Picture this: You’re in a meeting where the marketing team is reporting on this quarter's results. Their presentation is full of metrics: customer acquisition, revenue growth, new signups, web traffic and more. Each new data point raises new questions and you're left with a crucial question that remains unanswered: “What are our marketing and growth strategies ultimately delivering? What’s the one metric we should care about moving?”

This is a common occurrence. And it’s easy to see why with the sheer volume of data available today. 

Finding success in marketing is all about experimentation and iteration: run a campaign, test it, measure it, do more of what works and less of what doesn’t. With access to granular data across the entire customer journey, marketers have started to become obsessed with tracking and measuring performance indicators like ad impressions, click-through rates, cost per click/view, entrances, bounce rates, and form fills. 

The more data the better, right? Not always.

While these metrics are helpful for tracking top-of-funnel performance and efficiency, they can quickly become noisy and distracting. This article explores how to establish clear marketing KPIs and how to measure marketing ROI to create more strategic decision making that’s aligned with business objectives. 

Measuring Marketing ROI: Establishing Marketing KPIs

To make sure everyone, from the marketing specialists to the founders are aligned, the first step is establishing marketing KPIs that matter. I recommend that the marketing team is accountable for one top line, or North Star metric that’s based on a company-wide goal. For early-stage companies, marketing’s primary goal is to drive new business growth. Depending on your GTM motion and company-wide goals, North Star marketing KPI is usually a revenue or a new user growth metric. Then underneath that, each function within marketing should have its own KPIs that are in direct support of hitting this team-wide North Star Metric.

Here is an example of a breakdown of some of the key metrics that the marketing function may monitor across the funnel. These metrics are helpful in understanding leading indicators for hitting your North Star metric. 

Let’s take a look at how marketing goals are tied to the GTM strategy, and why they matter. 

Establishing Marketing KPIs for Sales Led GTM

If you’re operating a more traditional sales-led GTM motion, you need to define a metric that aligns marketing and sales, giving the marketing team accountability for the ultimate outcome: bookings and revenue. 

A common pattern that many founders follow is to hold marketing accountable for new leads. While leads are a great leading indicator of future bookings, they fail to get to the core of the outcome. Rather than  using leads as the measurement of marketing effectiveness, marketing should go further into the funnel and own a percentage of the sales pipeline target.

So why not make marketing accountable to new bookings or revenue? Marketers are not sales reps, and therefore are inexperienced in negotiation, closing tactics, etc. Their comp isn’t tied to closing new business, but they should be accountable to influencing new business. you might want to consider a comp spiff like a spot bonus, especially for marketing leadership.

How Much Sales Pipeline Do We Need?

Figuring out how much pipeline you need to hit your revenue target and determining your pipeline conversion ratio will be based on your quarterly booking goals. Once you have defined your bookings target, you will start to measure how much pipeline you need to generate in order to close that target goal. A safe anchoring for a pipeline coverage ratio is usually 3:1 for a weighted pipeline or 5:1 for an unweighted pipeline, meaning that for every $1 in bookings you need $3 or $5 in pipeline. Yours may be higher or lower depending on your market, sales cycles, ACV, CAC, and win rates, but this is generally an accepted range. 

Establishing Channel-Specific Pipeline Targets 

Now that you understand the pipeline the company needs to generate in order to hit the bookings and revenue target, you should establish pipeline targets by channel. Start working backward from your total revenue goal, then consider the various channels where deals will come from. Do you have an active partner network that is bound to bring in deals? Do your reps have healthy networks that will drive sales-led deals? Once you have broken down your deal-sourced targets (partners and channel, marketing/inbound, or sales led outbound), start to track and measure  conversion and  close rates opportunity source (e.g. you may find that your marketing leads have a lower conversion rate than your sales or partner led deals). If you have historical data, use it as the basis for your target, or if none is available establish assumptions and use industry benchmark data. 

Building a Marketing Attribution Model

A word of caution: pipeline sources and attribution can get really messy quickly. But if you don’t align on how you will measure, you run the risk of running into the scenario described at the beginning of this article. Everyone is looking at the same data, but getting a different story. 

There are a few ways to define marketing attribution: 

• First touch Attribution (FTA): was the first activity or asset that the user or account engaged with before converting to a lead or signing up for the product
• Last touch Attribution (LTA): the last activity or asset that the user engaged with before converting to a lead or signing up for the product
• Multi-touch Attribution (MTA): a blended, weighting scoring based on all of the activity taken before converting to a lead or signing up for the product

Typically, marketing teams rely on either first or last touch attribution, and I would recommend the same of any early-stage company: do not over-engineer this process. I have a slight bias towards First-touch Attribution because knowing what brought someone in the door is typically more insightful (and tells you where to go invest more) than a report that shows all leads or sign ups came from the ‘contact sales’ form or ‘sign up’ page. Your attribution will likely gain sophistication as you grow, but in the early stages focus on understanding what’s bringing people to you and what’s converting so you can quickly invest more in programs that show promise. If you want to dive deeper into marketing attribution, check out our recent article on how to set-up marketing attribution.

Establishing Marketing KPIs for Product-led Growth GTM

For product leg growth (PLG) marketing teams it’s important that their North Star metric is closely aligned with the product organization and isn’t just measuring signups. We recommend looking at a metric like activated users or accounts. These metrics focus on the quality of signups and engagement vs. just curiosity.. The definition of ‘activation’ will depend on your product events, and should be defined together with the product organization. 

Even if the North Star metrics is focused on active users, it’s not to say that marketers should avoid the top of funnel metrics all together (e.g. ad clicks, landing page visits, sign-ups). You still need these to understand what is driving quality user sign ups and activations.  After the activation event, the user will take additional  actions to drive towards engagement, adoption, retention, and conversion to paid, but those metrics should be owned by the product or growth teams. Marketing plays an important role in this part of the funnel by helping with user onboarding, discovery of new features and functionality, and driving further engagement, and ideally conversion, through a series of action, in-action, or time-based email or in-product nurtures.

Identifying Product Qualified Leads

For organizations with a hybrid GTM motion who run both sales-led and product-led, marketing should also be responsible for driving product qualified leads (PQLs) for sales. The PQL can be determined based on both demographic data - account types, company size, location and behavioral data as well as actions that the user takes in the product. Once a PQL threshold is met, the lead is flagged and routed to the appropriate sales team. 

One More Critical Marketing Metric: CAC Payback

Once you’ve defined and aligned on core marketing KPIs, ,it’s time to start measuring marketing’s cost efficiency. One critical metric is CAC payback and it’s essentially a metric that tells you how much marketing is spending to acquire a new customer over a given period of time.You’re probably all familiar with customer acquisition costs (CAC) and customer lifetime value (LTV). Historically organizations have relied on an LTV:CAC framework to determine how much they are comfortable spending to acquire and retain a customer. However, recently companies have started to pay more attention to CAC payback, the time it takes to recoup the spend to acquire a customer. CAC payback varies by target market size, or cohort, and below is a snapshot from an article that Jay Po wrote on this topic. 

Optimizing Marketing KPIs to Better Understand ROI

Establishing marketing KPIs can seem daunting with the amount of data available today. Remember, the goal isn’t to measure every data point but to focus on the ones that truly matter to hitting that North Star metric. Don’t be afraid to reassess your metrics and measurement strategy (I recommend taking a fresh look every quarter). Applying these tips should help you avoid the data confusion and allow you to spend more time in meetings discussing what the data means and how it contributes to revenue. 

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