique sense of place, we’re not going to be competitive. That word “competitive” makes my conservative audiences sit up and listen.

One issue we had to deal with in order to keep the old buildings was the requirement that stores have ADA accessible bathrooms. If you put bathrooms in each of these small stores, it would take up a third of the floor space. I said why can’t we do a district bathroom so the building owner only has to put in one set? I got the attorneys who defend the Americans with Disabilities Act to come to the city council and agree on that solution. With this change and other new policies, we’ve saved countless buildings and made it easier for lots of new businesses to get their doors open.

Korten: You have a passion for local businesses. Do you think it’s possible to reach new audiences with this perspective?

Lanning: Yes. People can see that the dominant system is failing them and their families. And it’s failing the Earth. They’re looking for something that they can really put their shoulder behind.

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