There is a growing awareness of the important role Marketing must play in all areas of business. But this doesn’t mean that it’s getting any easier for CMOs to gain the CFO’s nod of approval for marketing budgets.
Ask any CEO or CFO what they really care about when marketing budgets are being approved. The answer always boils down to having measurable proof that marketing activities are contributing to revenue generation and profitability.
While no one would disagree that brand awareness and reputation are essential for business success and should be measured, many marketers are struggling to find the right metrics to justify their budgets.
Three key performance indicators of revenue generation and profits that are likely to get marketing budgets approved are demand generation, acquisition of new clients and profitability of retaining current clients.
To deliver programmes that can be measured by these KPIs, Marketing has to work closely with other departments, particularly Sales and Client Service. There has to be a clear understanding of Marketing’s role to define where Marketing’s accountability begins and ends and to appropriately assign KPI metrics.
When setting KPI benchmarks, it is important to separate and measure the contribution of each Department involved –
- Demand generation programmes are generally based on calls to action through direct and indirect marketing activities. Not every lead that is generated results in a sale. KPI benchmarks assigned to Marketing should measure the number of leads as well as the percentage of qualified leads.
- Although new client acquisition is the primary responsibility of Sales, the cost of acquiring clients involves the preparation of advertisements, collateral and quotation material and product /service enhancements require investment of time and resources from Marketing and possibly the IT, Operations and Customer Services Departments. The Marketing KPI benchmark should be based on the number of clients acquired as a direct result of a marketing lead generation programme.
- Profitability of retaining current clients generally requires the joint effort of key areas of the business such as Client Services and Marketing to retain, upsell and effectively service the client. The benchmark for this KPI should be directly related to Marketing budgets required to develop promotional programmes and on-going communications that engage current clients and support up-selling and cross-selling.
The trends in the metrics should be tracked and analysed on an on-going basis to determine how best to allocate future budgets and to adjust marketing strategies to optimize business results.
Click on the table below to see a suggested framework for setting KPI metrics.
See the BIG picture. Focus on what’s important.