The Digital Marketing Metrics Pyramid

Greetings, Marketing Land readers. I’m excited to be moving here from my previous 4-year gig writing for the Search & Conversion column on Search Engine Land.

It’s better to be here because, frankly, it’s hard to keep topics in the “search” bucket these days. Marketing is converging, with silos spilling over and bursting like dams from a 1970s disaster movie.

So what better way to kick things off than to take a look at six marketing metrics that help connect the dots between low-level activities such as search, social, and other pay-per-click (PPC) tactics with broader measurement of marketing-wide performance?

Courtesy of ion interactive, inc.

The above Digital Marketing Metrics Pyramid was created by Justin Talerico, my co-founder at ion interactive. In a glance, it shows the relationship between these six marketing metrics:

• CAC — Cost to Acquire a Customer
• ROI — Return On Investment
• CVR — Conversion Rate
• CPL — Cost-Per-Lead
• CTR — Click-Through Rate
• CPC — Cost-Per-Click

From Pre-Click Metrics Up To Post-Click Metrics

At the bottom, CPC and CTR are the most common metrics in PPC marketing tactics. All things being equal, you want a lower CPC and a higher CTR.

But all things are not always equal.

For instance, CPC and CTR are primarily used to drive traffic. But in order to connect that traffic to true marketing value, those respondents must have two essential properties:

1. They must find your offer compelling
2. They must qualify as “good” customers

These two properties aren’t always aligned.

The degree to which respondents find your offer compelling in the context of a particular click-through is measured most directly by your conversion rate (CVR). Assuming that your media spend is mostly variable (a cost for each click) and your post-click experience spend is mostly fixed (people and software), a higher CVR will yield a lower cost-per-lead (CPL).

But generating a whole pile of cheap leads is worthless if they aren’t quality leads.

In this case, quality is in the eye of the sales team. You can approximate lead quality by looking at the difference between marketing-qualified leads (MQLs) and verified sales-qualified leads (SQLs). If the number of MQLs turning into SQLs is low — and dropping — you’ve got a lead quality problem.

Revenue Metrics Are The Ultimate Arbitrator Of Success

However, estimations of lead quality by marketing or sales are only approximations. What ultimately matters is the revenue achieved from winning new customers — the return on investment (ROI) on your marketing and sales spend. Good customers increase the numerator in your ROI equation.

Calculating the ROI of individual marketing programs is a little tricky because it’s not always feasible to accurately measure the contribution each marketing or sales touchpoint contributed to winning a new customer. This is the challenge of attribution — a subject to which it is hard to do justice in a few hundred words.

However, for basic attribution, we can identify trackable touchpoints — and for most of us, the majority of our marketing and sales touchpoints are trackable these days — that appeared in the buyer’s journey. With a little comparison among won customers and lost prospects, as well as changes over time, we can approximate the contribution of these different touchpoints.

The success of the right marketing and sales mix overall is broadly measured by the cost to acquire a customer (CAC): all sales and marketing costs for a time period divided by the number of customers won for that period.

Admittedly, CAC calculations aren’t perfect — the customer won in a particular time period may have been influenced by marketing programs from previous time periods. But as an overall measure of marketing and sales performance, it’s a pretty good indicator of marketing’s efficacy.

The Marketing Metrics Ecosystem

Each of the metrics above is useful in managing digital marketing. But a much better view is achieved by looking at all six of these metrics together and how they evolve over time.

The Digital Marketing Metrics Pyramid helps remind us of the ecosystem relationship between these different metrics.

What metrics do you find most useful in your digital marketing management?