By Jay Lipe - Emerge Marketing
In most marketing matters you have to walk before you run. Basic marketing metrics help you do this as the starting steps to any marketing effort.
According to a Blackfrair study of American senior business executives conducted in the second quarter of 2004, only 38% of these executives say their companies are measuring the results of their marketing efforts. If your company falls outside this number, address the issue at once by using one or all of these three marketing metrics.
#1 - Cost Per New Client
Almost every growing company wants to improve the measurement of its marketing programs, yet few can answer this basic marketing metric question: How much, on average, does your company spend on marketing to generate a new client?
Knowing the answer to this basic marketing metric question does two things for your company. First, it helps establish a benchmark for marketing expenditures that can be compared against month-over-month, or year-over-year.
For example, if you knew that last year's average cost per new client was $1,000 and this year's is $500, you can reasonably conclude that your company is spending marketing dollars more efficiently this year to generate new clients.
Second, this cost-per-new-client metric can help establish a breakeven level for future marketing efforts. Say for example, your company will attend a new trade show this year that costs $5,000.
By dividing this $5000 total expense number by your cost per new client metric ($500), you'll arrive at a reasonable breakeven goal of 10 new clients. Any more than this and the event was a success; any less and you may have to reevaluate the event again next year.
How do you calculate this marketing metric? Add up all your marketing expenses for the year (including sales salaries) and divide by the number of new clients you generated in that year.
#2 - Communication Frequency With Client
If your business is like 99% of my business-to-business clients, the most potent marketing tools it possesses are 1) referrals and 2) word-of-mouth. These two marketing weapons generate awareness for your company, establish credibility, and ultimately speed up the selling process.
Any company that wants to generate more referrals and word-of-mouth therefore must actively communicate with its clients.
In general every business-to-business company out there should communicate with its clients a minimum of every 90 days. This 90-day rule guarantees your company stays top-of-mind with its most powerful selling force: your clients.
You can use emails, personal letters, direct mail postcards, phone calls, personal visits or dozens of other marketing tools to accomplish this. But once you establish a metric for communication frequency with your clients, and live by it, you will be amazed at the impact it has on your marketing effort.
How do you calculate this marketing metric? Measure the number of times you communicate with your core client base annually. If it's four or more times, then your marketing is on track, if it's less than four, then you have work to do.
#3 - Lifetime Value Of A Client
How would you operate your business differently if you knew an average client generated, over the life of its relationship with your company, $10,000 in revenues?
For starters, you might segment out those clients that generate well over $10,000 and market more exclusively to them (e.g. more one-on-one sales visits). You might also identify those clients who generate far below the $10,000 average lifetime value and make hard decisions about whether or not to keep them.
Finally, you might identify those clients near the $100,000 lifetime figure, or whatever is a "significant" level for your firm, and devote marketing and sales to them in order to boost their lifetime value over the benchmark figure. Using a lifetime value calculation helps sharpen your marketing department's efforts and keeps your organization focused on those clients that are most valuable to your company.
How do you calculate this marketing metric? It seems there are almost as many ways to calculate lifetime value as there are to define it. The simplest way is to add up all client revenues for the year and divide by the total number of clients. This gives you the average revenue per customer for one year.
Then, multiply this number by the average lifetime of a client for your company. If you don't know this number, make a guesstimate using a realistic length of time, say 10 years. Now, multiply the average revenue per client for one year by the average lifetime of a client (10 years). The result is the lifetime value of a client for your company.
If your company does not measure the success of its marketing effort, address the issue at once by using one or all of these three marketing metrics. Remember that understanding a marketing problem is more than half the battle in addressing it.
Jay Lipe is president of Emerge Marketing, a firm that has helped hundreds of small businesses and Fortune 500 clients grow through strategic marketing. Read his new book Stand Out from the Crowd: Secrets to Crafting a Winning Company Identity.