5 essential performance indicators for marketing management

In an increasingly data-driven sector, marketers need to objectively demonstrate the efficiency of their actions. This is the main role of performance indicators.

In basic terms, performance indicators are quantifiable measures used to assess the effectiveness of a marketing campaign, but their purpose goes far beyond that. They’re valuable resources for making decisions and proving returns on your marketing spend. So, after planning and implementing a marketing strategy, the final step is to measure your results.

Following this line, in this article, we present 5 essential performance indicators for marketing management. Check it out!

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1. Customer Acquisition Cost (CAC)#

First of all, you need to know how much you spend on acquiring new customers. To do this, add everything you spend annually on marketing, including staff salaries, as well as the cost of pay-per-click advertising, the fees of marketing agencies, the cost with apps, etc.

Then look at how many customers your marketing efforts attract each year and divide your cost by that number. This will provide the average amount spent to attract each customer.

Why is this number important? Objectively speaking, you must ensure that you are not spending more to acquire your customers than profiting from them. The greater the difference between your CAC and your CLV (Customer Lifetime Value) — let’s talk about this other indicator below — the greater the company’s overall profit.

The CAC is also important to understand if you’re considering working with a marketing agency. You need to ask how many customers they hope to attract to you and how much the service will cost. Look for agencies that can lower your CAC and attract clients for less than you currently spend acquiring them.

2. Customer Lifetime Value (CLV)#

In addition to calculating the cost of acquiring customers, you also need to find out how much each customer is worth to your business. This is known as Customer Lifetime Value, or CLV. Simply put, this is the amount a customer will contribute to your business throughout the time they work with you as an active customer.

You can calculate CLV using historical data or predictive analysis that considers the history of previous transactions, as well as behavioral indicators.

As an example, let’s imagine that you acquire a customer for a 12-month contract at R$ 5,000 a month. If the customer only stays for one year, the customer’s lifetime value will be 12 times R$ 5,000, or R$ 60,000 in total. If the average customer stays for three years, the CLV will be three times higher, i.e. R$ 180,000.

Unfortunately, many companies don’t collect enough data from their customer relationship management systems to calculate CLV. That’s a critical metric. To measure it, you can do this manually by selecting a representative sample of customers and using a spreadsheet to calculate CLV, or you can work with your IT and accounting teams to create this metric in existing software systems.

As was clear from the previous topic, the purpose of measuring this indicator is to use the data to maximize the CLV in relation to the CAC.

3. Monthly recurring revenue#

Monthly recurring revenue, often referred to as MRR, is probably the most important metric in all businesses, especially those in the subscription format. That’s what makes this business model so good. Once you acquire a new customer, you get recurring revenue, which means you don’t have to worry about one-time sales every month. Unlike traditional sales, the area offers new challenges, such as retention and turnover.

The general concept is that MRR is a measure of the predictable and recurring revenue components of your business. It normally excludes single and variable fees, but for month-to-month businesses, these items may be included.

The best way to do this is simply by adding up the monthly fee paid per paying customer. So let’s say you have “Customer A” paying R$ 200 a month and “Customer B” paying R$ 100 a month. Your MRR would be R$ 300. Each customer may pay a different amount, as you may have different plans or specific events in your portfolio.

4. Customer retention rate#

The customer retention rate is a metric used to calculate the loyalty of your customers. Acquiring new ones costs more than retaining current ones. Determining how dedicated a customer is to your company allows you to improve your business strategies. If you can encourage loyal customers to stay longer with your business, you’ll maximize your revenue.

For example, if you start a quarter with 25 customers (CS) and gain 10 new customers (CN) but lose 7 in that quarter, the customers at the end of the period (CE) will be 28. Using the following formula, you can determine what your customer retention rate is, which in this case would be 72%.

The formula to be used for customer retention rates is = ((CE - CN)/CS)) x 100. Subtract new customers from the number of customers at the end of the period, divide them by the customers at the beginning of the period, and multiply by 100 to obtain the customer retention percentage.

5. Return on Investment (ROI)#

One of the performance indicators that is essential for you to monitor in your company is ROI. ROI is a measure used to assess the efficiency and profitability of an investment. By calculating it in marketing, organizations can measure the degree to which marketing efforts, holistically or on a campaign basis, contribute to revenue growth. Typically, marketing ROI is used to justify marketing spending and budget allocation for ongoing and future campaigns and initiatives.

At the organizational level, calculating the return on investment in marketing can help guide business decisions and optimize marketing efforts. For marketers, understanding the ROI generated by the campaign helps:

• justify expenses;
• distribute marketing budgets;
• evaluate the success of a campaign;
• carry out competitive analyses.

While there are several different ways to calculate marketing ROI, the main formula used to understand the impact of high-level marketing is relatively simple: (sales growth - marketing cost) /marketing cost = marketing ROI.

It’s important to note, however, that this formula assumes that all sales growth is tied to marketing efforts. To generate a more realistic view of marketing impact and ROI, marketers must account for organic sales: (sales growth - organic sales growth - marketing cost) /marketing cost = marketing ROI.

When taking advantage of marketing ROI formulas, it’s also important to understand the total ROI marketing efforts generated. Be aware that the definitions for an actionable “return” may vary based on the marketing team’s strategy and campaign efforts, as well as the overheads related to the implementation.

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In short, whether you’re just starting out or need to reformulate your current marketing strategy, defining the performance indicators that really matter is the foundation for successful campaigns. After all, how can you identify an appropriate strategy without understanding the objectives you’re trying to achieve? Effective marketing is a science, not an intuition — and that means you need to track numbers, analyze data, and measure results analytically.

Tracking key performance indicators is just one of the strategies for optimizing marketing management. Do you want to continue learning about the subject? Subscribe to our newsletter and receive other content directly in your inbox!