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What is your customer worth? It’s time to look beyond KPIs

Last updated on October 27th, 2015 at 03:14 pm

Ask 10 people what key performance indicators (KPIs) a business should monitor, and you very likely will get 10 different answers.

A business’s’ access to an increasing wealth of data and powerful analytics tools should theoretically make it simple to develop performance measurements that truly matter. But B2B businesses have focused on using largely outdated and broad metrics that apply to many but provide true insight to few.

In order to capture real growth, companies must look beyond KPIs and focus on deeper, micro-level analytics. They also must commit to ongoing analysis and review.

Let’s start with the data

In 2013, Scandanavian research firm SINTEF reported that 90% of the world’s data had been collected within the prior two years; the pace and volume has only accelerated since then. How can businesses figure out what to measure?

Successful KPIs provide direction for business improvement, and must embrace five “SMART” attributes: they should be Specific, Measurable, Attainable, Relevant, and Time Bound. “KPIs are only as valuable as the action they inspire,” says Harry Brown, partner at IE Data Analytics. “They are a form of communication, and must be clear and relevant to your strategic goals.”

Yet relevant for one business may be meaningless for another; while most businesses will benefit from high-level KPIs that track progress toward revenue and financial valuation goals and lower-level KPIs that focus on objective-driven processes, companies need more precise information to truly move the needle. In terms of measuring program effectiveness, for example, marketers often measure impression volume and cost per impression.

“These traditional metrics are over emphasized, and are not as effective as others,” says Brown. For example, impression volume provides little to no information about what happens after a customer clicks on a piece of content or ad.

How should we measure?

More meaningful information is found at a deeper level. “KPIs are largely vague and meaningless to most businesses. They are macro-level measures,” says Prashant Mittal, partner, IE Data Analytics. “Micro-level analytics is where the real learning takes place. The key is diving deep into the data, down to the granular level, to see what patterns emerge.”

For example, one of IE Data Analytics’ clients decided that its goal was not to secure more customers, but to increase their caliber. Measuring that factor required different drivers than those used to measure growth and as a result, the company developed customized ways to measure the value of the firm’s customers.

From this analysis they discovered that just three percent of the clients were bringing in more than a third of revenue; they identified key characteristics of this clientele that could be capitalized upon to improve production, save costs, and increase revenue. With this refined data in hand they can now calculate customer lifetime value and other relevant KPIs.

The small and medium size business community is ripe for this shift, finds technology research firm SMB Group – in its Top 10 SMB Technology Trends for 2015, tangible, specific metrics will be more credible than general ROI and TCO analysis.

So, where do business execs find the data to measure?

“Look within,” says Brown. “Examine campaign response data, loyalty program data, transactional data and social media data.” And where data cannot be found it can be created through surveys or third-party business information sources. Together, they can be analyzed and used for a variety of purposes, but perhaps the most important of which is to measure a customer’s value. “Businesses often lack knowledge of how much a customer is really worth. Analytics can help you sift and sort vast troves of data to develop highly efficient strategies for selling,” says Mittal.

Firms that have worked the SMART factors into their metrics need to take the next step and become SMARTER: adding two criteria – Evaluation and Reevaluation – ensure that KPIs remain relevant.

“Performance measurement of any kind requires time, effort, and employee buy-in to work,” says Mittal. “But the deeper you dive, the better chance you have to bring customers to you and retain them.”

Ready to start fine-tuning your metrics? Check out this list of Business Performance Management tools from Capterra.

Photo via Flickr, Creative Commons


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Alison Harris
Alison Harris
Alison Harris is a B2B marketing, PR, and content strategist who helps technology companies reach new markets and increase sales. A former technology journalist, she specializes in helping companies with complex products and services communicate clearly and effectively with their target markets. She is fully on board with content marketing that is well-written and educational, technology that improves our everyday lives, and the serial comma. She loves living in Portland, Maine equally as much for its rapidly growing craft beer culture as for its technology start-up scene. Read more about her thoughts on B2B marketing or connect via LinkedIn.