5 Marketing Metrics That Predict Future Corporate Value
The purpose of marketing is to grow your business and improve future corporate value. However, many marketing executives report to other company stakeholders in soft metrics (such as impressions or engagements) that don’t seem aligned with company business metrics. It’s true that soft metrics can be worthy leading indicators to examine, but they should be a precursor towards delivering topline hard metrics.
At the end of the day, if you’re not defining marketing program success in terms of these five key metrics, then it will be extremely difficult to determine the extent to which marketing is adding value to your company.
Here are 5 top marketing metrics that predict future corporate value:
Return on investment is so important is because it determines whether or not the money you invest in marketing initiatives is turning into net gains for your business.
If you have a high short term ROI for your marketing initiatives, it’s easy for corporate leadership and investors to understand how that translates to increased corporate value. A continuation in this pattern is a good indicator that your company is going in the right direction and will be more profitable in the future.
Short Term ROI is especially important for companies with a short sales cycle, such as ecommerce companies. On the other hand, some businesses may be willing to lose money in the short run to set themselves up for future profits. An example of this strategy is “loss leader” products that introduce new customers to the franchise. Brand-based companies and long-sales cycle products may also be better off focusing on other core metrics.
2. Topline Revenue Growth
In one study, up to 51% of senior-level marketing experts reported that they believe revenue growth is the single most important marketing metric. This is not surprising considering that revenue growth is the primary goal of marketing.
Strong revenue growth can be indicative of a higher future corporate value. But, chasing revenue growth in isolation can also be dangerous. In order to maximize profitability, the cost of obtaining this growth must be less than the operational cost to service those sales.
Prioritizing short term revenue growth without regard for cashflow stability, customer satisfaction, or market impact on future sales can make the picture appear rosy in the short term, at the expense of the long term. Venture Capitalists are known for pushing this metric at all costs while trying to negotiate an exit and therefore gutting a company from the inside with an unsustainable operational burn rate. Topline Revenue Growth is one of the most important metrics to track and manage, but it shouldn’t be used in isolation.
3. Customer Acquisition Cost
Customer acquisition cost is the full amount of money that it takes to acquire a new customer. If the cost to acquire a new customer is too high, then even though you are creating topline revenue growth, you could actually be losing money through marketing. Customer This costs is often reflected as CPA (cost per account/acquisition).
Many soft metrics reported by advertising agencies, such as impressions or engagements, can contribute to an overall customer acquisition effort without directly generating new customers. However, the cost of all those programs targeting soft metrics must be accounted for within your overall average customer acquisition cost.
Conversely, if your customer acquisition cost is low, this does not automatically mean your marketing program is performing well. It’s usually cheaper to attract low value customers than high value customers.
This brings us to the importance of the next metric, CLV.
4. Customer Lifetime Value
Similar to customer acquisition cost, customer lifetime value provides a useful way to evaluate your customer portfolio. Customer lifetime value indicates how much financial value a customer provides throughout his or her relationship with your company.
Of course, these figures can only be calculated up to the present moment. However, they can be projected into the future to understand the net profit attributed to the entire future relationship with a customer.
To properly understand CLV, you need to be tracking the last of the 5 core metrics: Churn Rate.
5. Churn Rate
This metric reflects the rate at which your customers cut ties with you, or stop purchasing your goods or services over a specific period of time. Essentially, churn rates can tell you whether not you are losing customers at a high rate.
If your churn rate is high, then this indicates that something is wrong, and customers are dissatisfied with the value your company is providing them. For companies without ongoing subscription income, the corresponding metric to churn rate is your rate of repeat purchases.
High churn rates are something that it often pays to fix. This is especially true, considering the fact that 70 percent of companies in one survey said that it is cheaper to retain a customer than to acquire a new one.
How versed is your marketing team in these key marketing measures? Do your reports show performance against these hard metrics or are you evaluating your marketing team only in terms of soft metrics?
While many individual marketing tactics can be designed to drive leading-indicator metrics, your overall marketing program should be designed to roll up to these “big five” measurements.