Countless research has been done to illustrate the rift that exists between sales and marketing—from the misalignment of objectives to the disconnect in basic communications. The two groups have a long history of difficulty getting on the same page. However, there is one metric that can help align their efforts and, if embraced, can go a long way toward integrating the two groups.
A recent study by ITSMA and RainToday.com highlighted the metrics regularly used to measure the success of lead-generation activities. The top responses are what one would expect: Number of Qualified Leads (68%), Number of Closed Deals (63%), Revenue Growth (54%).
The metrics that ranked lowest are far more interesting and valuable to strategic marketers: Cost per Customer Acquired (15%) and Lifetime Value of Customers Acquired (19%). The lowly ranked Customer Lifetime Value metric is often an overlooked but very valuable metric for aligning the performance of various groups across an organization.
For example, a company that sold six-figure primary research reports found its customer acquisition model unable to support future growth. Acquiring new customers was largely a transactional effort, i.e., “one and done.” In order to meet revenue objectives, it had relied heavily on marketing to generate new opportunities to fill the pipeline. But moving forward, the traditional demand-generation model was unsustainable. It could not increase marketing budgets to support the volume of leads needed to reach new revenue targets.
The key to solving this challenge came from calculating their Customer Lifetime Value (CLV). Almost immediately, the analysis pointed to issues with the company’s average price point, year-over-year churn rate (retention) and average account size. Not surprisingly, the company had a negative CLV, but no one was measuring or managing it.
Even though the symptom of the underlying problem manifested itself in marketing, it was not just a marketing issue. The challenges reached across the organization and into the product, sales and service groups. Of course, understanding the cost envelope for acquiring customers helped guide future marketing investments and activities, but fixing this problem was not only about cutting or right sizing the marketing budget.
As a result of the analysis, the firm set itself on a course to build and implement other areas of improvement:
- An upsell and cross-sell program
- Complimentary products that could be sold as follow-on/add-on
- Enhanced products to drive higher initial price points
- An account management and retention program
By implementing the aforementioned tactics, the company was able to correct the problem and generate a profitable CLV, which became a key performance indicator (KPI).
Organizations using CLV as a KPI have an early-warning system that can indicate these issues:
- Targeting the wrong audience – too small, short-term focused, etc.
- Creating the wrong type of leads – clients may be interested only in the initial offer and not in a longer-term relationship (see the next point for more detail); the value of the lead is not worth the cost.
- Promoting the wrong offer – the offer may be serving as an incentive for the wrong behaviors, which is especially true with discounts associated with individual purchases, such as retail store cards that offer 10% off the first purchase if a customer opens an account.
- Setting the wrong price point – the true cost of the sale may not have been considered or known.
- Having retention and/or account management issues – this issue often shows up quickly (aka the “leaky bucket”).
As illustrated in the case study, the symptom may show up in marketing; however, these issues will cut across the organization. Budget cutting will not fix the problem. Marketers need to be able to point to other parts of the equation that are contributing to the issues, which is good for the other CLV: Career Lifetime Value.
by Scott Gillum
President gyro Washington, D.C. and Head of gyro’s Channel Marketing Practice
Follow Scott on Twitter @SGillum
Cross-posted at Ignite Something on the Forbes CMO Network