One of the difficulties when developing a customer acquisition strategy is the overwhelming number and often confusing definitions of marketing metrics that can be used to measure success.
In this post, I will review a list of 17 measures and metrics that are essential for tracking the success of any marketing campaign focusing on the acquisition of new customers. As a reminder from a previous post, our definition of a "measure" is a number that is derived from taking a measurement and a "metric" is a calculation between two measures.
In the marketing metrics model that Joanne O'Connell and I developed, we differentiate between "acquisition" and "retention". Acquisition involves marketing and advertising activities that find new customers. Retention, in contrast, involves marketing activities that keep existing customers. It is our experience that many companies and most marketers know this difference but often they don't separate marketing metrics into these two categories. We think the distinction is important. Of course, with most marketing campaigns there is overlap but for simplicity we will ignore this aspect.
In this post, we will focus on the Customer Acquisition Funnel. A simple image search on Google gives hundreds of results for "marketing funnel". All of them have value and are trying to make a point. But for the measures and the metrics that we were looking to develop we couldn't find a funnel that illustrated the concepts that we wanted to capture. So we made our own marketing funnel. Obviously, this funnel will need to be modified to suit the specifics of your company.
You can read about our Acquisition Funnel in more detail in this post. Our funnel is a combination of a marketing funnel (Impressions and Visits) and a sales funnel (Prospects, Offers and Outcomes).
This funnel gives us our first 5 measures. The number of Impressions, Visits, Prospects, Offers and Outcomes. If you recall from a previous post, our definition of an Outcome is: "The desired behavior of the members of the target market influenced by the marketing investment and effort."
The first 4 metrics (calculations from measures) are related to the conversions from one level of the funnel to the next. Each of the conversions is explained below.
This is the number of visitors that come to a location, website or social media property from one of the marketing channels. Using language made popular by Google AdWords this would be the Click Through Rate (CTR). The calculation is the ratio of Visits to Impressions. In other words, if there was 100,000 impressions and 1,000 people clicked through to a website, then the Visit Rate or CTR is 1%.
The Prospect (or Lead) Rate is the number of Prospects that are developed as a result of the Visits to the website (or event or physical location). For example, if 100 people expressed an interested in a product from the 1,000 visits, then the Lead Rate is 10%. Note that in some situations like an ecommerce website where there may not be any Prospects. Our requirement for a Prospect is that we need to have enough information from them to be able to communicate with them. We need an email address, Twitter handle, LinkedIn connection or a phone number. If a company doesn't have any Prospects, then the solution is drop this level of the funnel and just use 4 levels in the Customer Acquisition Funnel.
If we divide the number of Offers by the number of Prospects we have the Offer Rate. In our example, of 100 Prospects, we might persuade 30 to accept an Offer. In this case, the Offer Rate is 30%. As mentioned earlier, an Offer has to include a price. A web page with a price can be an "Offer". There are some unique situations where an Offer can be made without a true Prospect. An advertisement to a consumer target market that includes a price would be an example. In this case, there is not a Prospect as per our definition.
One unique version of an Offer is a Test Drive. This is actually a “Bonus Metric” and not part of the essential 17 metrics because not all companies can offer a “test drive”. There are a variety of things that can be considered for a "test drive" including test driving a car, downloading software as a trial, tasting a sample of food or liquor, or getting a tiny bottle of new shampoo in your mailbox. To calculate this metric you need to know the number of "test drives" or samples given and the number of Prospects. If we have 100 Prospects and 40 take a Test Drive, then the Test Drive rate is 40%. We can also calculate a second bonus metric by calculating the Test Drive Conversion rate. If 30 of the 40 drivers actually buy the product as a result of the experience then the conversion rate is 75%.
Take Rate is the number of Sales as a ratio of the number of Offers. This is often called “The Conversion Rate” but we are avoiding this nomenclature because of the confusion in many different systems, most notably Google AdWords.
An example of the Take Rate would be if we made 30 Offers and 15 were accepted then the Take Rate is 50%. For some companies this would be exceptional, yet for other companies this rate would be dismal and a note for concern.
The next series of metrics are the average cost for each level of the Customer Acquisition Funnel. But in order to calculate these metrics we need to add a sixth Measure: the cost of marketing, or what we like to call Marketing Investment. This is specifically the investment made in marketing over the time period that we are reviewing (day, week, month, quarter or year). Although marketing and advertising show up on an income statement as an "expense", marketing and advertising can be considered an "investment" because shareholders and managers expected that there will be a "return" as a result of the expenditure.
If we know the cost (i.e. the Investment) related to marketing, then we can calculate the average cost for each level of the Funnel.
For each of these metrics the calculation is to divide the cost by the number of Impressions, Visits... or Sales. In theory, these ratios are easy to calculate. However, in our experience, the difficulty is in getting accurate measures (data) out of the various systems and databases in a company.
Once we know how much we have invested into marketing we can calculate the average cost for each level of the acquisition funnel.
At this point we have 6 measures and 9 metrics for a total of 15; 2 more to go.
The ultimate marketing metric that we are aiming for is Return On Marketing Investment (ROMI). See my previous post on ROI vs ROMI for more detail. However, in order to calculate ROMI we need one final measure, Revenue. Once we have that we can calculate ROMI as (Revenue - Marketing Investment) / Marketing Investment.
In total we now have 7 measures and 10 metrics for a total of 17 essential marketing measures and metrics for customer acquisition. We can illustrate these as a diagram:
Or as a table:
The key to collecting the 17 Essential Marketing Metrics for Customer Acquisition is to have a system in place. As outlined at the beginning of this post, part of the system will be based on the structure of your Customer Acquisition Funnel. Once you have defined the levels of your funnel you can start collecting the measures for each level. If you are using all 5 levels of the funnel, you will have the first 5 measures. Calculating the first 4 metrics for conversions should be easy.
Next you will be able to calculate the 5 metrics related to the average cost for each level of your customer acquisition funnel. But these calculations require you to know how much you invested in marketing. Once you have that these metrics should be simple.
The final measure, revenue, is required to calculate ROMI. Most companies know this measure but you may have to segment new incremental revenue from total revenue to determine the true return on marketing investment for newly acquired customers.
The 17 essential marketing metrics for customer acquisition as presented will give managers an idea of ROMI. An alternative approach is to segment the measures and metrics by marketing channel. Obviously, this adds a level of complexity but the value is tremendous. Give it a try or give us a call and we will help you out.