A metric is a system of measurement that quantifies a trend, characteristic or dynamic. Marketing metrics refers to statistical procedures that companies use to review their effectiveness of their institutional marketing and advertising determinations. The metrics vary depending on the type and size of the campaigns a company uses in marketing and the goals of the company in a categorized market campaign (Mcdonald 2007). In relation to financial information, marketing metrics emphases on; return investment of marketing campaigns, through a comparison of the costs of metrics and the return in business. However, other metrics focuses on how smart marketing campaign will create the company awareness and its brand, the number of new customers attracted and the number of old customers retained. Indeed, companies spend valuable amount of time making marketing budgets since they concede that the business can only if the potential customers are aware of its existence and the products and services they offer in the market.
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Meanwhile, considerable financial and time resources are spent on the marketing campaigns, inefficiencies in the highlighted efforts can eventually cripple to the company’s fortunes. For this reason, the companies have to formulate standards to assist them judge the effectiveness of the strategies used in marketing. Globally, the companies use marketing metrics tools to accomplish their product and service awareness tasks (Olibe 2007). Similarly, most marketing metrics is formulated for a definite objective in relation to a specific awareness campaign. For instance, a car company may desire an increase in 20% sales on a specific brand and conducts a fresh marketing and advertising campaign to realize the desired results. At the end of the allocated campaign period, the company can finally look at the costs versus sales figures to determine if they reached the targeted goal.
Contrastingly, a marketing metrics financial approach focuses on return on investment of a given marketing campaign. Return on investment is calculated by subtracting the total cost of implementation from total revenue generated from a specific campaign. The resultant figure is then expressed as a percentage of campaign cost by division. For instance, a marketing initiative that produces a net of $ 100 US Dollars of revenue after an implementation cost of $1, 000 USD, would result into a return on investment of 10%. Other marketing metrics devices are used to study the marketing strategy effectiveness. However, the metrics may be specific to the campaign used. For instance, an email blast that uses the response from the customers may be evaluated by the response of the customers received. Such metrics focus on the company’s consumer base both in terms of the old customers retained and the new customers attracted.
Commonly used marketing metrics
Return on Market Investment (ROMI)
It assists marketers to measure activities and their performance across the mix of marketing. Return on market investment measures the degree to which the spending in the market finally becomes profitable for the business.
How Return on Market Investment Works
Return on market investment refers to marketing contribution attributable to marketing divided by marketing invested. The process is based on calculations:
[Incremental Revenue Attributable to Marketing × Contribution Margin (%) –
Marketing Spending]/Marketing Spending ($)
There are two major forms of ROMI metric: long-term ROMI and short term ROMI.
Short Term ROMI- measures revenue such as contribution margin and market share for every dollar spent on marketing. It gets best applied for the determination of steer investments and marketing effectiveness from less profitable to more profitable activities (Refenes 1995).
Long- term ROMI– used to determine less tangible marketing aspects effectiveness. For example, consumer motives and increased brand awareness. However, long-term ROMI creates brand challenges for the products that are unfamiliar with the use of analytical marketing and analytical business used to determine the decisions on the allocation of resources. Despite the challenge, it can be sophisticated procedure for measuring of investment priority and market allocation within the established networks.
According to this analysis, this numerical marketing metric tool looks at the total cost of marketing, costs spent on salaries of the marketing team, overhead and other programs. When the resultant figure is related to the cost of customer acquisition, the figures are always taken care of the costs. Despite the advantages of using ROMI, its overreliance can make the company have an illusion that other marketing metrics is less valuable (Malhotra 2005). However, other metrics can as well show and reveal how the information from the market works and feed the business with the necessary information.
Customer Acquisition Cost (CAC)
This refers to the total marketing and sales cost, it is determined by adding up all the advertising or product spent, plus commissions and bonuses, plus salaries, plus overhead in a given period. The resultant figure is further divided by the number of newly recruited customers in the same period indicated (Refenes 1995). The period could be a year, a month or quarterly. For instance, if a company spends $ 300, 000 on marketing and sales in one month and recruited 30 customers in the same period, the company’s customer acquisition cost is $ 10, 000. However, the procedure is extremely dependent on the industry and price point. This may make some industries that are shy of taking great business risks backing off from this marketing metric tool.
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
According to Malhotra (2005), this tool is used to compare the cost spent to acquire the new customers. The tool is suitable for companies that have recurrent revenue streaming from the customers or for customers who make repeated purchase of the products. LTV is computed by subtracting the gross margin from the amount the customers pays in a period and finally divide by churn % (Cancellation rate) for the very customer. However, for a customer who pays $100,000 annually, with the gross margin of revenue 70%, and that the customer is the type that will cancel at 16% annually, then the LTV is $437,500.
Now, after calculating the LTV and the CAC, the following procedure is to compute for the two by finding the ratio LTV: CAC. For instance, It costs $ 100, 000 to acquire a customer, and that the LTV is $ 437, 500, and then LTV: CAC will be 4.4:1. Most marketing technicians admit that the ratio should be higher than 3× asserts (Malhotra 2005); however, a higher ratio means the company’s marketing and sales have a higher return on investment. Though, higher ratio is not better because when the ratio is extremely high, the company might be tempted to spend more money on marketing and sales for faster growth. This may be because, the company is reinstating its growth by under spending thus may lose the competitive edge. For this reason, most companies use the LTV- CAC ratio to assess the revenue per customer, employee and growth in market share. It also helps the company identify the areas of financial waste that has no value to the customer.
Time To Pay Back CAC
This refers to the number of months or years a company may take to earn back the Customer acquisition cost spent to recruit new customers. It is calculated by dividing the Customer acquisition cost by margin adjusted revenue per a given period for the newly added customer. The resultant number will be the amount of time taken to pay back. For industries where the customers may pay single upfront time, this metric may be irrelevant since the upfront should be greater than the Customer acquisition cost. Rather, the company may be losing financial resources on the customer. Contrastingly, in case the customer pays annual or monthly fees, the payback time should be strictly twelve months. This means that the company is becoming profitable on the newly singed customer just by the first year, and finally the company starts making money.
In this marketing metric, below six months it may mean that the company is under investing in marketing and sales. From 9- 18 months sales and marketing are at reasonable point and over 18 months there is a problem with sales and marketing of the company. The companies usually limit the use of time to pay back due to its inconsistency.
Marketing Originated Customer
This is a metric ratio that shows the percentage of the business driven purely by marketing. To compute for this ratio, use the newly signed customers in a given period and evaluate the percentage of the customers that started with the marketing generated lead. It is a simple procedure to adopt if the company has a closed loop marketing system of analysis.
The advantage of this metric method is that is shows directly the proportion of the overall customer acquired that originated from the marketing procedures. Additionally, the metric marketing is often higher than the sales (Olibe 2007). The percentage, however, may vary from one company to the other. For companies that possess a sales team assisted by the company’s inside sales and with cold callers, the percentage might be small, for instance, 20- 40 %; however, for a company using inside sales team and supported by lead generation resulting from marketing, the percentage might be approximately 40% – 80 %. Finally, for a company with human fewer sales, the percentage might be 70% – 95%. In addition, the percentage can also be computed using revenue depending on how the company prefers to view the business.
Marketing Influenced Customer %
The metric procedure is almost similar to marketing Originated Customer %. However, it slightly differs because it adds the newly signed customers where marketing nurtured and touched the lead at a given point during the process of sales. For example, if a sales individual found a lead that attended the marketing and advertising event and then finally closed, it is deduced that the new customer was influenced by the process of the marketing. The resultant percentage should be higher; then the originated percentage. In the recent past, the companies have adopted this marketing metric due to its power of persuasion of the customers.
The marketers have realized the value of commercial influence of the customers. For example, seeing famous person using a particular product could translate to millions of sales. Companies have turned to this procedure because it assists the customers benefit from their interests, passions and hence influence the customers. According to Ambler (2000), Marketing Influenced will become essential marketing tool where trust exists at the epicenter of the market.
Learning I Gained and Contribution to Marketing Metrics Assignment.
I found this assignment motivating and informative and my skills and knowledge have gone up after attending to this assignment. My marketing knowledge has momentously expanded as a result of doing this assignment to incorporate the marketing metrics global approach. For example I realized that, marketing metrics has varied elements of measurement, including net sale billed number of design or product registrations and brand surveys to the awareness of the brand measure. Furthermore, I noted the companies apply monitoring and analyzing the performance of marketing matrix to increase their competitive edge and intelligence, assess their market strengths and weaknesses and assist in the calculation of the marketing budgets.
Return on marketing investment and marketing return investment are of, my view, the best marketing metrics tools for most companies to allocate investments in the market. This is because the companies can conduct analysis of communication and discovery of useful data patterns, which may be dependent on simultaneous statistics application, operation’s research to, purposefully, qualify performance and programming of the computer. These marketing metrics highly contribute to the margin of analysis of cost volume profits. This is a form of management accounting and the marginal profit per sale of one unit.
To sum up, I updated my marketing knowledge in the application of marketing metrics for the purpose of international and local marketing and the value of signing a single customer in the business. The marketing metrics assignment has extendedly sharpened my knowledge of strategic choice of a particular marketing tool depending on the goals of the company. Finally, I can assert that my confidence level has increased, along my marketing skills and knowledge as a result of engaging in this assignment. Since only self-confident managers communicate the vision of their company’s future (Seggie 2007), I believe that my level of confidence will assist me develop my career as until I rise to executive level.
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