Customer data is your golden ticket when developing a data-driven marketing strategy.
Without various data sources such as Google Analytics, email sign-ups, paid media results and more, it’s near impossible to analyze what’s working for your business…and what isn’t.
Marketing is debatably both an art and a science. The jury is permanently out on that discussion, but we have a couple reasons why the scientific data matters for your advertising. Here are four key indicators of success (or failure) for your next marketing strategy. These invaluable metrics help you determine if your efforts are driving the highest possible return on investment (ROI). Let’s dive in.
1. Key Performance Indicators (KPI)
What are your business goals and objectives? What does your business look like in 3-5 years? These are all starting points when determining the goals of your marketing strategy. Success of your marketing strategy is measured by bite-sized metrics called Key Performance Indicators (KPIs).
KPI = Numerical metrics that measure progress toward a defined goal within marketing channels
Your goal is your North Star and key metrics are your compass to help you get there. It is crucial that your KPIs are aligned with what is going to move the needle for the business. These metrics are based on what stage of the consumer journey you’re targeting and might include impressions, engagement rate, conversion rate and so on. The idea is to evaluate the progress and pacing towards those KPIs.
2. Average Transaction Value (ATV)
We admit: these ATVs aren’t as fun as the one in your dad’s garage, but they make way more money and less noise. The Average Transaction Value (ATV) is the average amount a customer spends on a single purchase. This calculation tracks the average dollar amount that a customer could spend with your business in one single transaction.
ATV = Determine time frame and then (Total Transaction Value) / (Total Transactions)
In order to identify your ATV, you’ll need:
- Time Frame: This can include for one business day, week, month, quarter or even annually
- Total Transaction Value: Dollar value of all transactions in the selected time frame
- Total Transactions: Number of transactions in the selected time frame
Increasing your ATV can lead to higher revenue and profit for your business and is a good indicator your sales strategy is working. Understanding your ATV can provide an idea of how customers are interacting with your products and services. A lower ATV may be a sign to optimize your sales tactics to encourage more spending.
3. Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is an important business data point to inform how much you should invest across your marketing strategy. By definition, CLV is the average monetary worth of your customer. This data measures their full value instead of zooming in on transactions. Use this formula to calculate your Customer Lifetime Value:
CLV = (Average Order Value) * (Average Purchase Frequency) * (Average Customer Lifespan)
If you’re ready to calculate your CLV, you’ll need:
- Average Order Value: Average revenue gained from your customers
- Average Purchase Frequency: How many purchases they place per year
- Average Customer Lifespan: Average length of time they do business with you
Once armed with your CLV, you can create a data-driven marketing strategy. First, you’ll want to define how much to spend on marketing to acquire new customers. B2B vs. B2C businesses will have different benchmarks, but typically will spend 10–20% of their CLV on marketing to reach new customers.
A marketing strategy can apply this data to identify the most profitable steps of the marketing funnel. Your goal is to reach your most profitable customers for as little spend as possible. Data gained from your strategy can pinpoint which media channels offer a lower cost per acquisition and therefore, you can strategically allocate more dollars into that channel.
CLV will take the guesswork out of your marketing strategy and provide insights and data based on your goals, the product/service you sell and the audience you’re trying to reach.
4. Conversion Rates
Conversion rate data measures how effective your marketing strategy is; however, it is important to determine what a conversion means to your business. A marketing conversion is defined as the desired action taken by your targeted consumer which can include the following:
- Phone calls
- Form fill completion
- Newsletter sign-ups
A data-driven marketing strategy will use your previous conversion rates as a foundational baseline for performance optimization. If you don’t have previous data, there are numerous sources of industry benchmarks to compare against. The formula to calculate this data is:
Conversion Rate = (Clicks or Visits) / (Desired Action Completions)
- Clicks: Total amount of clicks a link, ad or post received
- Visits: Total amount of visits to your website or landing page
- Desired Action Completions: Total conversions attributed to the marketing tactic
Your conversion rate data equips your marketing team with a number of insights. A high conversion rate indicates that your audience is resonating with your advertising efforts. On the other hand, a lower conversion rate means it is time to change things up. This will vary by business and campaign, but a hypothesis can start by adjusting your advertising spend, A/B testing creative or reviewing the landing page’s effectiveness.
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All of these metrics are crucial to develop a data-driven marketing strategy that drives meaningful results. As a marketing agency, it is important for us to collect as much data as possible at the onset of a new client engagement to build our strategy and continue to shape it as your business evolves. Intuition alone is not enough to be successful and grow your business.