How to create a data-informed culture?
'Culture eats strategy for breakfast' is a real case scenario in many organizations. Building organizational alignment is a challenge and it does not happen by chance; a great deal of effort and thought is needed to build this right. Working in a Marketing department offers you a great opportunity to accelerate your company's digital transformation and demonstrate why a data-informed culture is essential for rapid growth.
People sometimes don't use data because they are afraid of how it will reflect on them. Maybe they are used to a certain way of working and they are not eager to change it now. Identifying the reasoning behind it, even though that may not seem to be your job, will help you understand why your company makes largely faith-based decisions rather than data-informed decisions.
What can you do about it?
Getting everyone in your organization more excited about using data should be your priority. Grab a coffee with the decision makers around you and answer their questions; don't waste any time creating reports for them. They will not read them anyway. This would be a first good step on establishing rapport and improving their daily decision making.
Once there is mutual trust, show your decision makers how much money your website is bringing in and the corresponding number of clients. They will ask you further details (which channel brought us these clients, how much did it cost to get them on board etc.) and you would be able to expand further. Refrain from talking about traditional web metrics such as visits, visitors, time on site and repeat visits. Senior management only cares about KPIs that move the needle, hence stick with metrics that can be linked to actual revenue impact, at least initially.
Communicate your results frequently; don't stay at your corner office. Talk to other teams (outside marketing and sales) about what has been achieved and offer your knowledge to other teams as well (Product, Finance, Operations). Another great idea is to hold internal conferences to share knowledge. You can hold a half-day internal conference in your own company every now and then, where the marketing team can show off their key knowledge to everyone else.
Useful KPIs/metrics to monitor
When it comes to choosing your KPIs (reflecting strategic goals) and metrics (reflecting tactical goals), except from the number of clients and the monthly revenue, I always recommend keeping an eye on the following:
Customer Acquisition Cost (CAC): This can be calculated by simply dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent. Once you compute this, calculate the marketing portion of CAC (call it M%-CAC). This will indicate how much money you are spending to acquire one new client through marketing activities.
Churn Rate %: It is the percentage of your clients who cancel or don't renew their subscriptions during a given time period. To calculate it, divide he number of customers who churned in a specific time period by the total number of customers acquired and multiply that by 100%.
Customer Lifetime Value (CLTV): This is the projected revenue that a customer will generate during their lifetime. In order to calculate this, get the revenue that you gained from a specific client, subtract the gross margin and then divide it by the estimated churn % for this client. Once you compute it, you can compare it to what you spent to acquire that new client.
Ratio of CLTV / CAC: For growing SaaS companies, it is expected that this ratio will be greater than 3X; a higher ratio means your Sales and Marketing have a higher ROI. Higher is not always better though; when the ratio is too high, you might want to spend more on Sales and Marketing to grow faster, since you are restraining your growth by under-spending.
Time to Payback CAC: This is the number of months it takes you to earn back the CAC you spent to get a new client. To compute it, take the CAC and divide it by margin-adjusted revenue per month for the average new customer you just signed up. In industries where customers pay a monthly or annual fee, you usually want the Payback Time to be under 12 months, meaning that you become “profitable” on a new customer in under a year, and then after that you start making money.
Marketing Originated Revenue %: This ratio shows what % of your new business is driven by Marketing. To compute it, take the revenue of all the new clients you signed up in a period and look at what % of them started with a lead that Marketing generated.
Bringing it all together, marketing teams struggle to find the right metrics and KPIs that will get them credibility and show how marketing contributes to the overall growth. Without measuring the right KPIs/metrics against specific goals, you cannot build a rapport with the decision makers in your organization since different parts of the organization care about different issues. If you want to transform your company, then your marketing team should include data evangelists who preach customer-centric decisions and data-savvy people who can perform in-depth analysis. What kind of analysis can be done and how to link that to revenue streams? That is another topic that we will discuss on my next article. Stay tuned!
