Growth Insights for CEOs

A Marketing Metric You've Never Heard Of

Posted by The Chief Outsider



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The explosion of digital marketing, social media, and technology has driven marketers to collect more data about the activities marketing departments perform. Metrics, KPIs, and analytics are all the rage. As a CEO or CMO, do you ever ask the question, what does the metric mean? Better yet, have you ever asked, once you now have the metrics, if the marketing department is getting better at what they do? If the organization is really learning, productivity and results should improve. The more you do, the more things should happen. Better yet, you should be more effective at using the resources you have. But how do you know?

Entering in to this picture are two words destined to strike fear in the heart of every college freshman – Second Derivative. That not-so-obscure term from first semester calculus actually has a place in marketing. As you sit there scratching your head, let me explain.

If I say that I generated 100 leads this month, that's much like saying it's 20 miles from my house to the San Francisco airport. It's a distance. It's nice to know but it may not be very useful.

I know I generated 80 leads the month before this one, so it seems the lead generation process is heading the right way. I have 20 more leads than last month – a change. That seems good so far. If it takes me 30 minutes to get from home to SFO, my speed is 40 miles an hour. If it takes an hour (more likely these days), my speed is 20 miles an hour. I am measuring change in distance. That's more useful since I now know when to leave home so I don't miss my plane.

Do I know if my lead generation process is getting better? I have 20 more leads, so it would seem so. Let's add a third month. I do 120 leads the third month. Again, I have 20 more leads than the previous month. More leads is good, but am I getting any better at generating leads? Maybe not. If I am sitting at the metering light at Woodside Road trying to get onto 101, I hit the gas and accelerate from 0 to a breakneck 40 miles per hour. That acceleration is the rate of change in speed. Acceleration gives me confidence that I won't get rear-ended as I get on the freeway. If I go back to leads, my lead generation process isn't accelerating; it's flat. The gain in 20 leads per month is constant. That probably isn't very good. If I want the growth of my business to accelerate, the pace at which I generate leads needs to accelerate. I need to make sure my business doesn't get rear-ended by the market or by competition.

Speed is the change in distance; acceleration is the change in speed. That's the calculus. Speed is the first derivative of distance. Acceleration is the second derivative of distance.

What to do now? Pick the metrics that are the best at predicting how your business behaves – up or down. Those are called leading indicators. We just used number of leads here as an example. In your case, the metrics may be different. Look at how those leading indicators change from month to month. Then look at the rate those metrics change. You should get some insight as to how your marketing department is really functioning. That rate of change is the marketing metric you have never heard of. It can be very useful.

If this sounds familiar, economists have been doing this for years. Our friends at ITR Economics, Alan Beaulieu and Brian Beaulieu, use these ideas to predict where the US and world economies are headed and they do it very well. Their book, Make Your Move, does a great job of bringing clarity in this area. It should be on your reading list.

Establishing the right metrics is part of a marketing audit or any marketing effort. From that assessment, you can develop the insight that drive the gears to your growth. A Chief Outsiders CMO can help you with that initial assessment. From that assessment, the CMO can work with you to develop the gears that create the growth you desire.

For more information about adding gears to drive growth, check out Growth Gears by Art Saxby and Pete Hayes from Chief Outsiders.

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Topics: Marketing Strategy, Marketing Metrics, Marketing and Sales