Would you hire an employee, pay them a salary, and never check on their work, never set goals or measure performance? Of course not! It doesn’t matter if your firm is a two-man operation or a 200-person company; you have a limited amount of money to spend on salary. If you are smart, you use performance measures to gauge whether your money is being well spent.

While most business owners understand this idea when it comes to employees, they don’t see that it applies equally well to their marketing. In a very real way; the $10,000–$100,000 you are spending on marketing is like hiring another employee. Marketing metrics help you figure out if the money is being well spent. Paying attention to the metrics helps you refine your marketing expenditures each year. However, it is easy to get bogged down with too many metrics. Ideally, you should measure things that:

• Drive or reflect business results.

• Can be influenced by your direct action.

• Can be measured accurately, consistently, and cost effectively.

The following excerpt comes from a business plan we wrote for a small firm, describing how they would measure marketing performance. Notice the specific and very measurable goal:

Relevant customer data and contact information is collected in ACT. The source of new customers is also captured. As e-mail campaigns are launched, “open” and “click-through” rates will be tracked to measure effectiveness of programs. Log files capture data regarding Web traffic.

We will budget $500 per month for search-engine optimization. We need to acquire three new customers each month from this program. In addition, by monitoring our results, we will adjust Web copy to include the most popular search terms.

These were tactics, which were relevant to them. You have to find measures, which work for your business. Because much of marketing is focused on customer acquisition, at least some of your metrics should measure elements contributing to your effectiveness at attracting new customers.

Customer-acquisition metrics include:

• Awareness levels. Have prospective customers heard about you? Is your name the first that comes to mind in the product category?

• Rate of customer acquisition. How many new customers have you added this month?

• Market share. Of the total number of potential customers in your market, what percentage comes to you?

• ROI (return on investment). As you evaluate the performance of a marketing program, divide the cost of the program by the total number of clients you gained as a result. Compare the cost to the average sale per customer. How much are you spending to add one more customer?

By turning loyal customers into advocates, your customer-acquisition costs will decrease as the value of each current customer increases. Therefore adding new customers is only one-half of the equation. The other half of the equation is the metric providing feedback on your customer retention success.

• Retention rate. Improving customer retention remains one of the most effective ways to drive profits to the bottom line. What percent of your customers renew services or buy from you a second, third, or fourth time? While customers are unlikely to need a second new furnace, how often do they sign up for annual maintenance programs? Or if you have both plumbing and HVAC services, how often does a plumbing customer become an HVAC account too?

Once you understand how successful your existing marketing is, you can make better decisions about where to spend next. And just like with an employee who continues to miss goals and perform at a sub par level, sometimes, you have to end the relationship. Metrics will help you decide when it is time to move on.

Publication date: 01/25/2010