How to Measure Marketing Performance

How to measure marketing performance

Choosing how to evaluate marketing performance is the first step for any marketing department. Marketing performance can be measured by selecting important metrics and key performance indicators — from return on investment to cost per lead. Let’s look at some of the metrics your marketing department should be tracking to measure marketing performance.  

Return on investment (ROI): In marketing terms, it’s often important to measure marketing return on investment specifically to fully understand how much the marketing department spent and how much resulted from the resources spent. Tracking ROI requires a clear understanding of what sales are resulting from marketing activities.  

• Example: A company runs a marketing campaign to generate sales for a new product. The marketing campaign cost $1,500 and generated $5,500 in sales. The ROI on this effort by the marketing department was $4,000, or the profits minus the costs to promote it.  

Cost per sale: Cost per sale is breaking down the ROI into individual units to measure the marketing cost for each individual win or sale.  

• Example: If the above-mentioned marketing campaign with a budget of €1,500 generated 100 sales, the cost per sale would be €15. This number becomes important when marketing departments measure the cost of campaigns against each other and determine which was most cost-effective. 

Cost per lead: Marketing departments will also want to track the amount they spend to generate each lead for the sales team, otherwise known as cost per lead. The lower the cost per lead, the more cost-effective the marketing activity. This marketing metric measures the amount spent and divides it by leads generated. 

• Example: If a marketing department undertakes their ad campaign and spends €1,500 and it generates 10 leads for the sales team, the cost per lead would be €150.  

Conversion rate: The conversion rate further distills the information about how well the marketing team’s budget and activities are working, measuring how many of the leads successfully convert into sales, sign-ups, or even downloading an eBook or white paper. Conversion rate measures how well the marketing activities are working to get the audience to do what you want them to do. Marketing teams often measure conversion rates with regard to website traffic, but they can also be measured in relation to how many leads convert into sales.  

Customer lifetime value (CLV): A customer’s lifetime value relates to the number of purchases a customer has made in the past. CLV is generated by multiplying the number of purchases a customer makes per year by the average number of years a customer purchases products from the company. Using this information, a marketing department can focus communications specifically on those customers with the highest lifetime value, hopefully driving more sales and retaining their business.  

Marketing departments don’t tally this information themselves. Instead, they use a selection of marketing analytics tools and software to compile, analyze, and compare these metrics to measure marketing performance. Tracking and weighing these marketing performance indicators can result in more cost-effective marketing campaigns and optimized campaign resource allocation.