Are You Measuring Your Success?
March 2004 - BEK Best Practices Newsletter
Metrics are part of our everyday life. We measure our bank accounts, heart rates, and weight, as well as gas mileage and stock funds. Without metrics we cannot track our performance. Yet so many of us don't track key marketing metrics that let us know how well our products and our companies are (or aren't) performing.
What are Metrics?
Metrics can be confusing.
To better understand metrics and how they work, Laura Patterson,
president and founder of VisionEdge Marketing, Inc.,* has
created several useful definitions:
- Measurements are the raw outcome of a quantification
process, such as a company's numbers, ratios, and percentages.
In short, it's
the raw data.
- Metrics are the standards for measurement,
providing target values that a company must achieve
to reach a certain level of success. These are the
numbers that we aim for each day, week, quarter and
year.
- Benchmarks are the very best measurement to aspire
to, the standard by which all others are measured. Companies
that set benchmarks in their industries are the ones
often lauded in the "Top Ten" and "Most Admired" lists
and articles.
Let's look at these definitions in action: In the 1990's, the market research firm IntelliQuest (now Millward Brown IntelliQuest) conducted a customer satisfaction research study for the personal computing industry. They spoke to customers who rated the companies in the industry, which resulted in a measurement scale from one to nine. They then learned that 84 percent of users who rated their satisfaction as a seven eight, or nine would consider the same brand for their next purchase. Achieving a seven, eight or nine became the metric that companies wanted to aim for. The benchmark was to attain a nine. *
Using Metrics
To determine the best metrics to use, you must have a clear understanding of
your company's goals. If you are trying to gain market traction, you'll use different ones than if you are focused on retaining customers and improving relationships.
It's important to track metrics over long periods of time, so that you can uncover trends in your marketing programs. You'll be able to see what programs are the most effective, what types of prospects are most likely to buy, which customers are most profitable, and how the market is evolving over time?
Just as important as collecting the data
is making sure you are gathering the right data. It would
be nice if metrics were stationary, but, in fact, they
change over time. The targets you set may change, or the
metrics may change based on business conditions.
A classic example of a changing metric is
in the airline industry. The old benchmark to move a plane
in and out of a gate was 45 minutes. Then Southwest Airlines
entered the market and turned planes around in 15 minutes.
A new benchmark was set for the entire industry.
Generally speaking, there are three main types of metrics:
Financial metrics - measures the company's success from a monetary perspective
-
Revenue per customer: how much revenue
is the customer generating?
-
Revenue per purchase:
how much revenue does each purchase generate?
-
Gross
margin: what is the difference between sales revenue
and the cost of production?
-
Average purchase price:
what is the average price that each customer is
paying?
-
Return on investment: how much profit was
returned from money spent?
Acquisition metrics - measures the company's success in acquiring and keeping new customers
-
Customer growth rate: how quickly are
the numbers of active buyers growing?
-
Average cost
per customer: how much is spent on marketing and sales
for each customer that is acquired?
-
Active customer
ratio: what proportion of the total customer base
is actively buying?
-
Customer churn rate: how quickly
customers are defecting versus how many are joining?
Penetration metrics - measures the depth and frequency of customer purchases
-
Frequency and recency of purchase: how
often does a customer purchase, and how long has
it been since they last purchased?
-
Average purchase
value: how much value does the average customer ascribe
to their purchase?
-
Purchase value growth rate: how
quickly is this value growing?
-
Win/loss percentage:
what percentage of your deals are you winning vs.
the percentage of losses?
Are You Working Blind?
Working
without metrics is like working groping around in the dark.
If you don't have metrics it is extremely difficult to assess whether a course of action is working or needs adjustment. Metrics are your guide to enabling your company to expand marketing position, retain the best customers, and lower your costs. Metrics will enable your company to continuously improve. Products get better, marketing programs and messages become more targeted, and overall customer retention and satisfaction will increase resulting in higher revenues and profits for you. Remember, if you can't measure it you can't manage it!
Please share with us stories you have where
you successfully measured your successes or learned through
your metrics that your programs are or aren't
meeting the desired outcomes.
Next month's topic: Creating Market Requirement Documents that Get Used
For more information, contact BEK Enterprises
at:
Web: www.bekteam.com
E-mail:
Phone: 720-304-3300
*Laura Patterson is president and founder of VisionEdge Marketing, Inc., a metrics-based strategic marketing group. She can be reached at www.visionedgemarketing.com or 512-795-3557.
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