How do you pick a target metric to optimize marketing towards?
Feb 5, 2024
Introduction
Your executive leaders want to know how marketing contributes to sales growth. What do you do as CMO? For many leaders, the answer is evaluating channels and campaigns based on the revenue (or pipeline, in the case of B2B) they contribute.
This approach is like a basketball coach judging every player by their total baskets scored. Yes, the team’s overall goal is to shoot as many baskets as possible, but shots depend on a combination of each player’s unique skills.
Your point guard is responsible for handling and passing.
Your shooting guards and power forwards do most of the scoring.
Your center anchors the defense.
Measuring your campaigns by revenue and pipeline is just as misleading as evaluating point guards by their total shots. Marketing does contribute to sales growth, but there’s no way to account for all the non-marketing variables that also impact sales—like your sales experience, onboarding, pricing, and product experiences.
Instead of focusing on revenue and pipeline, we recommend choosing target metrics that are leading indicators of eventual revenue and aren’t influenced by factors outside marketing’s direct control. Additionally, we recommend quantifying the relationship between the leading and lagging indicators to arrive at sales reporting.
In this post, we’ll cover the criteria for selecting target metrics and examples of companies choosing them.
But first, how many target metrics do I need?
Short answer—it depends on your marketing budget and company size. The larger your budget and organization, the more target metrics you’ll likely need.
Consider an enterprise business with a $1B marketing budget and 50 brands sold in 10 countries. A single target metric won’t work for so many different markets and products. Instead, the marketing team can allocate their large budget to serve various goals and measure each objective with unique target metrics. For example, the marketing team for the company’s US division might use half their budget for generating sales and the other half for expanding existing accounts.
On the other hand, a company with a $1M marketing budget and a single product doesn’t have enough resources to make meaningful progress toward multiple marketing goals. Instead, the marketing team should focus on a single top-of-funnel target metric—like the number of leads (for SaaS), units sold (for ecommerce), or sign-ups (for a consumer service).
What are the characteristics of a meaningful target metric?
A target metric that measures your marketing department’s impact on the business must meet two requirements: it should primarily be affected by your marketing activities—not other factors—and it must not lag your marketing activities by a long time-frame.
Beyond these criteria, your target metric must also be a KPI your executive leaders understand and value. Otherwise, it will be tough to create persuasive reporting and secure budget increases down the road.
It’s directly informed by your marketing activities
Remember learning about controlled science experiments back in school? You only change one factor when testing so you know what’s responsible for the results.
By the same logic, your target metric isn’t helpful if factors outside of marketing are influencing it. You want a KPI that’s primarily affected by your marketing activities.
Say you choose “meetings booked” as a target metric, but the process by which leads set up meetings is outside marketing’s control. Your team creates campaigns that guide potential customers to a demo form page. However, a sales rep must manually email them after that point to ask about their availability. The speed of the rep’s reply and their message’s tone all impact whether the potential customer will set up a meeting.
Now imagine the same scenario but with a self-serve meeting booking process. In this case, the number of meetings booked is a valid target metric because it entirely depends on your marketing team’s efforts—specifically, whether you’re directing them to the demo form page and whether the campaign and page encourage demo sign-ups.
It responds quickly to your marketing activities
When you run a marketing campaign, you’re in trouble if you have to wait six months for your target metric to respond. You’re spending money every day on that campaign, so you want a measurement that shows relatively quickly what you need to adjust.
Ideally, the target metric offers insights about your marketing in 30 days or less. Let’s consider a high-consideration Enterprise SaaS product. “Qualified website traffic” or “Number of leads” could both serve as your target metric since they’re likely to be impacted within the first few weeks of any marketing activity. In contrast, those visitors and leads might take months to convert to pipeline or closed sales—making them unreasonable target metrics.
That isn’t to say you don’t need to measure the down-funnel conversion rates from your marketing activities. For example, it’s critical to monitor the conversion of leads to revenue, while remembering there are several factors that may be outside of your marketing team’s control.
At Paramark, in addition to understanding the impact on your leading indicators, we model the relationships between your leading and lagging indicators to build a robust view of your buyer journey.
It aligns with your executive leadership’s goals
All too often, marketing leaders pick target metrics that only resonate with their department. A CMO is excited because their click-through rate is increasing month over month, but their CEO doesn’t understand how that change helps the business.
Don’t waste your energy on misaligned marketing. If you pick a target metric that executive leadership doesn’t care about, you’re going to have a hard time carrying influence and increasing your budget.
However, getting buy-in doesn’t mean choosing the first target metric your CEO wants. They may suggest tracking sales because that’s what they want to increase, but as discussed blunt metrics like this don’t accurately reflect your marketing results.
Instead, monitor the conversion rate alongside your target metric to show your CEO and board how it positively impacts the business. Say you want to focus on generating qualified traffic, but your executive leaders don’t see how that metric contributes to sales. Get aligned by tracking the percentage of qualified traffic that leads to a sale.
As a marketing leader, one of your key responsibilities is to educate your executive peers on how marketing really works and how you can measure its impact on the business.
It fits your sales cycle length
Your business’ sales cycle directly influences your marketing team’s responsibilities and, in turn, target metrics. If your sales cycle is short—less than a month—your team will play a critical role in converting prospects. Focus on a bottom-funnel target metric like “free trial sign-ups” to focus your marketing initiatives.
On the flip side, your team will be responsible for generating awareness and leads if your company’s sales cycle exceeds a month. We recommend prioritizing top-funnel metrics—like increasing traffic—to show how you’re laying the foundation for eventual conversions.
How do marketing leaders use these factors to choose target metrics?
Let's apply these criteria by examining hypothetical scenarios where marketing leaders spanning various industries must choose a target metric. We will evaluate each situation based on the factors outlined in the previous section to determine whether a metric is suitable.
Example 1: Pipeline vs Leads generated
Alex is a fictional Director of Marketing at a B2B tech company with a marketing budget exceeding $10 million. He’s deciding between “qualified leads” and “qualified pipeline” as his central marketing metric.
But first, what is a lead?
Alex defines leads as prospects who have explicitly indicated their interest in buying the company's products. They might do this by looking at the pricing page, submitting a demo form, expressing interest in talking to sales, signing up for product webinars, etc. Lead indicators don’t include contact purchases, gated asset form submissions, contact syndication, and other similar sources of contact information.
“Qualified pipeline” won’t work for a few reasons. The tech company’s software is a high-consideration, expensive investment for businesses. The journey from awareness to consideration to purchase is long. It requires considerable effort and time from sales to generate pipeline from inbound qualified leads.
The other issue is attribution. Converting leads to pipeline involves interactions outside of marketing—like sales, sales engineering, and potentially support if the company offers pilots—so Alex can’t reliably say his team is solely responsible for generating qualified pipeline.
However, he has noticed that the company’s best paid customers typically raise their hands directly on the website (signing up for the demo, checking pricing, or wanting to talk to sales proactively) before buying the product. Alex decides to make “qualified leads” his target metric to measure marketing’s impact. His team’s efforts—like LinkedIn ads and SEO—directly and quickly impact the amount of qualified leads.
His CEO, however, is unsure about this target metric. To make the measurement even more compelling, Alex and his team also measure the percentage of qualified leads that eventually convert. They’re able to show after a few months that driving qualified leads positively impacts the business by nurturing leads toward purchasing the software.
Example 2: Sales vs sign-ups
Now, let's step into the shoes of Lucy, a fictional CMO at a financial app company. She’s deciding between measuring “paid memberships” and “free trials” as her team’s target metric.
Lucy recognizes that paid memberships aren’t solely the result of catchy campaigns. The conversion to paid memberships depends on factors beyond marketing's control, such as the onboarding experience during the app’s trial period. She decides against choosing "paid memberships" as the team’s target metric.
On the other hand, Lucy recognizes that the company’s marketing campaigns directly prompt customers to sign up for free trials. App store and social media ads drive the vast majority of free trials, which happen shortly after users engage with the marketing.
While Lucy and her team lean towards "free trials" as their target metric, they collaborate with the company’s product and sales teams to ensure the KPI directly impacts the business. Reassured by data showing that there’s a strong correlation between membership sales and free trials, Lucy is confident that her CEO will be invested in this target metric, too.
Your entire measurement strategy hinges on your target metric
Selecting a target metric that captures your marketing team’s impact on the business isn’t just a best practice—it’s the linchpin for strategic decision-making. This KPI gives marketing teams the clarity needed to double down on successes, refine strategies, and, ultimately, drive continuous improvement in your marketing efforts.
Our team at Paramark has conducted hundreds of expert interviews and primary research to help marketing teams find the best target metrics to guide their efforts. If you’re interested and need help refining your marketing team’s measurement strategy, please reach out for a free consultation.
