Metrics. The world these days seems to be ruled by them. Everywhere you turn it’s about numbers. GDP, unemployment, profitability, sales, income, taxes. Everything our society lives by seems to be defined by numbers.
But when it comes to business are we really looking at the right numbers? Are revenue, costs, EBIT and earnings per share (EPS) really the be all end all?
No they’re not.
As a marketer and executive coach to founders and CEO's with over 20 years experience working at the executive level, I’ve seen companies fail that had good financial metrics but poor consumer / brand metrics. The case has been driven home to me even more so by my recent arrival in Chile.
For example, one of my clients, who entered the US market a few years ago, was scratching their heads about why they weren’t making progress in the US.
They would say: “The market is enormous, we have a great product, we have excellent distribution and all the buyers at retail keep telling us how high quality our product is. The market is enormous so why aren’t we able to even carve out a measly 1% market share?”
Metrics my friend. It’s not possible because they’re looking at the wrong metrics.
The thing that this Chilean company gets wrong, which I’ve seen many other startups and much larger size companies get wrong as well, is that they only look at the business through the lens of sales, costs, profits and operating margins.
They are forgetting the most important metrics of all: The metrics around the customer journey.
You see revenue, and therefore profits, come as a function of a very basic human action: The act of buying your product / service. But before someone buys your product, unless you have a very established brand or a must have product that nobody else has, every customer must go through a journey before giving you their hard-earned money.
The journey looks like this:
For a consumer to want to buy your product they naturally have to know that you exist. You can have the best mayonnaise in the world, the coolest video game or the artificial intelligence technology but if the client has never heard of you, your product won’t even register as an option for them.
Take Joe Average for example. Joe walks into Safeway and buys the same tube of Crest toothpaste he’s been buying for the past 20 years once every 3 months.
Keep in mind that it doesn’t matter if your organic, fluoride free toothpaste is sitting on the shelf next to Crest. The neuroscience behind Joe’s behavior shows us that consumers, on average, have an attention span that’s about 3 seconds (compare that to the 8 seconds a squirrel has).
Joe isn’t going to look for alternatives unless he’s had a really bad experience with Crest or it isn’t available.
But to buy something else Joe has to know it exists. So he has to either see it on the shelf near the other toothpaste brands or he’s heard of it someplace else (YouTube, social media, a friend recommended it to him).
How do you measure awareness
Awareness can be measured and tracked through a study called a Brand Tracker, which is a periodic survey that measures how many consumers have ever heard of your brand. It can be measured monthly, quarterly, bi-yearly or yearly, though often the best interval is monthly or quarterly. For more information on how you measure brand awareness check out my video on brand awareness.
Other ways of measuring brand awareness include looking at your direct website traffic through Google Analytics (which is probably a better metric for brands that sell directly online), looking at Google Trends to see how your brand is trending in terms of online mentions and finally, tools like Socialbakers which enable you to actively “listen” to mentions of your brand on social networks to get an idea of how often you’re mentioned but also in what context.
But awareness is just start of the journey folks. Read on!
Once a consumer has heard of your product, understood your message and potentially likes what he / she has heard or seen, your product may enter their consideration set.
That means that if Joe has seen you on Facebook or a friend has mentioned how amazing your organic, fluoride free toothpaste is, as soon as Joe walks into that supermarket aisle and looks at the 200+ variants of toothpaste, if he’s unhappy with Crest or curious about trying something else, he might consider your product.
The key here is “might.” Just because a consumer has heard of you or seen your ads, read your ebook or seen your testimonials, that doesn’t mean they believe that your solving their need in a way that’s better than their current alternative.
More importantly, it also doesn’t mean they necessarily even “like” your message.
For example, I’ve always liked burgers, though I quit eating meat for 3 years. But even when I ate burgers I would never set foot in a Jack in the Box restaurant in the US. Why? Because I really don’t like their advertising. Although I’ve seen their ads plenty of times on TV and heard their ads on the radio, I don’t like their message, dislike the funny looking character they use in their ads and I find their humor crude and annoying.
So despite my “awareness” of Jack-in-the-box, I’d probably rather starve then eat one of their burgers. (OK, maybe that’s a bit extreme). Ie, they’re not in my consideration set.
How do you measure “consideration”?
One way to measure consideration is to use the same survey you use to measure awareness, to ask consumers about their intent to purchase. You can phrase the question as “in the next X weeks/ months, would you consider trying our product?”
Digital marketers have also used clicks and click through rates (CTR) to measure how many consumers are interested in their message or product. The challenge here is that you don’t know if the click is intentional or if it’s motivated by curiosity or intent.
In addition, you can probably also use social listening to try and see intent to purchase or try your product.
Another way of look at consideration would be to look at you YouTube video views and see your completion rate. If consumers are watching your videos all the way through, you might have a better chance at being in their consideration set.
Trial (or purchase in some cases)
The third step is trial. In some cases, like a business-to-business software as a service (SaaS) or mobile game, this could be a free trial.
In the consumer packaged businesses, companies will often hand out small samples of their products in stores for you to try their chips, hand lotion or other products in the hope that you might buy some later.
The essential factor here is to provide potential clients with a painless, low barrier and risk-free way to try your product which gives them an idea of what your product and service is like.
Hopefully this trial provides a compelling reason for them to switch to your product. The easier the trial and the lower the risk, the higher the chance that the consumer will try your product.
In some cases, particularly for products with low price points or impulse products, the trial might have to be a purchase.
At this point, what matters is: Does the product / service deliver on the promise that was made to the customer? If the answer is no, that will be the only trial or sale and the consumer will be lost or churn (likely to go back to what they were using before). If the answer is yes, the consumer “may” buy your product again (there is no guarantee).
How do you measure Trial?
Measuring trial isn’t always as obvious as it seems. It depends on your product / service. For a mobile game, for example, the free download is the trial but whether the consumer keeps playing (daily / monthly active users) and whether the user actually converts and buys in-game credits is actually the “sale”.
For a software-as-a-service (SaaS) product, the measure is how many people have signed up for a free trial / free version and how long they use the software.
For consumer products or physical goods, you may want to use the same survey you used to measure brand awareness and consideration, and ask consumers whether they purchased / used your product over the past X number of weeks/ months.
The other thing that you can do is request consumers to provide their email address for coupons or product samples that you give them in the hope that they can provide feedback on their experience and even indicate intent to purchase.
For example, instead of simply giving out free samples of your product in a supermarket, why not ask each consumers for immediate feedback via 3 short questions and ask for their email to send them a special offer?
Repeat - Where true profitability happens
Congratulations. You’ve reached the promised land. Repeat purchase happens when your customer comes back for more. When your customer repeats to the point where no other product even enters their consideration set, you get Brand Love, which should be the ultimate goal of any good marketer.
That could mean buying more of your organic, fluoride-free toothpaste at Walmart, purchasing more in game credits for Clash of Clans or renewing their Netflix subscription.
Regardless, repeat customers are the holy grail of marketing because that’s where all the business value lies.
1. Repeat customers are cheaper to market to. You no longer have to pay the customer acquisition cost. In financial terms that means that the margin you make off each product shouldn’t including marketing costs (although it might still include some sort of customer support / customer service costs depending on how you do your accounting).
As a matter of fact, by some estimates new customers cost you x5 more to acquire than new customers.
2. Repeat customers bring new business. Repeat customers are more valuable that simply their financial value. That’s because if you’re also proactive in measuring Net Promoter Score (NPS - see my post on what NPS is and how to measure it) you’ll see your customers' willingness (or not) to promote your product to others.
Generally, if a customer is happy with your product they come back for more. If they’re really happy, 9-10 on the NPS score, they actively tell others about your product.
How important is that? It’s huge. According to Nielsen, 92% of consumers believe the recommendations of friends and family above all others
3. Repeat customers spend more. According to a post on the RJ Metric’s blog, repeat customers on average spend 300% more than new customers.
4. Repeat customers make for great marketing material. You’ve heard me talk about the importance of stories to connect emotionally with consumers and build brand love.
Nowhere is this more true than with loyal, repeat customers. When people love your product and it’s a part of their lives, not only will they evangelize your product, they’ll actually agree to be featured in your marketing materials.
That can be case studies, product videos, blog posts, short Instagram pictures as well as quotes. This marketing material is priceless since new customers are much more likely to believe the stories of satisfied customers, than they are your claims to greatness.
Financial metrics are always going to be important and ultimately, most businesses are focused on turning a profit.
But for you to turn a profit you have to sell a service and for you to sell a service you need to understand and measure how successful you’re being, or not, in the customer’s journey to buy your product / service.
Once you understand how you’re performing in the customer journey, you can then fine-tune your marketing to develop specific programs for each stage of the customer journey to move your customers from people who have never heard of your product, to brand ambassadors and brand lovers.
Ultimately, you’ll realize that once you have happy, repeat customers, your financial metrics take care of themselves (assuming you're careful about your cost base).
So what are you waiting for? Isn’t it about time you focused on the right metrics?