As data has become the lifeblood of businesses of every kind, it’s become increasingly clear that the volume of data matters little compared to how that data is harnessed to extract valuable insights that help drive a business towards success.
Those insights are usually in the form of key performance indicators (KPIs)—metrics pulled from the data that help managers and executives monitor and assess key areas of performance. After all, you need to be able to measure your business performance if you want to succeed.
Some KPIs come from the data without much fuss, namely direct metrics— the raw data that you gather related to your finance, sales, customers, or products to convert it into information.
But derived metrics elevate your data further. Derived metrics combine your direct metrics into math equations that help you understand key performance areas more comprehensively and more precisely, helping you drive key business decisions more successfully.
Because they take more into account, derived metrics help you get an accurate read on your business’ performance and provide insights that you can confidently take action on. You get to see what’s working and what’s not so you can adjust accordingly and course-correct your marketing strategy, so it is at its best.
Choosing the right derived metrics as part of your suite of KPIs is just smart business. Here are the ones we find essential to help CMOs manage, monitor, and streamline the work of their marketing teams.
Conversion Derived Metrics
Conversion metrics might be one of the most important marketing metrics in your dashboard or other reporting systems. Your conversion rate is the number of visitors who have completed a goal on your website. The higher the conversion rate, the more successful your marketing campaigns are working for you. Here are four essential KPIs to monitor conversion:
1. Traffic to Lead ratio
This KPI is especially valuable for businesses that have their website serving as a major business tool, such as e-commerce or SaaS.
The traffic-to-lead metric gives you valuable insight into the performance of your website and how well it is reaching your ideal target market and how well it is serving sales.
While traffic to your website might be growing exponentially, if the number of visitors interested in your product or service isn’t growing along with it, or even if your traffic is steady or increasing—yet your traffic-to-lead ratio is low or decreasing—it’s a clear signal that opportunities are being missed and your marketing investment is not paying off yet.
Traffic to Lead Ratio = Leads / Website Visitors
For example, if you have 100,000 website visitors in a month and 5,000 leads, you’ll have a traffic-to-lead ratio of 5:100 or 5%.
Once you have a baseline for this metric, you can track it across time as well as analyze what you need to do to improve it.
2. Landing Page Conversions
Your landing pages might just be the most important pages on your website. While a website is primarily built to convey information and inspiration, landing pages are specifically designed to motivate user engagement, collect contact information, and convert visitors. That means that evaluating your landing page conversion performance can help you decide if and where improvements need to be made to get better results.
What is a “good” landing page conversion rate? One study showed that the median conversion rate for all business types ranged between 3% and 5.5%, but that they varied quite a bit from one industry to the next. The top 25% of sites are converting at 5.31% and above, while the top 10% are looking at 11.45% and above.
Landing pages don’t exist in a vacuum. Other variables that affect their success include the offers you put out, the degree of environmental demand, and your audience’s behavior.
When combined with targeted traffic, some landing pages perform much better.
Calculating a conversion rate is relatively simple. Take the number of conversions you get in a chosen time frame, divide by the total number of people who visited a landing page, and multiply the result by 100.
Landing Page Conversion Rate = (Conversions / Total Visitors) x 100
You can use this metric to determine how well one of your landing pages is converting, but you can also compare performance among several landing pages. You can also use it to compare and contrast performance from visitors coming from different campaigns to see which is working best for you.
3. Traffic to Subscribers Ratio
Newsletters and blogs provide huge conversion opportunities when you publish thoughtful and helpful content about your industry for your key target markets. The traffic-to-subscribers ratio gives you insights into whether or not those mediums are delivering.
This derived metric gives you an inside look at how deeply visitors are engaging with your content—in other words, how successful your website is at getting your visitors to subscribe. It does so by comparing the number of people who subscribe to your newsletter or blog to the number of visitors to your website.
You can also use this KPI to test out different content, placements, and other strategies on your website.
Traffic to Subscribers Rate = New Newsletter Subscribers / Unique New Visitors
The formula is a simple one. Divide the number of new newsletter subscribers by the number of unique new visitors within a certain period of time, such as a month. Then compare month to month to see trends and trajectories.
4. MQL to SQL Conversion
MQL to SQL conversion is a derived metric that reveals how well your content and lead-nurturing strategies are delivering on their promise.
First, let’s review the definitions of MQL and SQL. A marketing-qualified lead, or MQL,
is a lead that is considered more likely to become a customer than other leads. The determination is usually made based on the web pages they’ve visited, what they’ve downloaded, and other ways they’ve engaged with your business’s content—in other words, any of the content within your marketing strategy.
Once a visitor is deemed an MQL, every subsequent action that they take becomes an opportunity for you to collect data about their habits and needs. When it’s determined that they’re ready for your sales team to contact them, answer specific questions, and offer one-on-one time, they become an SQL—a sales-qualified lead. For example, if a prospect participates in a webinar and has a question about LinkedIn content strategy, your sales team can pick up the ball and run with it.
The MQL to SQL conversion rate, then, is the percentage of MQLs that get converted to SQLs. It’s one of the best ways to determine your lead quality and an excellent indicator of how well your marketing team is qualifying and screening leads to maintain a high-quality pipeline.
MQL to SQL Conversion rate = (Number of SQLs / Number of MQLs) x 100
As usual, you should define these derived metrics per time period, such as a month or quarter. For example, if you had identified 120 MQLs and 24 of them converted to SQLs, your conversion rate would be (24/120) x 100, or 20%.
This metric can be used in several valuable ways.
- You can compare the number of participants to your webinars and the number of sales conversations or demo requests among your webinars’ audience.
- You can look at the number of conversions coming from your inbound and outbound email campaigns to improve your messaging or contact segmentation. A/B testing is also a great way to understand what works best as you test templated vs. personal email content, subject line candidates, the content hierarchy of the email, and so forth.
- It will also be valuable to use this metric to determine which content and which topics are more effective at converting MQL to SQL. Armed with those insights, you can revitalize and optimize your marketing and sales strategies.
Financial Derived Metrics
5. Customer Acquisition Cost (CAC)
Your cost of acquiring a customer tells you how much it costs your business to convince a lead to become a customer. While this KPI is a concern for the marketing department, it also speaks volumes about the performance of the business as a whole. If the cost of getting customers is more than the revenue made from those customers, then you need to pivot your marketing and sales strategies. It’s crucial to understand how to expand your customer base and still make a profit.
The lower the CAC, the more it indicates that the business is spending money efficiently. And it should be reflected in increased profits.
Customer Acquisition Cost = Cost of Sales and Marketing / Number of New Customers Acquired
In this calculation, the cost of sales and marketing usually includes such expenditures as ad spend, employee salaries, creative costs, technical costs, production costs, and inventory maintenance. The metric should be applied to a specific range of time, such as a month, quarter, or year, which can then be compared to other similar periods of time.
For example, if your business spends $100,000 on acquiring customers and that results in 2,500 new customers, your CAC would be (100,000/2,500) or $40.00.
6. Revenue Growth
If there’s one number every business owner or top executive should always know, it’s the company’s growth rate. Revenue growth reveals the increase or decrease in your company’s sales between two periods and the degree to which your company’s revenue has expanded or contracted over time.
If you’re a startup, this KPI gives you a solid indication of how quickly your startup is growing. If you’re in the early stages of growth, you might want to track revenue growth on a weekly basis—rather than the monthly basis shown in the calculation below—to gauge progress. As a result, you can measure month-over-month developments.
Revenue growth numbers also help investors evaluate a startup’s current and potential growth.
Revenue Growth Rate = (1st Month’s Revenue – 2nd Month’s Revenue / 1st Month’s Revenue) x 100
Revenue growth is calculated as a percentage. Subtract the previous period’s revenue from the current period’s revenue, then divide that number by the previous period’s revenue and multiply the result by 100.
7. Monthly Recurring Revenue (MRR)
Many marketers believe that the monthly recurring revenue (MRR) is probably the most important derived metric for a subscription-based business.
As a measure of the predictable, recurring revenue components of your subscription business, such as subscription costs, retainers, and other predictable purchases, the MRR tells you how much you and your investors can expect your company to bring in every month.
In fact, the MRR is often at the center of the business model of SaaS companies, telecommunication companies, and banks. It is one of the key KPIs that they track.
MRR provides a quick way to monitor and project your future revenues. It gives insights about your growth; if your MRR is growing over time, your business is growing; if it is shrinking, so is your business.
MRR = (Average payment for all customers / Total Number of Customers that month) x Total Number of Accounts
You can break down MRR further to give you more insights, such as new MRR, expansion MRR, and contraction MRR.
8. Return on Marketing Investment (ROMI)
The ROMI metric is the ROI for your marketing investments, telling you exactly how cost-effective your marketing efforts are paying off as a whole. But it can also be used to determine the pay-off of your ads, marketing campaigns, SEO, emails, blogs, and other elements of your marketing strategy. You can use ROMI to compare and contrast your marketing channels and promotion tools and see which ones are helping to increase profits and which ones are creating losses.
Having those insights, you can review and reallocate your budget to feed the more cost-effective campaigns and reduce your expenditures on the ones that aren’t delivering.
Especially for subscription-based businesses, ROMI can inform strategic and tactical decisions and measure the business value of the marketing team’s efforts.
ROMI = (Marketing Revenue – Marketing Expenses) / Marketing Expenses x 100
ROMI can help you track the value of your marketing department incrementally to assess both the longer-term value of your marketing activities as well as shorter-term revenue and profit.
Customer Retention Derived Metrics
9. Customer Lifetime Value (CLTV)
Another important derived metric for growing companies, CLTV indicates the total revenue that your business can expect from a single customer account throughout the course of that relationship. Not surprisingly, the longer a customer stays with a company and purchases products, subscriptions, or services, the greater their lifetime value becomes.
Use CLTV to determine which customer segments are most lucrative to your company. The insights gained from CLTV can point to how your marketing efforts can capture and retain more valuable customers.
Customer Lifetime Value = (Customer Value x Average Customer Lifespan)
Customer Value = Average Purchase Value x Average Number of Purchases
If you compare CLTV to your customer acquisition costs (CAC), you can measure how long it takes to recover your acquisition cost.
10. Customer Retention Rate (CRR)
It costs five times as much to acquire new customers than it does to retain existing ones, so monitoring and managing customer retention values can help you operate more cost-effectively.
Your customer retention rate (CRR) tells you how many customers you hold on to over a certain period of time. High customer retention is an indication that your business is providing value to your customers relative to other products or services on the market. A low CRR might indicate that negative customer experiences are driving them away.
Customer retention is especially critical for marketing teams to monitor because it gives them feedback about how well they are conveying your business’s value. The longer you can retain customers, the more their customer lifetime value grows, and the more you can focus your efforts on more targeted markets.
Customer Retention Rate = (# of Customers at the end of the period – # of Customers acquired during the period) / # of Customers at the start of the period
11. Net Revenue Retention (NRR)
A related valuable metric is Net Revenue Retention (NRR), a popular KPI to monitor the performance of SaaS businesses. NRR measures the overall impact on the revenue generation of your existing customers. The metric will indicate whether a business is healthy enough that it can grow without acquiring new customers.
Net Revenue Retention = (Monthly recurring revenue of the last month + Revenue generated through upgrades and cross-sells – Revenue lost through downgrades – Revenue lost through churn) / Monthly recurring revenue of the last month
12. Repeat Purchase Rate (RPR)
The repeat purchase rate is especially useful to help you determine how loyal your customers are by determining what percentage of your customers are repeat buyers. Clearly, loyal customers are valuable to the company; they typically spend more than new ones—around 67% more—and they tend to advocate for and refer your brand.
When RPR is low, marketers need to investigate what is keeping customers from coming back. Have they had a poor (online or in-store) purchase experience? Or were they disappointed in the quality of the product or service?
RPR = # of Repeat Customers / # of Total Buying Customers
13. Brand Advocacy Rate (BAR)
How successful is your company at getting loyal customers to advocate for your brand—write testimonials and reviews, share content and post on social media, organically promoting your products or services to new customers? In other words, do free marketing?
To a business, brand advocacy can translate directly into sales growth. Highly satisfied customers that speak on behalf of a brand are twice as valuable as average customers, helping to drive additional purchases.
Keeping tabs on brand advocacy derived metrics like BAR can help you see how well your company is converting people with simple brand awareness into full-blown advocates. The higher BAR means that more people will recommend the brand and that the brand has a good reputation in the market.
Referral programs (e.g., “Refer a Friend”) can play an important role in brand advocacy promotion, too. Referrals produce an average conversion rate of 35% from referral to purchase. It’s no surprise since word-of-mouth referrals —including online reviews and recommendations by friends and family—are more trusted than any other form of marketing.
14. Net Promoter Score (NPS)
Use the Net Promoter Score (NPS) as the central metric to gauge customer loyalty to your brand. The NPS simply consists of one question:
“On a scale of 1 to 10, how likely are you to recommend us to your friends and family?”
Brand advocates are those that respond with a 9 or 10.
Now that you can quantify brand loyalty, you can calculate your brand advocacy rate.
BAR = # of Customers Advocating for your brand / # of Customers Aware of your Brand
Once you know who your brand advocates are, you can empower them. You might consider giving each one an up-to-date dashboard so they can track their referrals and reward status. Even give them fun and rewarding opportunities to share their enthusiasm about your brand. In addition, create an advocate profile and go looking for potential advocates that aren’t customers yet.
Finally, don’t forget to track your results. What a great set of metrics to put in a dashboard!