By: Scott Wright and Jack Bowen
For modern-day businesses, establishing measures is not just a good idea – it’s a downright necessity. In fact, a poll of executive leaders found a nearly unanimous agreement that key performance indicators (KPIs) are essential to gauge the pulse of broad business goals.
But there is such a thing as “paralysis by analysis” – the tendency to get lost in the details and to lose sight of those metrics that are truly linked to and indicative of business performance improvement. In 2024, it’s never been more important to monitor the right metrics – to strike a balance that will keep your head out of the clouds, but will also keep you from choking on the weeds.
In this blog, the next in our series to help you accelerate growth as you head into 2024, we are going to have you focus on the seven KPIs that we feel do the best job of delivering business performance management insights that you can truly rely upon.
Of course, we realize that your company may have other KPIs that are important to track as well – but we feel that these seven provide the fundamentals – what is being spent; whether it’s being spent efficiently, and delivering the right kinds of leads; and the overall effectiveness of the sales organization in converting leads to sales.
"If you can't measure it, you can't improve it." - Lord Kelvin
One of the cornerstones of effective business planning is setting and tracking revenue, profit, and gross margin against your long-term growth trajectory. You’ll want to start by referring back to the three-year goals for Revenue, Profit, and Gross Margin that we developed in Blog 3 of our series. For this KPI, you should break down those goals into monthly and quarterly milestones.
If you are organized into large business divisions, they may have different goals they are working toward. Separate these from the main objectives, but break them out into monthly and quarterly goals as well.
These measurements will form the basis of monthly leadership team reviews to determine that you are on track to hit your short-term (2024) goals, and ultimately your 2026 goals as well. During these meetings, if you find that you are off track on a particular metric, you’ll want to dig into results from previous months for product and service groupings to try and determine what is contributing to the lack of performance.
Your customer acquisition rate is integral to achieving growth targets. In the last blog, we covered the process of calculating the number of incremental customers required to hit your goals. You should now map this on a monthly and quarterly basis to ensure you are on track. If you have different customer segments you are actively targeting, you will want to break each segment out for this metric under the overall acquisition KPI.
Tracking your Customer Acquisition Rate should also be a monthly exercise. You’ll want to make sure you are attaining your goals for high value lead conversion rates, both for the number and type of customers necessary to enable the delivery of your larger business performance management benchmarks.
Here too, if you find you are off track overall or for a particular customer segment, you’ll want access to a breakout of results for the acquisition channels for each customer segment to see where you’re underperforming. If you find that some are significantly outperforming others, this can prompt discussions about marketing or sales spend allocation.
"It's not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." - Charles Darwin
Tracking KPIs goes beyond merely acquiring new customers – instead, here is where you should delve into understanding the dynamics of retaining existing ones. The analogy of a leaky bucket perfectly illustrates the importance of monitoring the customers lost each month. Just as a leaky bucket hinders the efficient transportation of water, lost customers hinder business growth.
To set realistic growth goals, you must take into account the natural attrition rate of customers, often determined by historical data. This analysis includes assuming the improvement or reduction in lost customers per month, which is a crucial aspect of sustainable business growth.
Like most KPIs we’ll cover in this blog, customer retention should not be viewed in a vacuum. If your business serves different customer segments, it's imperative to break down the overall retention rate into segments. For example, if you install roofing that has a fifteen year lifecycle, your metrics will vary significantly versus a financial performance consultant who interacts regularly with investors.
Each segment may have its unique characteristics and needs, and by tracking their individual retention rates, you’ll gain a more granular understanding of where improvements are needed. When a particular customer segment is leaking through its bucket too vigorously, in a process normally referred to as churn, you’ll want to dive deep into data related to the products or services they were using.
Customer experience KPIs, such as product or service experience ratings, can be instrumental in uncovering the root causes of poor retention. By identifying the pain points or shortcomings in the customer experience, your business can take targeted actions to plug the leaks in the retention bucket and ensure steady growth.
"Every contact we have with a customer influences whether or not they'll come back. We have to be great every time or we'll lose them." - Kevin Stirtz
Do you know the monthly financial contribution of each of your customers? Getting to the bullseye of how each customer is contributing revenues and profits is essential to optimizing your sales strategies. By doing so, a business can prepare for timely adjustments in strategies. In today's e-commerce businesses, for example, highly engaged customers might transact more than monthly, while others only quarterly or a couple times annually.
Enhancing the average customer value involves various strategies such as cross-selling complementary products or services, up-selling more profitable offerings, and increasing the frequency of purchase. These are powerful levers that can significantly impact the bottom line. To set achievable goals in this regard, historical data serves as a foundation. Layering on assumptions about the success of these value-driving efforts is essential in forecasting and planning.
"Customers may forget what you said, but they'll never forget how you made them feel." - Maya Angelou
Effectively acquiring customers necessitates a close watch on lead generation costs -- specifically, Marketing Qualified Leads (MQLs), which are paramount to any business's growth strategy. Customer acquisition plays a significant role in achieving your financial goals. The establishment of your marketing budget is closely tied to the number of leads required to reach your objectives, assuming a certain conversion rate from leads to customers. Therefore, it's imperative to monitor the cost per MQL both on a monthly and quarterly basis to ensure that you're aligned with your goals.
By breaking down the cost per MQL for each marketing channel, you can gain deeper insights into which channels are performing well and which may require adjustments. Each channel should have a specific goal based on your marketing budget's allocation, as highlighted in Blog 3 of our series.
Consistently tracking the cost of generating leads and also tracking the resulting sales by types of leads, allows you to make informed decisions about where to allocate your lead generation resources effectively. This data-driven approach ensures that you're making the most of your marketing budget and enables you to adapt your strategy as needed.
Turning leads into loyal customers is the reason why you have a sales force to begin with. This KPI will tell you whether your Marketing Qualified Leads (MQL) are seamlessly transitioning through the sales funnel or encountering bumps along the way.
The conversion rate from MQLs to paying customers was likely determined as an assumption when setting your business goals and allocating your marketing budget. To ensure you're on track to meet these goals, tracking the overall conversion rate from MQLs to customers on a monthly and quarterly basis is imperative.
Additionally, drilling down into the conversion rates by marketing channel is essential for a deeper understanding of your lead conversion performance. This data provides insights into the quality of MQLs generated through different channels and the effectiveness of your sales funnel engagement for various MQL types from diverse marketing channels. Identifying underperforming channels allows for adjustments in strategy or resource allocation, ensuring that you are optimizing your conversion rates to meet your growth objectives.
Gauging the return on marketing investments keeps your budget in check. To gain a comprehensive view of marketing performance (also known as ROAS, or return on ad spend), it's vital to monitor your marketing channels on a monthly and quarterly basis, ensuring they align with your growth goals.
Each customer acquired originates from a Marketing Qualified Lead (MQL), which, in turn, originates from a specific marketing channel. These channels come with associated costs for generating leads. Calculating the revenue generated by each marketing channel and dividing it by the media cost for that channel provides valuable insights into the return on marketing spend. This KPI is an essential part of your growth strategy, as it allows you to assess the efficiency of your marketing investments and make informed decisions about resource allocation.
Your ROAS goals by channel can be derived from your targeted cost for each marketing qualified lead (MQL).
|KPI Description||Method of Measurement|
|1. Revenue, Profit, and GM against Growth Trajectory||Measure and review monthly and quarterly against the three-year goals for Revenue, Profit, and Gross Margin, broken down by business division if necessary.|
|2. Customer Acquisition Rate||Map and track monthly and quarterly incremental customers required to hit goals, broken down by customer segments for targeted analysis.|
|3.Customer Retention Rate||Monitor monthly the rate at which customers are retained, taking into account natural attrition and segment-specific retention, alongside product/service experience ratings.|
|4. Monthly Customer Average Value||Calculate the financial contribution of each customer monthly to understand revenue and profit contributions and adjust strategies accordingly for enhancements.|
|5. Cost of Lead Generation||Monitor the cost per Marketing Qualified Lead (MQL) monthly and quarterly, analyze by marketing channel, and adjust marketing budget allocation as needed.|
|6. Lead Conversion Rate||Track the overall conversion rate from MQLs to customers monthly and quarterly, analyze by marketing channel, and optimize the sales funnel.|
|7. ROAS by Marketing Channel||Calculate and monitor the Return on Ad Spend (ROAS) monthly and quarterly for each marketing channel to assess marketing investment efficiency.|
Incorporating these seven KPI areas into your strategy provides a panoramic view of your performance. Whenever there's a deviation from the set targets, these metrics, combined with their deeper insights, enable corrective interventions, ensuring you don’t stray from your growth trajectory. Stay tuned for our next article in this series: 5 Things You Should Know Before Spending on Marketing Execution where we dive into the intricacies of optimizing marketing spend for maximum impact.
About Chief Outsiders:
Jack Bowen and Scott Wright are Fractional Chief Marketing Officers with Chief Outsiders, a national fractional CMO and CSO consulting firm. Bowen is an engaging, roll-up your sleeves leader who draws on 20+ years of C-level marketing leadership and growth experience with significant expertise in data-based, direct-to-customer (B or C) performance-marketing, driving both topline and profitability throughout – acquisition, conversion and sales operations. Wright has decades of executive leadership experience leading B2B and B2C businesses to accelerated growth across numerous industries. He works with CEOs and leadership teams to develop customer-centric strategies for brand differentiation and awareness, effective targeting, lead generation, customer experience, and the repeatable processes and core capabilities that create a foundation for sustainable growth.
Together, they are part of a team of more than 120 seasoned and battle-tested Chief Marketing Officers and Chief Sales Officers who have guided over 1,850 B2B and B2C companies across more than 70 industry verticals.
Chief Outsiders executives have the experience to help businesses quickly figure out how to accelerate growth. They work alongside CEOs as members of the leadership team to develop strategies, build organizational and technical capabilities, and execute marketing and sales initiatives that create growth engines. Contact us today to accelerate your growth. Learn more about Scott Wright here and Jack Bowen here.
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