How to measure marketing effectiveness

13 Jan 09 - Mark Klein

“You’ve looked at our data. So how are we doing? How do we compare with your other clients?”

These were questions thrown at me by one of our newer clients, and they weren’t new questions. Marketers are hungry for an outside, impartial opinion of their efforts. It’s a fair question and a challenge we couldn’t resist.
Whether it’s a long time client or a new prospect looking at their free customer report card, it’s clear to them that we know a lot about their marketing efforts and could offer an informed response.
 
We decided to accept the challenge and developed a Marketing Effectiveness Score (MES) based on some closely held beliefs and time-honored marketing principles. There are six components to our Marketing Effectiveness Score:

• Churn-- the relationship between new customers coming in and existing customers leaving.
• Revenue mix-- the ratio of revenue from new customers to existing customers
• Revenue growth-- the ratio of the change in revenue compared to the total revenue in a prior period
• Revenue at risk--the ratio of the probability-adjusted revenue at risk to the total revenue, a measure of the exposure of the company to customer defection
• Share of wallet—a measure of the extent to which customers purchase all of your products and services
• Customer loyalty—a profile of the loyalty scores of all customers, and how those scores are changing
  

These components are aggregated into a number from 0 to 100 that measures your company at one moment in time. Business is a race with a finish line that's always moving.  It's not only natural to want to know how you're doing; it’s essential if you don't want to be passed in the race without knowing it. We calculate the MES regularly for our clients so they can evaluate their progress, and once for each company that requests the free customer report card.
 
So now we can flip that question right back at you: How is your company doing? Do you know your Marketing Effectiveness Score?