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Think Like A CMO: The 5 metrics that matter most

Ryan Narod
Posted by Ryan Narod|Published on March 17, 2023
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Let’s be real: there are a lot of marketing metrics to choose from to measure success. We’re masters at creating three-letter acronyms to describe and measure the work we do. 

But the reality right now is that the marketing function is under heavy scrutiny from the C-Suite. This isn’t because your company’s leaders don’t think marketing works (though, being able to prove your impact on pipeline is a must). 

The C-Suite, especially the CFO, has their eye on marketing because they want to make sure that the company is being efficient with how they spend their limited cash and resources. Therefore, the CMO needs to be able to clearly articulate why their team needs budget, how it’s going to be spent, and what impact it will have on the business objectives.

So what metrics does your CMO care most about, and how can you begin to think like a CMO? 

Here are 5 metrics that every marketing teams needs to have a grasp on according to the CMOs we asked:

  1. Pipeline

  2. Conversion rate to closed-won

  3. Net dollar retention

  4. Customer engagement

  5. Annual recurring revenue

We’ll go through the math behind each, put into context why it matters to your company’s go-to-market strategy, and share insights from top CMOs of why this matters to them right now. 

Pipeline – The critical metric that ties marketing and sales together

Pipeline is the dollar value of all the open deals that the sales team is actively working to close. 

“Sometimes we get locked in on marketing specific metrics, like cost per lead. Ultimately a lead doesn't matter if it doesn't convert into pipeline” said Chris Koehler, the CMO at Box during a CMO panel about operating an efficient marketing function.

And he’s right. The nitty gritty metrics we use to measure our day-to-day activities only matter at the tactic level. But at the company level, things like followers, average time on page, and number of cold emails sent don’t mean anything without a dollar value attached to them.

Pipeline is how you quantify your marketing efforts with a dollar value, and how get the attention of your CEO. 

How to calculate pipeline

There are two inputs that go into calculating pipeline:

  • Number of active opportunities

  • Average contract value

For example, let's say you've got 80 active opportunities and an average contract value of $40,000.

80 x 40,000 = $3,200,000

Therefore your pipeline has a value of $3,200,000 in annual recurring revenue.

Every GTM team has a different way of qualifying an opportunity, but essentially an active opportunity is a deal that the sales and marketing team agree is quality enough that it’s worth passing off from marketing to sales and dedicating resources to nurture the deal.

Because you can’t know exactly how much a deal will eventually close for, we use an average dollar value of previous deals to estimate how much revenue future deals will bring in. 

When you multiply the number of active deals the sales team is working by the average dollar value of each of these deals, you’re given the total dollar value of your company’s pipeline.

Why does pipeline matter?

Pipeline is the connecting piece between marketing and sales. It’s also used to make company-level cashflow, investment, and strategic decisions. It essentially tells your CEO: “Here’s how much new revenue our company is going to generate in the near future.”

Pipeline can feel like a big, scary, ambiguous metric sometimes. So the best way to approach pipeline is by breaking it down into it’s most controllable units.

Weekly Pipeline Goal: 

Let’s say marketing is responsible for booking 500 sales meetings in Q2. How will you know whether you're on track to hit it? Instead of looking at the huge number, it's best to break it down into weekly goals instead. This way, you will have the granularity to see if you're behind and make the course corrections necessary to hit your goals. 

There are 12 weeks in a quarter, therefore marketing is responsible for sourcing 42 meetings per week.

Weekly Program Goal:

Next, you’re going to break that large number down by program. Let's say you’re running an outbound program (BDR), an inbound program (content, events, community), and a paid program (SEM, LinkedIn). You’ll divide those 42 meetings across all channels. The more mature programs will have higher targets, while the newer ones will likely be smaller. This target should be realistic, but also high enough that it acts as a forcing function to get programs operating predictably.

Program Growth Levers:

Having a goal is a start, but next we need to figure out how to reach that goal systematically. If your CMO came to you and asked to double the number of meetings booked next week, would you know what levers were at your disposal to accomplish that?

 It’s important to go a level deeper and break down each program into their own levers. There are two growth levers: demand (how many people you're marketing to) and conversion (your ability to turn those people into leads). 

 For example, the levers available to outbound = outbound messages x conversion rate. For inbound, it would be traffic x conversion rate. Paid is impressions x conversion rate.

So when asked to increase pipeline, it’s not just about doing more. Improving conversion rates across your marketing assets is another lever you can pull to hit your targets. It’s about tweaking and improving the levers at your disposal at the program level, which will deliver higher results at the pipeline level.

Conversion Rate – How efficiently can you turn demand into pipeline?

Conversion rate is the percentage of new prospective customers who are moved through each step in the marketing and sales process. 

Again, every company will visualize and name their marketing and sales process differently, but every company will have some kind of stage or tiers that they move prospects through. For example, converting a website visitor into a new contact in your database may be considered a key step in the marketing process.

Therefore, knowing the conversion rate at each stage in the buying journey will help you to understand how efficient your marketing engine is at turning a dollar spent into a new customer. 

Emily Kramer and Kathleen Estreich, co-founders of MKT1 and previous marketing leaders at Facebook, Carta, Slack, Asana, and Eventbrite, recommend having a strong grasp on your conversion rates because “efficiency metrics will be just as important as top-line growth”.

How to calculate conversion rates?

There are two inputs that go into calculating conversion:

  • Total number of prospects at a given stage in the funnel

  • Total number of prospects who were successfully moved to the next stage in the funnel

Let’s say for example your website homepage gets 5,000 visitors a week. Last week, there were 50 product demos requested from the form on the homepage. 

50 / 5,000 = 0.01

Therefore, your conversion rate is 1%. 

Now here why conversion is so powerful: if you were to increase the conversion rate from 1% to 2%, you’ll double the amount of demos booked from 50 to 100 a week. 

Why does conversion rate matter?

Conversion rates might be a little too granular for your CEO, but for your marketing team this will be the leading indicator of how much pipeline will be generated. 

Marketing efforts that generate demand aren’t very useful if you’re not able to convert them. 

CMOs focused on efficient growth like Ryan Bonnici from Gympass understand this: “Marketers need to shift focus from just driving demand to fill the funnel, to thinking about conversion programs that generate revenue”.

Customer Engagement – Are your customers going to fight to keep paying for your product?

What is customer engagement?

You’re probably thinking: “Isn’t customer engagement the role of the customer experience and product team? Why would CMOs care about this?”

Right now, CFOs are eagerly looking for expenses to cut, and the first to go is usually tools. This means that every one of your customers are needing to defend why they should keep paying you. And if a customer churns, you lose ARR (and that’s something everyone at your company cares about).

While customer experience (CX) does own the customer lifecycle, it’s more critical than ever that marketing leaders are doing whatever they can to complement the work of the CX team. This is known as customer marketing and typically covers case studies, user groups and events, and new feature launches, but should also think bigger and work with CX to launch customer-focused campaigns and collateral.

How to measure customer engagement?

How you measure customer engagement will depend on what kind of product you have, the lifecycle of a customer, and the types of interactions you value. If you don’t know exactly what these metrics are for your customers, reach out to your product team to learn more about how they’re measuring success. 

But engagement shouldn’t stop at just product usage. There are three areas of custom engagement that Karen Steele, Chief Marketing Advisor at Sendoso used when she led customer marketing at Marketo.

Advocacy: Do your customers love using your product enough to tell others about you?

Advisory: Do your customers care enough about your product that they're willing to share constructive feedback for how to improve it?

Adoption: Are your customers aware of *and using* new features and capabilities?

Why does customer engagement matter to the CMO?

Customer engagement is the unlock that makes a bunch of marketing programs so much easier to execute. Case studies, testimonials, partnerships, product feedback, expanded distribution, and overall support are just a few ways that having engaged customers helps the marketing team.

But on a financial level, CFOs are scrutinizing every cost right now. When they ask whether they should keep paying for your product, the best defence to churn is a customer who loves your product AND is given the resources to prove the value.

Net Dollar Retention – The true health of your business

Net dollar retention (NDR) measures your ability to keep and expand your existing customer base, presented as a percentage over a set time horizon. 

It’s a fascinating metric to look at because it shows the health of your existing customer base, not your new customers. This is a key distinction, and a very useful one to measure how efficiently your company grows. 

How to calculate net dollar retention?

NDR requires 4 inputs: 

  • Starting ARR – how much ARR you had at the beginning of the time period.

  • Dollar value of all expansions – the sum of all contract expansions during the time period.

  • Dollar value of downgrades – the sum all contract downgrades during the time period.

  • Dollar value of churn – the sum of all churned contracts during the time period.

For example:

  • Starting ARR = $10,000,000

  • Dollar value of all expansions = $1,000,000

  • Dollar value of downgrades = ($50,000)

  • Dollar value of churn = ($400,000)

The NDR is calculated by adding together the starting ARR, expansions, downgrades, and churn, then dividing by starting ARR. 

So in this case, the math is:

(10,000,000 + 1,000,000 - 50,000 - 400,000) / 10,000,000

= 1.055

Expressed as a percent, NDR is 105.5%. This means that your company is able to increase the value of your customer base by an average of 105.5% over the course of the time horizon. So that means if you close $1,000,000 in new ARR this year, and you keep the same NDR next year, that $1,000,000 should become $1,055,000.

Why does net dollar retention matter?

There are 3 levers that can be pulled to increase your NDR: more expansions, fewer downgrades, and less churn. 

From the perspective of a CMO, having a strong pulse on NDR allows you to identify which customer marketing programs are healthy, and which need attention.

For example, if the CMO sees that there are a high number of downgrades, there is likely a gap between customer expectations and the reality of using your product. Customer marketing can step in at this point and roll out a campaign to help under-performing customers increase their usage and the impact your product has on their work. 

Chris Koehler, CMO at Box uses NDR as a metric that all the GTM leaders (sales, marketing, CX) at Box look at to gauge what direction the team needs to move in.

Annual Recurring Revenue – The lifeblood of your company

Also known as ARR, annual recurring revenue is the sum of revenue being generated from all your customers on an annual basis. 

How to calculate annual recurring revenue?

ARR requires 2 inputs:

  • The total number of customers you have

  • The sum of all revenues collected from each customer.

Overall ARR is the total amount of revenues your company collects from customers and other sources on a yearly basis.

For example, if you charge your customers $1,500 a month for your product, then the ARR generated from that customer is $18,000. If you've got 400 customers, and assuming they all are charged the exact same amount, then your total ARR is:

$18,000 x 400 = $7,200,000

Why does ARR matter?

Revenue is the lifeblood of a business. This is especially true when there’s a tightening of the market because outside capital becomes expensive and hard to come by. 

Therefore, companies need to rely on the revenues they generate towards operational costs and growth opportunities. 

In short, ARR is arguably the most important metric for the financial health of a business.

Aileen Lee, Founder and Managing Partner of Cowboy Ventures said that “CEOs & Boards will expect marketing to be more focused and effective in delivering tangible financial results in 2023”.

In Summary: Think like a CMO to make sure you're driving real impact

At the end of the day, your CMO wants to work with people who will support the business objectives that they own. So connecting your work to the metrics that your CMO cares most about will ensure that you're speaking the same language when it comes time to report on your impact.

Focus on connecting your work to these 5 metrics:

  1. Pipeline: how much future business does our company have?

  2. Conversion rate: how efficiently do we turn demand into customers?

  3. Net dollar retention: how strong are our retention, expansion, and customer marketing programs?

  4. Customer engagement: will customers fight to keep our product when challenged on the value?

  5. Annual recurring revenue: what is the financial health of our company at the highest level?

Want to hear more CMOs talk about how they've had to evolve their marketing programs?

Watch Jason Lemkin moderate CMOs from Salesforce, Box, and Attentive on how they're adapting their marketing strategies.

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