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Measure for Success

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October 2015

Key metric – Incremental sales

Incremental Sales measures the contribution of your marketing efforts to increasing sales revenue.

This KPI emphasizes the close relationship between sales and marketing, and how that relationship benefits the organisation. Marketing attracts qualified leads, and sales converts those leads into paying customers (which, hopefully, become brand advocates to further fuel marketing efforts).

The incremental sales KPI is one of the most consistent ways to measure the marketing ROI as it demonstrates new revenue that can be directly attributed to a marketing campaign.

The problem for marketing teams is that campaigns may generate new leads or sales indirectly. For example, a banner campaign with a large volume of impressions may encourage people to complete what is called a “view through conversion.” This means that a visitor may see an ad, visit the website in a separate browser tab or window, and then complete a goal without actually clicking on the banner ad. The result is the same, but the path and credit for the completion are very different.

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Key metric – Retention rate

Retention rate is the ratio of the number of retained customers to the number at risk.

In contractual situations, it makes sense to talk about the number of customers currently under contract and the percentage retained when the contract period runs out.” This term should not be confused with growth (decline) in customer counts.

Retention refers only to existing customers in contractual situations. “In non-contractual situations (such as catalog sales), it makes less sense to talk about the current number of customers, but instead to count the number of customers of a specified recency.

Key metric – Abandonment rate

Abandonment rate is a term associated with the use of virtual shopping carts. Also known as “shopping cart abandonment”. Although shoppers in brick and mortar stores rarely abandon their carts, abandonment of virtual shopping carts is quite common.

Marketers can count how many of the shopping carts used in a specified period result in completed sales versus how many are abandoned. The abandonment rate is the ratio of the number of abandoned shopping carts to the number of initiated transactions or to the number of completed transactions.

Abandonment rate as a marketing metric helps marketers to understand website user behaviour.  Specifically, abandonment rate is defined as “the percentage of shopping carts that are abandoned” prior to the completion of the purchase.

Key metric – Email open rate

The email open rate is a measure primarily used by marketers as an indication of how many people “view” or “open” an email they send out. It is most commonly expressed as a percentage and calculated by dividing the number of email messages opened by the total number of email messages sent (excluding those that bounced).

The open rate of any given email can vary based on a number of variables. For example, the type of industry the email is being sent to. In addition, the day and time an email is scheduled or sent to recipients can have an effect on email open rate. The length of an email’s subject line can also affect whether or not it is opened.

Open rates are broadly rejected as an absolute measure of a commercial email’s performance. However, many marketers use open rates as a relative measure, for example to compare the performances of emails sent to similar recipient groups, but at different times or with different subject headers.

Key metric – Bounce rates

Bounce rates represents the percentage of visitors who enter the site and then leave (“bounce”) rather than continuing on to view other pages within the same site.

Bounce rate is a measure of the effectiveness of a website in encouraging visitors to continue with their visit. It is expressed as a percentage and represents the proportion of visits that end on the first page of the website that the visitor sees.

Bounce rates can be used to help determine the effectiveness or performance of an entry page at generating the interest of visitors. An entry page with a low bounce rate means that the page effectively causes visitors to view more pages and continue on deeper into the web site. High bounce rates typically indicate that the website isn’t doing a good job of attracting the continued interest of visitors.

Interpretation of the bounce rate measure should be relevant to a website’s business objectives and definitions of conversion, as having a high bounce rate is not always a sign of poor performance. On sites where an objective can be met without viewing more than one page, for example on websites sharing specific knowledge on some subject (dictionary entry, specific recipe), the bounce rate would not be as meaningful for determining conversion success.

Key metric – Customer profit

Customer profit is the profit a firm makes from a customer or customer group over a specific time period.  Calculating customer profitability is an important step in understanding which customer relationships are better than others.  Often, companies will find that some customer relationships are less profitable than others.  The firm may be better off without these customers.

At the other end, the firm will identify its most profitable customers  and position itself to take steps to retain these most profitable relationships.

Key metric – Prospect lifetime value

Prospect lifetime value is the expected value of a prospect.  It is the value expected from the prospect minus the cost of prospecting e.g. marketing costs.  The value expected from the prospect is the expected fraction of prospects who will make a purchase times the sum of the average margin the firm makes on the initial purchase and the CLV of the newly acquired customer.

Only if a prospect lifetime value is positive should a firm proceed with the planned acquisition spending.

Key metric – Pipeline analysis

Pipeline analysis is used to track the progress of sales efforts in relations to all current and potential customers in order to influence and forecast sales as well as evaluate methods used to generate sales .

If a sales force approaches a large number of potential customers, only a subset of these will actually make purchases.  As potential customers proceed through the purchasing cycle the number of prospects will reduce.  By keeping track of the number of potential customers at each stage of the process, companies can balance the workload within a team, evaluate and identify successful sales techniques and make accurate forecasts of sales.

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