Key Metrics for Determining Your Marketing ROI
Any marketing head can attest to this: budget season is easily one of the most challenging. Even after submitting your quarterly or yearly plan, you’re likely to get approval for half or less than half of your estimated budget.
Regardless, you can still work with your allocation while ensuring accountability. This requires a detailed analysis of your processes and monitoring key metrics. You have to know what worked well and what did not in the past quarter or year.
Additionally, you have to identify the source of your most valuable leads—whether you’re using social media, media placements, events, or list buys. More importantly, it’s vital to determine the cost of generating such leads.
With that in mind, here are the metrics you need to track and review over time to understand your ROI and make budget plans.
1) Cost Per Lead (CPL)
Generally, campaigns tend to be “noisy” and cluttered—you receive lots of responses from people and parties that actually don’t purchase your products. Examples include competitors, analysts, integrators, partners, and distributors.
It’s your responsibility to separate the chaff from the valuable data—this is known as “ground shrinkage.” Now, this becomes the basis of determining your cost per lead (Cost of the effort ÷ (gross inquiry quantity - non-prospects) = cost per lead).
You also need to analyze the entire lifecycle of individual marketing activities. Marketing activities such as trade show involvement tend to have high initial costs, but low conversion costs. Other activities, such as campaign banner ads and emails, may have low initial costs, but high conversion costs.
That said, take the time to examine your initial cost per lead against the cost and margins of your sales. You must determine whether your customer lifetime value (CLV) justifies your initial outlay.
2) Cost Per Opportunity (CPO)
CPO is important in determining the performance of your sales and marketing efforts. While reviewing this cost, it’s vital to note that not all leads convert to sales-ready opportunities. There are several reasons for failed lead conversions, but the quality of your captured leads doesn’t depreciate in any way.
As part of CPO tracking, you have to look at the number of touches it takes to make a sale. The fewer, the better. Be sure to identify incremental touches and low-cost touches, which you can easily move down the sales funnel. Most marketers use marketing automation systems to do this.
However, using CRM and marketing automation in tracking will likely complicate the process. In this case, you have to be keen on retaining the original campaign source code to determine a cost per sales opportunity, which is vital in pushing leads into the hands of sales.
Still, you have to track the created opportunities through the sales process using a CRM tool like SalesForce. Your sales teams should also provide updates and feedback to ensure a successful closing.
3) Cost Per Sale (CPS)
Also known as pay per sale, cost per sale is the amount you spend for every sale generated by your campaign (CPS = total cost/sum of sales). Understanding and tracking this cost helps identify opportunities for reducing it, thus optimizing productivity and improving revenues.
While calculating cost per sale, you must consider all aspects of the campaign, including customer service, sales commission, and conversion costs. Remember that you’re likely to encounter skewed results during the calculations. This is usually the case when a customer clicks a link but doesn’t buy immediately--only to buy much later after the campaign ends.
Regardless, you need to focus on the results of the campaign period to get your CPS. This is a pivotal step to finding ways of lowering the cost and protecting your bottom line.
Holy Grail of Marketing
Determining your cost per lead, cost per opportunity, and cost per sale is basically the holy grail of marketing. You’ll need to track your marketing campaigns and leverage repeatable tactics to monitor these metrics.
It’s advisable to establish these cost baselines and test them using recommended practices to protect your bottom line. Once you have monetized your marketing effort, it will be easier to buy your desired number of opportunities. This will make your investment and outcomes predictable while giving upper management optimal visibility into what to expect.
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