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While in theory companies value synergy between marketing, sales and product teams, in practice they often struggle to create a cohesive atmosphere and deliver a seamless customer experience.
According to a LinkedIn report, approximately 90% of sales and marketing professionals understand that working together can have a positive impact on customer experience. However, nine out of 10 also say they have inconsistencies in strategy, process, content and culture.
To get every team on the same page, the right key performance indicators (KPIs) should be developed. The tricky bit is determining where one department’s responsibility ends and another’s begins. At these intersections, we must consider more detailed KPIs tailored to specific business needs.
In this article, I will introduce five important metrics to connect departments and measure the effectiveness of this coordination:
- The conversion rate (CR) of the entire pathway.
- new income.
- Customer acquisition cost (САС).
- Customer lifetime value (LTV).
- Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR).
1. Conversion rate of the entire channel
Monitoring conversion rates at each stage of the customer journey can provide valuable insights into the effectiveness of marketing efforts, sales processes, and products. This metric enables teams to identify bottlenecks, refine strategies and create a more seamless transition from awareness to purchase.
HubSpot also found that looking at revenue generated, conversion rates, and deal closing rates can show whether teams are aligned correctly.
For example, as the head of marketing at Belkins, my main KPIs are CAC and new revenue. Our sales leaders also have two main KPIs: new revenue and SQL-to-customer CR. As you can see, our sales and marketing teams have a common KPI: new revenue.
Why did we choose these KPIs? If my marketing team isn’t focused on new revenue, they aren’t very concerned about lead volume. If the sales team isn’t tracking new revenue, they won’t be interested in the quality of those leads.
2. New income
Tracking new revenue is critical to evaluating the success of your efforts to expand your customer base. It includes revenue generated from first-time customers, upsells, cross-sales, and new product or service launches.
Understanding the sources and drivers of new revenue enables your team to replicate successful strategies, target high-potential markets, and capitalize on emerging opportunities.
To find it, perform the following calculation:
Revenue = sales × average order value (or sales price)
For example, you signed 21 new contracts last year with an average value of $7,500. This means you earned $157,500 last year.
My suggestion is to dynamically monitor this indicator compared to the previous period. You can use the revenue growth formula to do this:
Income growth = (Income of the current period – Income of the previous period) / Income of the previous period
As a result, you will be able to detect positive or negative changes and expand activities that lead to better results, or review and change your approach until it is too late.
Digging deeper: How to make revenue generation a company-wide effort
3. Customer acquisition cost
If you want to understand the effectiveness of your campaigns, you should regularly measure the cost of acquiring new customers. You can do this using a simple formula:
CAC = (Sales Expenses + Marketing Expenses) / New Customers Acquired
It’s worth noting that CAC covers all costs associated with acquiring new clients, including marketing campaigns, advertising, and team salaries.
By calculating CAC, you can measure the return on investment of your customer acquisition strategy. A lower CAC means a more efficient and cost-effective approach, while a higher CAC may indicate a need to adjust your acquisition strategy.
Although there is a unified measurement standard LTV/CAC > 3 You should note that each acquisition pipeline and each industry has its own characteristics.
To balance your CAC, all of your teams should work to optimize their spend—whether it’s sales, marketing, or product development. This is not about salary cuts or layoffs.
For example, we reviewed paid tools and subscriptions used by different departments, only to find that some had the same functionality. Another favorite example is that by reviewing our PPC strategy, we managed to reduce ad spend by 38% while increasing conversion rates by 16%.
4. Customer lifetime value
Another North Star metric that illustrates the long-term value that customers bring to your organization is the customer’s LTV. By understanding the cumulative revenue a customer generates during their relationship with your brand, your marketing, sales, and product departments can work together to improve the customer journey, thereby increasing lifetime value.
To measure LTV, follow this formula:
LTV = average order value × order frequency × life cycle
Here, the meaning of the input is as follows:
- Average order value is revenue divided by the number of purchases made during a specific time frame.
- Order frequency represents the number of orders divided by the number of new customers during a given period of time.
- Lifecycle is the average number of years it takes a customer to purchase a product from you.
For example, let’s say you own a B2B SaaS company. Last year, you generated $1,800,000 in revenue from 360 orders, acquired 60 new customers, and had one customer who stayed with you for approximately 8 months.
- Your average order value = $1,800,000 / 360 = $5,000
- Your order frequency = 360 / 60 = 6
- Your customer LTV = $5,000 × 6 × 0.8 = $24,000
To get a true picture, I recommend deducting acquisition costs and any other expenses required to acquire a customer.
Digging Deeper: Category Leaders’ North Star Goals: The Customer Lifetime Value Model
5. Monthly recurring revenue and annual recurring revenue
Monthly recurring revenue (MRR) and annual recurring revenue (ARR) should be a focus for all company leaders, especially for companies with products or services that employ a subscription-based model.
MRR measures the predictable revenue a client generates each month, providing a stable foundation for financial planning. ARR, on the other hand, provides a broader perspective by extrapolating monthly earnings to annual figures.
Monitoring these metrics enables accurate revenue forecasting, allowing your team to make informed decisions and allocate resources efficiently.
To calculate them, use the following formula:
Total MRR = average revenue per user (ARPU) × total number of paying customers
Total ARR = total annual revenue from new subscriptions
If you charge your customers monthly, calculate ARR as follows:
ARR = contract value × (12 / number of months you signed the contract)
For example, you sign a 5-year contract for $100,000 with monthly payments. Therefore, your ARR will be $100,000 × (12/60) = $20,000.
If your client pays annually, you can use the following formula:
ARR = contract value/number of years you have signed the contract
Note that your calculations should not include one-time payments. Additionally, for net MRR and ARR, churn is not included.
Bridging the gap between marketing, sales and product teams
Now that you have these basic KPIs, make sure there is at least one identical metric between different departments at each stage of the sales funnel. Therefore, when the responsibility is transferred to another team, they still have a common goal to achieve.
Also, make sure there are no mutually exclusive KPIs. For example, increase the conversion rate of paying customers for the product team while increasing the number of briefings for the marketing team.
Once you’ve done this, you’ll see how your team’s motivations change to influence results and collaborate with other departments.
Dig Deeper: 4 Agile Marketing Metrics That Really Make a Difference
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The views expressed in this article are solely those of the guest author and not necessarily those of MarTech. Staff authors are listed here.
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