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Market Share Analysis – Annual Plan Control

Audio Version — 6:41

Is Your Company or Product Leading or Trailing the Competition?

The market share analysis is another tool used as part of the marketing annual plan control and closely related to the sales analysis tool. Market share indicates how your company is doing in terms of unit or revenue sales compared to your competition. However, market share is perhaps the most overused and misused marketing metric. 

Experienced marketers downplay the role of market share or ignore it outright as their processes and ways of measuring success have evolved, making market share analysis irrelevant. However, if the metric is used correctly, in context, and for the right purpose — as with all metrics — then market share is a useful tool for short-term use.

Overall Market Share Analysis

Illustrated pie chart - hand drawn.There are several ways of calculating market share. The most common metric is the overall (or total) market share analysis. The overall market share is the percentage of a market in terms of either unit sales or sales revenue. In other words, it’s the company’s total units sold or revenue generated in comparison to the market’s competitors. 

Understanding the total market share helps marketing managers determine their total market growth or decline and helps them gain insights into trends for how customers make competitor selections. 

Organic sales growth (or the total market growth) costs a company less and is more profitable than the firm seeking to achieve growth by capturing competitor shares. However, losses in market share may signal long-term problems that require the firm to make strategic adjustments to its marketing plan. A company with a market share below a predetermined level may not be profitable, thus not a viable business. Also, firms can use shifts in their product market shares as leading indicators of future opportunities or potential competitive challenges. If a product’s market share dips below a specified level, marketers need to look at various scenarios to determine the cause for a drop in sales. Conversely, suppose sales surge, and the firm gains market share. In that case, this could indicate a problem with the competition or other potential scenarios that require closer analysis.

How Overall Market Share is Calculated

Calculating market share is a relatively simple process. However, gathering competitive data may prove arduous without the proper primary or third-party research data. Assuming that you have this data, market share is calculated in two ways, as mentioned earlier: unit sales and sales revenue.

Unit Market Share is the units sold by a firm as a percentage of total market sales. The formula for unit market share is:

Unit Market Share Formula

 

Revenue Market Share reflects the price of sold goods. The formula for calculating revenue market share is:

revenue market share formula

 

Relative Market Share Analysis — A Better Metric

sketch art of percent signUnlike total market share, which examines the whole market, relative market share analysis measures a firm’s market share related to its largest market competitor. Tracking relative market share over time gives you a benchmark and better understanding of what’s happening between you and your largest competitor. Relative market share allows marketing managers to compare relative market positions across different product markets.

A company or product tied for the lead with its largest competitor in the same market has a relative market share of 100-percent. Anything more than 100-percent indicates a market leader, and less than 100-percent shows the firm behind the market leader. The relative market share can help a company better understand its position or product position in the marketplace with more meaning than the total market share.

Relative market share calculation is similar to total market share. Calculated the metric by either the brand’s product units sold or revenue generated. The formula for the relative market share calculation is:

Relative Market Share Formula - Market Share Analysis

 

Market Share Analysis Challenges and Assumptions

Market Share Analysis Assumption Illustration of two men with question mark.While market share, precisely relative market share, is an excellent metric to measure your firm’s or brand’s leadership or lack of in a given market against competitors. It is not without challenges. Conclusions from market share analysis come with several assumptions. 

First, the assumption that external forces affect all companies in the same manner is often without merit. For example, the U.S surgeon general’s notice the harmful effects smoking has on the body depressed total cigarette sales but did not affect all companies equally.

The assumption that a firm’s performance should be judged against all firms’ average performance is not always correct. The best way to evaluate a company’s performance is against that of its closest competitor. 

The assumption that if a new firm enters the industry, then all existing firm’s market share may drop. A decline in market share does not necessarily mean that the company is performing worse than other companies. Share loss depends on what degree the new firm enters the company’s specific markets.

The assumption that a market share decline is deliberately engineered to improve profits. For example, marketing managers may drop unprofitable customers or products to reduce costs by driving up profits.

The final assumption is that market share can fluctuate for many minor reasons. For example, market share is affected by changes in promotional strategies because a massive promotional sale on a given date affects market share. It may also be affected by social and cultural phenomena like a sales spike for Ocean Spray Cran-Raspberry drink when a video went viral, showcasing a man skateboarding and consuming the beverage.

Summary

Market share is undoubtedly a critical metric to measure. However, marketing managers must throw caution to the wind when using the metric. In other words, marketing managers must use the metric correctly, in context, and for the right reason for it to be a useful analytical tool to guide marketing performance. While overall market share provides a high-level view of where the organization or organization’s product falls compared to the competition in the same market, relative market share is a better indicator of whether a firm or product is leading or lagging behind its closest competitor.

Illustration of businessmen looking toward teh future for the marketing control process article by Allen Stafford

The Marketing Control Process for your Business

Audio Version — 6:34

Understanding the Marketing Control Process

If you are like most small to mid-sized businesses, marketing your company probably includes a basic marketing plan, most likely not written down. You probably have some marketing collateral (brochures) to leave with customers, a website, a social media presence that gets occasional attention, and a sales team. Like a sales analysis performed monthly or quarterly, there may be some control mechanism to determine if you are generating enough revenue to cover costs and earn a profit. If you are like most other firms your size, you are probably falling short of your marketing control process, that is, tools that help you analyze and assess your marketing activities.

What is Marketing Control?

Marketing control is a process where company management or executives analyze and assess their marketing activities and programs. Management then uses the results to make necessary adjustments or changes to their marketing plans. Think of marketing control as the navigation system on an airplane. The pilot sets the course, and the navigation system directs the plane toward its destination. However, due to weather patterns, the plane can drift off course, and the pilot must make adjustments to keep the aircraft on its path, or it can end up in a completely different location. If you are not monitoring your marketing activities and making adjustments along the way, you can end up spending too much money, generating no sales, or both.

For example, if a marketing manager implements a marketing campaign to increase sales for a specific store or product, that manager, or their team, monitors the campaign plan’s progress over a specified amount of time. The amount of time could be one week, a month, or quarterly. The marketing activity could be sales promotions, direct sales for retail floor staff or online ad spend, and conversions on their e-commerce store. If the campaign is not helping the marketing team achieve their established goals based on the team’s analysis, they will make corrections to any one of their campaign’s tactical elements. The process of monitoring and making adjustments to a marketing activity is the marketing control process.

The Marketing Control Process

As with any other business function, there is a process to follow that ensures the marketing control process’s effectiveness. Precisely, the process associated with the annual-plan control (see the explanation of annual plan control below). The process steps include:

  1. Goal setting – What do you want your campaign or activities to achieve?
  2. Performance measurement – How is the campaign performing. What precisely is happening. As an example, are you receiving more conversions on your eCommerce website? Are you generating more sales revenue?
  3. Performance diagnosis – Why is what’s happening occurring? If you are not receiving the projected sales volume, what would you attribute the reason to? What if you are earning more than projected sales? Could it be that your pricing is too low?
  4. Corrective Action – How will you correct the problem? If your marketing campaign performs lower than expected, what changes can you make to fix the issue? Were your goals unrealistic, or did you miss your target marketing?diagram showing the four seps in the marketing control process by Allen Stafford

 

4 Types of Marketing Control

 There are four types of marketing control marketing managers can use to accomplish their analysis of marketing campaigns:

  1. Annual Plan Control
  2. Profitability control
  3. Efficiency Control
  4. Strategic Control
Control TypeResponsible PartyControl PurposeApproaches
Annual Plan ControlSenior Managers and Middle ManagersDetermine if planned marketing results are meeting expectations• Sales analysis
• Market share analysis
• Sales-to-expense ratios
• Financial analysis
• Market-based scorecard analysis
Profitability planMarketing managerDetermine where the firm is earning profits and where they are losing money.Determine profitability for:
• product
• territory
• customer
• segment
• trade channel
• order size or basket size
Efficiency controlLine and staff management and marketing managerDetermine marketing expenditures impact by examining and improving the spending efficiency.Determine efficiency by:
• sales force
• advertising
• sales promotion
• distribution
Strategic controlSenior managers and Marketing manager or auditorDetermine if the business is following the best options with respect to markets, products, and channels.• Marketing effectiveness rating instrument
• Marketing audit
• Marketing excellence review
• Company ethical and social responsibility review

Source: Principles of Marketing, 17th Edition. Kotler and Anderson

Annual Control Plan

Annual plan control is responsible for ensuring that the company reaches its financial and other goals. Financials include sales revenue and profits. Using the marketing control process, the marketing management team establishes its monthly, quarterly, semi-annual, and annual goals. Second, they monitor the performance of their goals in the market environment. Third, if any deviations from the objectives exist, management analyzes the problems to determine what and why it’s happening. Fourth, management works to close any gaps between the issue and its goals.

There are four tools for measuring the annual control plan:

  1. Sales analysis
  2. Market share analysis
  3. Marketing expense-to-sales analysis
  4. Financial analysis

Profitability Control

The profitability control is where a company measures its products, regions, customer segments, and order sizes to help decide if they need to expand, reduce, or eliminate any products, services, or territories. The instrument used to determine the profitability measurements is a marketing profitability analysis.

Efficiency Control

Efficiency control’s primary purpose is to use the data from the profitability analysis to educate the marketing staff on the implications of the marketing decisions made for the campaign. 

The profitability analysis may reveal that the firm is earning weak profits on certain products, promotions, stores, or territories. Marketers may face decisions that include determining if there are efficient ways to manage the sales force, advertising spend, sales promotions, or distribution channels.

Strategic Control

The final part of the marketing control tool is strategic control. From time to time, marketing managers should reassess their strategic approach to the market environment. The approach managers use for reassessing the market environment is the marketing audit. The marketing audit is a comprehensive, systematic, and independent examination of a company’s marketing environment. It also includes the company’s marketing objectives, strategies, and activities. The goal is to determine the firm’s challenges and opportunities to recommend a strategic plan of action that helps improve the company’s marketing performance.

Summary

Marketing is not just the arts and crafts department; it’s a control center that analyzes processes and makes adjustments to create efficient processes that yield business results. Without a marketing control process and the analysis tools that accompany the process, your business may lose sales and profits. It is up to the business owner or marketing manager to implement the marketing control process, manage the process, analyze, and make corrections to the strategic marketing plan.

 

African American businessman and woman looking at digital tablet

Why Traditional Marketing and Digital Marketing are the Same and Different

Audio Version — 5:21

Traditional and Digital Marketing are the Same

Here’s an activity to try. The next time you are in the office or socializing with friends, ask them to explain the difference between traditional marketing and digital marketing. Chances are, you will be at the receiving end of either a confused or blank stare. Then, follows either the utterance, “I do not know,” or, more likely, your co-workers or friends try to fumble through an explanation. Side note: this activity will not work effectively on an actual digital marketer or marketing professional in general.

The reality is, there is no difference between the two types of marketing. Yes, you read that correctly. There is no difference between the two types of marketing. Before you start murmuring ill-will toward me under your breath, please read on.

The American Marketing Association defines marketing:

 “as the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

Before we can create, communicate, and exchange offerings that bring value to customers, we need to “create” a customer. Thus, Peter Drucker, the father of modern management, profoundly stated:

 “Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

Therefore, marketing (and innovation) aims to “create” a customer by creating, communicating, delivering, and exchanging offerings that have value for the customer. The only difference between the two marketing terms — traditional and digital — is the channels used to communicate, deliver, and exchange a firm’s offerings and value to the customer.

What are digital marketing channels? More specifically, what is the definition of digital, and what are the advantages of digital marketing channels over traditional marketing channels?

Digital Marketing Channels Defined and Its Advantages

marketing metrics - illustration of business man looking at analytics dashboardBud Caddell, a digital strategist, defines digital and its advantages for marketers as:

 “a participatory layer of all media that allows users to self-select their own experiences, and affords marketers the ability to bridge media, gain feedback, iterate their message and collect relationships.” 

In other words, digital offers marketers a way to understand their customers’ behavior while giving customers a path to exploring and discovering content they engage with and like.

Traditional marketing and digital marketing are no different from print, radio, or television marketing, all of which are communication channels under the marketing umbrella. Rob Stokes, an author of eMarketing, identifies two fundamental ways that differentiate digital marketing from traditional marketing. 

The two fundamental differences are audience segmentation and measurability, giving digital marketing channels an attractive advantage over traditional marketing channels.

Audience Segmentation

Digital marketing channels allow marketers to precisely and frequently segment audiences in real-time. What this means for marketers using digital media is that they can make changes to their marketing campaigns and strategies almost instantaneously.

Traditional marketing channels would take much longer, if it all, to rival the speed or precise accuracy of digital marketing. Additionally, the cost of targeting and measuring traditional media channels’ effectiveness is expensive compared to its digital counterpart.

Several ways that marketers segment with digital channels include customers:

Measurability

Digital channels also allow marketers to measure a customer’s digital journey, which includes:

  • What they watch. 
  • Which web pages they visit.
  • Their interaction. 
  • Their sentiments toward products and brands. 

Brands can measure the success of a campaign and determine which ones performed better than others much quicker and at a fraction of the cost than traditional marketing channels. 

Summary

Marketing is “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” Firms can achieve communicating their value and offerings through either traditional or digital marketing channels. Thus the two types of marketing are the same in terms of a marketings definition.

However, marketing through digital channels gives the marketer an advantage of accuracy, speed, and reduced costs over its relative, traditional media. The faster pace and accuracy allow marketers to quickly make changes in their strategy, further serving customers more accurately and at an affordable cost. Hence, the difference between the two  types of marketing.

image of man typing on cell phone with smily face for marketing excellence review article

Does Your B2B Company Measure up to Marketing Excellence?

Audio Version — 2:11

Marketing in many B2B firms is often lackadaisical at best. However, B2B marketing should not be halfhearted, especially in today’s digital, customer-driven marketing environment. B2B companies that achieve marketing excellence often outperform competitors because they put customers first, create strategic alliances, and are value and outcome-driven.

 

“Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.” – Peter Drucker

 

What is Marketing Excellence?

Marketing Excellence hand drawn illustration of superhero flying over buildingsReaching excellence in marketing is a process of implementing marketing best practices where the firm delivers exceptional value to customers, vendors, and other stakeholders. The Marketing Excellence Review chart below shows the best practices for achieving excellence in marketing. The table also identifies two different marketing performance areas that a B2B company may fall within, poor and good marketing practice.

According to Phillip Kotler, considered the father of modern marketing, organizational management must examine their marketing processes in relation to the review chart. They create a marketing profile based on determining where they think the business stands on each review list line. In areas where the company falls short of excellence, the business leaders can make changes that help the firm become an outstanding player in their industry. 

 

PoorGoodExcellent
Product drivenMarket DrivenMarket Driving
Mass-market orientedSegment-orientedNiche-oriented and customer-oriented
Product offerAugmented product offerCustomer solutions offer
Average product qualityBetter than average product qualityLegendary product quality
Average service qualityBetter than average service qualityLegendary service quality
End-product orientedCore-product orientedCore-competency oriented
Function orientedProcess orientedOutcome oriented
Reacting to competitiorsBenchmarking competitiorsLeapfrogging competitors
Supplier exploitationSupplier preferenceSupplier partnership
Dealer exploitationDealer supportDealer partnership
Price drivenQuality drivenValue driven
Average speedBetter than average speedLegendary speed
HierarchyNetworkTeamwork
Vertically integratedFlattened organizationStrategic alliance
Stockholder drivenStakeholder drivenSocietally driven

 

Summary

Achieving excellence is an achievable goal. It requires management to understand where they currently are in marketing proficiency, identify areas for improvement, then develop and execute a strategy to reach excellence.

Peter Drucker, the father of modern management, stated, “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.” If you are not marketing and not innovating, your competitors will eventually outpace you.

illustration for marketing metrics article

Measuring Marketing Performance – Four Marketing Metrics to Measure

Audio Version: Facebook Ad KPIs — 15:27

Measuring Marketing Performance

Marketing has come a long way from the days of being known as the arts and crafts department. Once considered an art form rather than a science, the key to today’s marketing success hinges on the marketing manager’s ability to measure marketing performance using marketing metrics. Marketing success also stems from the marketing manager’s accountability for delivering data-driven results.

Estimates indicate that by the end of 2020, we will produce more than 44 zettabytes of data. By 2025, we will have produced over 180 zettabytes (or 180 million gigabytes) of data. Data is like the “new” oil. How we measure that data is like how we process the oil, making it efficient and useful to fuel our marketing initiatives toward better return on marketing investments (ROMI) and improving marketing competitiveness. 

However, few marketing managers can appreciate the range of metrics used to measure the data. Nor do they understand the pros and cons of using one metric over the other. Their lack of understanding metrics leads to measuring data that provides little to no viable information for their marketing needs or direction their organizations should take. Marketers must measure what matters and not necessarily all of the data available to them. 

While measuring what matters is critical to marketing success, what is essential to one firm may not matter to another. For this reason, I have identified several marketing metrics worth measuring that have a universal appeal for almost any marketing process. The metrics below are a good start for measuring marketing performance. However, additional metrics are necessary to measure the essential things that matter to your business goals.

question mark illustration for measuring marketing performance marketing metric articleWhat Are Metrics and Why Do You Need Them?

Metrics are quantifiable measures used to track trends, changes in activity, progress, or characteristics. In almost every discipline — government, business, and science — metrics are used to explain occurrences, determine cause and effect, share findings, and make projections of future events. Metrics require objectivity and make it possible to compare observations across sectors and time horizons. They help promote understanding and collaboration among team members and departments. 

Marketing Metrics

If metrics are quantifiable, then marketing metrics are the measurable touchstones used to communicate marketing activities. In other words, they are the quantifiable values used to demonstrate marketing effectiveness across all marketing initiatives. To better understand marketing metrics, we can split them into four types:

  1. Milestones
  2. Inputs
  3. Outputs
  4. Ratios

Milestones measure performance against a stated goal and apply to almost any marketing initiative. Milestones list and categorize what’s supposed to happen and when it’s supposed to happen. For example, let’s say that your marketing department is in the process of redesigning the company website to improve user experience (UX). Developing the wireframe for the website’s homepage and the due date for the task may be one milestone out of the many on the redesign project.

Inputs  or marketing inputs — are the levels of resources you are putting into your marketing strategy. Inputs are measured to determine if the marketing process is working and at what level. For example, how much money are you allocating to pay-per-click advertising? Are you generating your desired ROMI from your input amount? Hence, money is a resource. A resource can also include personnel, time, and equipment, to name a few.

Outputs measure the results of your marketing initiatives. For example, market share, channel performance, and brand equity are a few measurable outputs.

Ratios are a comparison of two numbers or metric values. In other words, they express the amount of one thing over the other one. The numerator represents ratios over the denominator, expressed as fractions or — more commonly — percentages. For example, a typical marketing metrics ratio is the return on marketing investment or ROMI. 

To calculate the ROMI of a specific marketing campaign, you will need to know the baseline level of business activity. You measure the baseline against the business activity during the time the marketing campaign is running. The result is the profit earned above the regular business activity minus the cost of the marketing campaign.

 

The formula for ROMI:

Baseline Profit = Baseline revenue – Baseline Cost of Goods Sold

Marketing Campaign Profit = Revenue – Cost of Goods Sold

Profit with Marketing Campaign Cost = Profit – Marketing Cost

Campaign Uplift = Profit with Marketing Cost – Baseline Profit

Return on Marketing Investment = (Campaign Uplift / Marketing Cost) x 100%

 

ROMI Example:

Baseline Profit = $50,000 – $45,000 = $5,000

Marketing Campaign Profit = $75,000 – $60,000 = $15,000

Profit with Marketing Campaign Cost = $15,000 – 6,000 = $9,000

Campaign Uplift = $9,000 – $5,000 = $4,000

Return on Marketing Investment = ($4,000 / $5,000) x 100% = 0.8 x 100% = 80%

With the marketing campaign in our example, the firm received an 80% ROMI.

Measuring What Matters

Many executives — including marketing managers — tend to measure all the data available to them. The belief is that “if we have the data,illustration of marketing metrics then we need to measure it.” Measuring all available data at your disposal is often a waste of time and unnecessary.

Your metric strategy should be focused and not broad. In other words, the secret to selecting the best way and what to measure is what matters most to your business goals. Measuring too much leads to data fatigue; you become distracted from the daily marketing functions, which leads to unexpected or unwanted results. 

I will stress the point one more time; the key to measuring metrics is to measure what matters most to your business goals. To help you determine the right marketing metrics to measure, the three criteria below can serve as a guide.

  1. Align the metrics you measure with your marketing strategies
  2. Act on the data. Establish a high and low number for your key performance indicators (KPIs) and execute a contingency plan once the low or high number hit.
  3. Select metrics that allow you to detect and diagnose problems before they occur. Also, choose metrics for evaluating marketing performance after the fact.

Below are five marketing metrics that every marketing manager should consider when measuring their firm’s marketing performance. Again, the metrics you measure are the metrics that matter most to your business objectives and marketing strategies. The following metrics serve as a general starting point to help you begin taking accountability for your data-driven marketing initiatives. 

  • Market Share
  • Customer profitability
  • Customer lifetime value (CLV)
  • Channel performance

Measuring Market Share

Market share is a metric that communicates how well a business or brand is doing against the competition. Market share analysis helps marketing managers judge their company’s market growth and decline and trends about customers’ competitor selection.

The market share metric can either lead to meaningful or meaningless information for your company or brand. That is, if you are in a market where three or four firms own 90% of the market, you are in a concentrated market. In this scenario, it helps if you track market share. However, if the top three or four firms owned only 5% of the market, tracking market share in the highly fragmented market is a waste of time.

The same holds if you are a small business in a local market. As an example, let’s assume that you are a local bakery. If you calculate your market share nationally, then the market share analysis is meaningless as thousands of bakeries exist across the country. Your market definition is too broad of an area, or it’s a fragmented market. However, suppose you define your market within a 10-mile radius. In that case, calculating market share makes more sense in determining where you stand in the market than your competitors within that same 10-mile radius market.

The three market share formulas worth using are unit share, revenue share, and relative market share.

Unit Market Share Formula

Unit market share compares the units of a product or service sold by one firm compared to all the units sold by competitors in the same market. We express unit market share as a percentage. The unit market share formula is:

Unit Market Share Formula

 

 

Revenue Market Share

Revenue market share analysis reflects the unit sold prices of one firm to the same units sold by their competitors. Expressed as a percentage, the revenue market share formula is:

Revenue Market Share Formula - Market Share Analysis

 

Relative Market Share

Suppose your business is in a market where the top three or four competitors maintain a large portion (75% or higher) of the market. In that case, using the relative market share analysis is a better marketing performance metric. It’s a better metric because the top competitors are in a concentrated market, meaning there’s better customer loyalty and repeat business from those customers.

However, if the top three or four competitors in a given market share, only 5% of the market share, relative markets share becomes meaningless. 

With a market share so low among the top competitors, the market is fragmented.

A fragmented market indicates no big players in the market. Thus customer loyalty is non-existent. Without customer loyalty, it makes it difficult for marketing managers to grow market share with existing customers. Expressed as an index (I) number, the relative market share formula is:

Relative Market Share Formula - Market Share Analysis

 

Customer Profitability

marketing metrics illustrationCustomer profitability is the profit your firm earns from serving a customer or customer group over a specific period. It’s important to track customer profitability to understand which customer relationships generate more revenue than others. 

Customer profitability is the difference between the revenues earned and the customer relationship costs for a specific period.

Many executives and marketing managers fall into a pitfall by lumping all customers into one group and calculating customer profitability from that group. Not all customers are equal; therefore, your customer profitability metrics need to reflect the different levels (or tiers) of customers that purchase from you.

For example, in a three-tiered customer system, your top tier is the most valuable customer group to your business. They bring you the most profit.

The second tier of customers is the group’s middle. They are low to middle-profit producers for your company. Most customers within this middle category can increase their spending and move up a tier with more nurturing. Thus they are worth keeping. 

The bottom tier is the set of customers that lose your company money. If you can devise a strategy to get them to spend more money and move them up a tier, great. If not, you may consider charging them more for the products or services or “firing” them all together.  

A useful marketing metric for customer profitability metric is to track repeat customers. Repeat customers can be followed by monitoring the purchase recency rate, the length of time the customer last purchased from you to their next purchase. 

Another metric that is useful with the customer profitability rate is the retention rate of current customers. Both of these metrics can apply to any of your established customer tiers. Suppose there are changes in customer numbers over time. It could signal a problem if the customer numbers drop or success if they increase.

Customer profitability formula

 

customer retention rate formula

 

Customer Lifetime Value (CLV)

The customer lifetime value metric is what the customer is worth to the company — in cash — for the customer’s lifetime in today’s dollar. The CLV is a vital marketing measurement because it encourages companies to focus on their customers’ long-term health and not quarterly profits. In other words, it helps marketing managers focus on higher potential customers over customers with a lower value in terms of profitability.

There are many formulas to calculate customer lifetime value. The following calculation is a simplified version for calculating CLV. 

CLV Formula

 

Channel Performance

For firms that work with channel partners, measuring your partners’ success is crucial to your continued relationship. After all, channel partners are anillustration of thumbs up and down investment that you make with a third-party seller.

A channel partner is a company that partners with a manufacturer or producer to market and sell the manufacturer’s products, services, or technologies. More often than not, channel partners operate as a co-branding relationship with their suppliers, the manufacturer. 

Monitoring their performance is essential to your own firms’ survival. It helps the channel partner find areas of weakness in their marketing or areas of success. If a channel partner consistently underperforms, it may be time to replace them.

To determine channel partner effectiveness, calculate the ROI or the output divided by the input. In other words, divide what you gain from the channel partner by what you spend. Examples include:

 

Total sales/ active accounts

Total sales/sales calls

Gross profit/number of sales reps

 

Summary

Marketing has come a long way from the days where one message fits all. Today’s marketing department personnel need to be data-driven to help navigate their firms toward success. The challenge is that data is abundant. Many marketing managers and executives do not know how to use that data or use too much data to render itself useless and a waste of time. Suppose marketing professionals want to be effective and help companies reach their financial and market share goals. In that case, they need to measure what matters. They need first to know their companies’ business objectives, then ask the necessary questions about what types of metrics they need to measure to reach those objectives. The four metrics discussed above are just a start. Perhaps the most common metrics used, but others are equally important to the marketer’s success.