Marketers love metrics. Any acronym that starts with a capital C makes a marketer’s ears perk up — CPA, CPL, CPC, CPM, CTR. But while these metrics make perfect sense to marketers, there’s a common problem in connecting them back to actual business results. The root of the problem is that marketing teams don’t often do the upfront legwork to connect their marketing metrics to financial metrics. Having gone through this process myself, I’ve laid out a simple five-step process that other marketing teams can follow to better align their metrics with the business results the rest of the company cares about.
1. Determine your source(s) of truth
The first step is to make sure everyone in the organization is speaking the same language when talking about business objectives and defining company success.
Dig into your CRM, or whatever database houses your customer data. Make sure you can clearly articulate what information you’ll need to get from your database to help you measure marketing performance. Most importantly, customer data needs to be tagged with marketing campaign data or you’ll never be able to connect the dots.
Even if you think you have the cleanest CRM since Salesforce brought them to the cloud, it’s a critical first step to invest some time and resources on a data hygiene project. Not only will this save tons of time and energy down the line, but more importantly, it gets a cross-functional team working together and speaking the same language. There are always things you can do, from deduplication to improving lead routing process, follow up SLAs, and automated scoring.
Once you have a good base to work with, agree on what database to query for which items. It’s critical to ask these questions at the onset to avoid discrepancies or confusion down the line. Getting this cross-functional team together will help everyone understand where deficiencies exist, what data is possible to get, and what isn’t.
2. Get on the same page with finance
How many people take the time to develop their marketing metrics with the finance team?
… No wonder you have hard budget conversations.
Get the metrics from Finance that you’ll need to build a comprehensive backward-looking ROI model that tells an accurate story:
Net Customer Lifetime Value (LTV): calculate the future profitability of a customer relationship. As you get more sophisticated, you can build out LTV for different customer segments to get a better pulse on what business is driving profits.
12-month Average Revenue Per User (ARPU): measure the revenue generated per unit to factor in speed of payback, and assess which products are high- and low-generators.
Customer Acquisition Cost (CAC): include all components and resources involved in acquiring a new customer to fill out your model.
Once you have these numbers, work with Finance to set goals. How much new vs. existing revenue do you need to add to achieve your operating plan goals?
3. Build the historical model
Put together a historical model to look at how marketing is driving revenue, from customer awareness to conversion. Together with the metrics you gathered with Finance, you can then determine how much revenue resulted from these efforts.
Start from the top of the funnel and work your way down. Note where you got every single piece of data, and whether it’s an assumption or observed. Use the data you got from step two for all the assumptions you need to fill in to get to revenue contribution.
Once you’ve put this all together, review again with Finance. Now you have an agreed upon view of what actually happened in a given time frame.
4. Reverse the model
AKA: Planning kung fu!
Now that you have agreement on what happened as a result of your marketing investment, you can invert the model to start with how much new revenue you want to generate and work backwards to the necessary investment level.
Use the historical model you now have to figure out how much budget you’ll need to meet revenue goals. Start with how much new revenue you want to add, and work your way up the funnel this time. At the end, you’ll arrive at a required budget to hit your targets.
Of course, you can discuss how different assumptions will change in the future and how you’ll improve efficiency in marketing. However, it’s much easier having this conversation with a baseline of what actually happened in the past. We can assume different scenarios going forward, but based on everything we know, this historical model is the reality and therefore calculates the necessary metrics and budget levels to achieve next cycle’s revenue targets.
Finally, make sure you’re consistent in referring back to the plan and communicating progress and performance to keep everyone excited and aligned.
Document your plan to hit revenue goals, making note of the agreed upon metrics you’ll monitor to track success.
Share frequent updates on how you’re tracking to schedule. Highlight areas where performance has been stronger than expected and what you did to push this along. Make sure you also point out areas where you might be lagging, and follow-up with steps you’re taking to bring these up to speed.
Over-share what’s working and what’s not based on your metrics so that you keep everyone engaged in continuing to push these efforts forward.
Adam Berke is president and CMO of AdRoll.