This is probably the one thing that every CEO wants to know about marketing – what are the best key metrics to use for making marketing investment decisions and then to evaluate those marketing investments. I deliberately did not make this my #1 because the previous posts cover elements that, if not addressed, will greatly influence these key metrics. Now that I have covered those, let’s dive into the key metrics every CEO should know about marketing.
Your marketing staff (or consultants) may have already dazzled you (well, tried to dazzle you) with Google Analytics charts and data for website activity, paid search dashboards, media click-through rates, and more. However, don’t waste your time on those. Those are tools marketing should be using to evaluate their own performance. The goal of this post is to ground you in a few key metrics that you can ask both marketing and sales (sales, because they are a partner on marketing generated leads) to deliver to you that will help you evaluate your marketing investment.
So, where do we start? I’m going to divide this discussion into two parts. First, I’ll discuss the most obvious ones that most authors and presenters will cover. Those are also likely the ones that come to mind first for you as a CEO. Then I’ll introduce you to those metrics that I think really drive marketing performance. Think of it this way. The first set is like watching whether you hit your revenue goal and the variance. The second set of metrics address the key marketing and sales activities that determine whether you hit your goals.
Closed Loop Requirement
There is one last thing to discuss before we dive into those two topics. We need to address a very real gap that some customer, maybe you too, face – the lack of closed loop capabilities. By closed loop I mean the ability to track a prospect through acquisition (e.g., marketing tactic, website visit, inbound call) all the way through to sales outcome (e.g., unqualified, won, lost, in-progress). You have closed loop capability if you can look at any sales opportunity outcome and know where that prospect originated whether that was a prospect found by sales or a prospect qualified by some specific marketing activity.
All of the marketing metrics that matter, with the exception of a few very general metrics, rely on this closed loop capability.
Ideally, this closed loop capability should be made possible by the integration of marketing and sales tools (e.g., separate tools integrated or a single tool that offer both functions and tracking). However, you can do this in a less automated way as long as you are purposeful and disciplined. The purpose of this article is not to have an in-depth discussion on this topic. If you want to discuss this in more detail, feel free to contact me (or some other marketing professional that has experience with closing this gap).
💡 Added insight: Before moving on, I do want to add this one insight. Lead management and sales opportunity management are two very different things and require very different capabilities and tools. Lead management has to be very proactive and you have to push and remind salespeople with custom processes. It cannot be passive, and you cannot just rely on them to log in and view a queue of leads. Opportunity management, on the other hand, is something sales gladly manages as it is tied to conversion, winning and losing, and commissions. Again, feel free to reach out if you want to discuss the difference in more detail.
Key metrics that I am label as “outcome” metrics are important. I don’t want to diminish them as they give you benchmarks to watch as you evaluate marketing. As stated above, these are not measuring activity type elements as much as the end results that you can measure against (to get trends) as you continue to invest. Let’s take a very quick look at the most common outcome metrics.
CAC (Customer Acquisition Cost) – To calculate CAC, you first add up the total cost of marketing and sales, include all spending: salaries, commissions, benefits, office expenses, IT expenses, phone, etc., for a specific period of time. Divide that by the number of new customers in that same period.
CAC ($) = (Total cost of marketing & sales)/(Number of new customers in same period)
You can find meaning in this calculation in two ways. First, you can evaluate as a trend and determine how you can lower the CAC over time through more effective marketing and sales activities. The second meaningful analysis is to compare (as a ratio) the lifetime value (average total value of a customer) vs. this CAC. For example, if your lifetime value of a customer averages $100,000 and your customer acquisition cost is $10,000, that is a 10:1 ratio. You can track this over time and work to increase this ratio, getting more value per customer based on your acquisition costs.
M%CAC (Marketing Percentage of Customer Acquisition Cost) – You can track the trend on marketing spend as part of the customer acquisition cost by adding up all the costs related to marketing and then divide that by the total cost of marketing and sales you previously used in calculating the CAC.
M%CAC (%) = (Total cost of marketing)/(Total cost of marketing & sales used in CAC calculation)
This number is only meaningful as a trend. You can track whether your marketing spend grows or shrinks over time as a percentage of your customer acquisition cost.
MOC% (Marketing Originated Customer) – The purpose of this metric is to calculate the overall percentage of your sales that originate from a marketing activity. Again, this relies on your ability to track leads that originate from marketing activities through the sales process.
To calculate MOC% for a given period, you take the total number of new customers acquired through marketing and divide that by the total of all new customers from all sources.
MOC% (%) = (Total number of customers acquired through marketing)/(Total number of new customers for same period)
If 40% or less, you can see that you are running a heavy “outside sales” type model (lots of outbound activity). Some markets require more outside sales, or perhaps your marketing is underperforming. You should look to benchmark against others in your specific market – really depends on the product/solution and audience.
If your MIC% is 40% – 80% roughly, then you are driving a good amount of inbound activity, so your organization is more inbound sales oriented.
If your MIC% is over 80%, you are likely a B2C type business or commodity type B2B. Your actual sales talent and activity requirements are very low – more eCommerce opportunity or just replying to quotes, etc.
Let’s move now to what I call “activity metrics.” I promote activity metrics as a must for CEOs because I firmly believe that if you measure the right collaborative marketing and sales activities (i.e., those that marketing and sales share to promote marketing success – which is sales conversions) you can create accountability that will create that success.
Let’s take a look at these activity based metrics. In the last post in this series, “#5 Marketing and Sales Alignment,” I introduced you to Figure 1 below that outlines the buyer journey in terms of the progression of marketing leads.
The activity based metrics I am presenting are measurements relating directly to specific lead progressions in this funnel and are a combination of marketing and sales activity alignment and execution.
Volume and quality of MQLs (marketing qualified leads) – The quantity of MQLs is just that – the number of MQLs your marketing team is delivering over time. If necessary, you can refer back to the last post mentioned above to review the definition of a MQL.
MQL Quantity = Number of MQLs
As for the quality of the leads, this would be the percentage of “sales accepted” leads divided by that quantity over the measurement period.
MQL Quality (%) = Number of SALs / Number of MQLs
Sales accepted leads are those that sales recognize as valid leads. If sales accepts (via a field or by simply NOT rejecting the lead as the first action), it is a SAL. If sales does reject the lead as their first update action, you should ask sales to provide a reason for rejecting the lead. This way, marketing can analyze those reasons to continually improve on sources and methods of lead generation.
AFU (Average First Update) – Average first update relates to how quickly (in days) sales follows up on leads provided to them from marketing. Given what we know about B2B lead follow-up, “35%-50% of sales go to the vendor that responds first” (insidesales.com), it is essential that your sales team be oriented to responding quickly to leads provided.
AFU = Average time to first update for all leads – You could measure this in hours and minutes or measure in days, just depending on how accurate you want to be with this measurement. The key is to make it actionable. For example, you might generate a report within sales on any new “hot” leads that are older than 24 hours, or a report that identifies any “fyi only” type leads (leads that are not hot but deserve attention) that are older than a week.
💡 Added insight: I cannot stress how paying attention to this value can increase the overall effectiveness of marketing and sales working together. The faster lead quality and potential action is determined, the more effective both organizations will be in terms of generating results.
SQL Conversion Rate – Another metric to calculate for quality of lead is the percentage of MQLs that become actually SQLs (sales qualified leads). A sales qualified lead is identified when sales engages in meaningful activity to generate an opportunity (they are “working” the lead).
SQL Conversion Rate (%) = Number of SQLs / Number of MQLs
OCR (Opportunity Conversion Rate) – The ultimate quality measurement will be calculating how many SQLs (specifically SQLs from marketing as sales may enter some sales qualified leads themselves from their own sources) become legitimate opportunities in the pipeline. An opportunity (some call this a “deal”) is a lead that “converted” into a live opportunity in your CRM. Opportunities are IN the sales pipeline and forecast (unlike an SQL which is still a lead and not yet an opportunity).
OCR (%) = Number of Opportunities / Number of SQLs
(If you want to calculate this only for marketing originated leads, ensure only the opportunities and SQLs source from marketing are included)
One significance is in budgeting for marketing. If you now your OCR% and ultimately your Win rate, marketing can use this metric along with the SQL% and known marketing metrics (like budgeted activities required to deliver number of MQLs) to determine how much marketing may be required to achieve specific revenue targets from marketing.
Cost per SQL, Opportunity (marketing leads only) – These are what they sound like. To determine your cost to generate SQLs, and Opportunities that originate from marketing specific activities.
Cost per SQL ($) = (Total cost of marketing)/(/Number of SQLs form marketing))
Cost per Opportunity ($) = (Total cost of marketing)/( Number of Opportunities from marketing)
Evaluating Activity Based Metrics
All of the activity metrics are all related trends to watch that inform you as a CEO on (a) how well marketing is performing to generate quality leads and (b) how well sales is following up on leads provided and converting those leads into opportunities.
- If the Cost per SQL remains steady and the Cost per Opportunity or OCR decreases, then you might promote a discussion about the effectiveness of sales in converting leads into opportunities.
- If the MQL Quality % drops, SQL Conversion Rate drops, or cost of SQLs rises, you should promote a discussion around lead quality with marketing as fewer leads are being accepted or converted and it is costing you more per sales qualified lead.
- If the AFU (Average First Update) trends higher (and likely the SQL Conversion Rate decreases), then promote a discussion about why sales is taking longer to work leads provided. It is much harder to convert “older” leads as the prospect may have disengaged by the time you reach them.
As a CEO, you have key financial metrics you must pay attention to every day and every week in your business. From a marketing and sales perspective (I did not get into sales specific metrics here like Win rate, Cost of sales, etc.) the best practice is to get your marketing and sales leadership to build a dashboard for relevant metrics and review those on a monthly basis as trends to keep you informed. Hopefully, the above key metrics give you some perspective on the type you can and should expect form marketing and sales teams that are well aligned.