Jargon buster and the complete guide to 14 marketing metrics
Data-driven marketing is awash with jargon – acronyms and terms are banded about without a common understanding of exactly how they were calculated and what they really mean. The danger is that, while the intent of the metric is understood, the specifics aren’t and this can clearly compromise decision-making and the delivery of marketing objectives.
So here are 18 common marketing metrics and a practical, marketing-led definition of each
The headline number for all marketing performance, return on investment (ROI) looks at the ratio between incremental value and the costs (spend) incurred to deliver these sales.
Incremental value is normally sales (turnover) or gross profit. And ROI is normally express as a percentage or a ratio. Let’s say you deliver £3 of incremental sales for every £1 of additional spend. This would mean an ROI of 300% or of 3:1.
Exactly the same as ROI but marketing specific, return on marketing investment seeks to isolate the effect of marketing activities. ROMI can be hard to quantify. In a connected world, consumers have multiple touch points and it can be hard to isolate the effect of each. And some channels, like TV, may not have a direct response. Techniques such as econometrics and market mix modelling can enable this. But just because something is hard doesn’t mean that it shouldn’t be attempted. ROMI is essential for marketing accountability.
Retention or attrition rate
The percentage of customers who remain active in a given time period. Retention rate is a key indicator of customer loyalty and underlying business health. The time period will depend on the type of business; as will ‘active’ – it could mean transacting, consuming or considering.
The percentage of prospects who are communicated with that convert into customers in a given time period.
As mentioned in ROI, given the multitude of consumer touch points, the likelihood that many will be touched in the course of a relationship between brand and consumer. So how do you attribute value to each touchpoint in covering or retaining a customer?
Attribution is a technique that seeks to attribute value to each touchpoint, normally only digital touch points and normally only for customer acquisition. It’s achieved by dropping cookies onto devices and then merging the history at the point that a prospect converts.
A quick example – I click on a banner ad and read some information about a new product; I think about it for 24 hours and then Google the product’s name and buy. 2 touch points, 1 sale and from a ROI-perspective how do I allocate the value of the sale?
There are many approaches to attribution including last-click. This is a great blog by Avinash Kaushik on the topic.
Frequency, Reach and Yield are a powerful combination of customer levers that should form the basis of your marketing KPIs.
Frequency: How often a customer visits or transacts with you.
Reach: How many customers you have. This can also be broadened to consider volumes across your whole sales funnel (i.e. the number of suspects, prospects, leads, customers that you have)
Yield: The amount that you customers spend with you on each visit. This can also be called ATV (average transaction value) or AOV (average order value).
Customer lifetime value
Abbreviated to CLV or CLTV, it’s a simple concept that looks at the value that a customer contributes over the length of their relationship with your brand.
You can find out how to calculate CLTV here.
This can be a key metric to allocate your marketing budget against and to measure whether your marketing activities are increasing the value over time.
RFV stands for Recency, Frequency and Value and is a way of segmenting your customer base. Commonly shown as a cube or scatterplot, RFV can be a great way to show the change in your customer base (if you compare year on year), deciding where you want to ivest your budget and setting marketing objectives for each segment.
RFV is also sometimes referred to as RFM. The ‘M’ is for margin so it just uses margin as the measure of value rather than, say, sales.
This is how long you have had a transactional relationship with a customer – so how long since they converted. It can be particularly powerful when combined with RFV.
CPA, CPM & CPC
CPA: Cost per Acquisition. A simple metric that looks at the average cost to acquire a new customer. It becomes a powerful marketing metrics when you split it by communication channel or customer segment. But it shouldn’t be used in isolation. A high CPA in one channel might be a worthwhile investment if it delivers ‘better’ customers with higher lifetime value.
CPM: Cost per Member. This relates to a loyalty programme and the costs required to serve a member of the programme. It links to ROI and to a cost benefit analysis.
CPC: Beware of the context as this can have 2 meanings. Cost per click. We’re back to digital advertising and the cost incurred to get someone to interact with your campaign. It’s simply a function of your campaign spend and the volume of clicks or click-throughs that you achieved. If you advertise with Google, Twitter or LinkedIn then this will be a prominent metric but it can also be used for in email marketing. Cost per conversion. Essentially the same as CPA.
A meaningless metric if considered in isolation – perhaps the ultimate vanity metric? This counts the number of people who had the opportunity to see your online advertising. It’s meaningless as it counts anyone who could have been exposed to your advertising not whether they interacted.
It becomes a little more meaningful if combined with other metrics – for example, by looking at the ratio between impressions and conversions and cost you can identify which advertising is most efficient.
This looks at the proportion of customers who redeem a particular offer or incentive. It should be a key input into how you plan your customer marketing budget.