Unless you’re in e-commerce, one of the biggest frustrations and challenges facing marketers is proving the success of a particular marketing program. Clients want to see a positive impact on their bottom line as soon as possible, but marketers cannot always prove that return.
Marketers struggle to consistently demonstrate a marketing program’s profitability because not every marketing activity can be attributed to a purchase, new client acquisition or other performance outcome. Revenue can trail behind marketing activities by 3 to 12 months, depending on your respective industry. Marketing automation is helping to close the gap between sales and marketing and to increase sales attribution, but lag time still persists.
Because lag time prevents marketers from understanding the relationship between marketing input and revenue, we must demonstrate ROI in a different way — through key performance indicators (KPI). Marketers that identify a KPI and understand its relationship to revenue can approximate the future returns of a marketing program through that KPI — and perhaps even redefine a program’s success.
Identifying The Right Metric
KPIs have many definitions, but I appreciate this explanation from a 2011 MarketingProfs article that still applies today. “KPIs serve as a special type of metric. Whereas all marketing metrics should help marketers assess their performance, KPIs are intended to provide leading insight into the future impact of marketing efforts on business outcomes. They indicate a change in performance and provide insight on how to influence success.”
By learning how KPIs relate to revenue, we can effectively forecast and optimize our marketing activities to encourage a successful result in the future — without waiting for revenue numbers.
To choose an appropriate KPI, look backwards in time 6 to 12 months, depending on your sales cycle. Your goal is to find a strong correlation between KPI and revenue (or another specific business goal). Because a KPI indicates what your revenue or business outcome will be, it’s essential to reference data with a strong correlation so you are not making decisions based on anomalies.
For example, let’s say I plot the number of product demonstrations that occurred from January through October in 2015. If the peaks and valleys of that graph align with sales numbers for May 2015 through February 2016, I know there is a correlation between demonstrations and sales. Product demonstrations then become our KPI. With a little math, I can then estimate revenue 90 days out based on the number of product demos scheduled this month.
Every industry is different. Your KPIs could be initial sales meetings, product demos, free trials, sample requests, etc. The key is to find yours.
Using KPIs to forecast future returns keeps marketing accountable to its stakeholders, and satisfies the question, “Is what we’re doing working, and if so, how can we prove it?”